Monday, August 22, 2011

My 3 pointers on Man United IPO

Manchester United possible listing in our local stock exchange has prompted me to share my humble 3 pointers from an investor point of view:

1) Paying off debts

I believe everyone knows that the reason for the listing is to pay off the huge debts incurred by the US-based Glazer family, the Owner of Manchester United. They did poorly in the debt management of the club ever since the takeover. Not least driving the club to better financial success; but pulling it down, causing unhappiness to the Manchester United fans who at one point of time want them out.

What do you think of the Glazer family as business owners of Manchester United?

In the name of reducing the debt, to put in a positive footballing sense, Manchester United is able to free up money for player acqusitions, so that the team can compete with fierce rivals like Roman Abromovich wealth-driven Chelsea, Champions League winner Barcelona and the star-studded squad Real Madrid, who form the popular and expensive club brands globally. Thus, Manchester United can win more trophies.

The problem is, you can't mix emotional affiliation (i.e. the love of the club) with business in regards to the aspect above. Furthermore - are we that silly to fund the debt for a general and unexpected result in the future, supporting the business which lack sustainability and advantage? We can't be sure that Manchester United will win the Champions League, FA Cup, World Club Cup etc...year-in-year out with overvalued players who command sky high wages. (sorry, Manchester United fans!)

2) "Protecting" the interests of the shareholders

I am not talking about Sir Alex Ferguson. I am referring to the Glazers. Typically, the profile of the rich owners are easily raised if they purchase an EPL (English Premier League) club, provided they meet the FA & other related regulations.

Indirectly, the marketing benefits are enormous for their varied business interests.

For instance, Tony Fernandes bought up QPR recently. Certainly, Londoners and the international community at large will know more about Air Asia, thus increasing publicity points which in turn translate to increased revenue when more people fly with Air Asia. This coincides with EPL as the most watched football league game of the world. Already Tony has cemented himself strongly in the sporting scene with his F1 team and his amicable, flamboyant character. Reminds me of Richard Branson!

This bring the questions on the "interests of the retail investors" should the public buy up Manchester United shares for a longer term investment.

Where is the value preposition to them in the form of attractive/stable returns? Is the Glazer family placing strong emphasis thinking about shareholders?

Again, we are talking about the ROI, dividends or profit gains and not the love of the club.

3) High costs

Operationally, Manchester United like any football club has to take into account maintenance of the field, dressing room, stadium seats and other related property, plant and equipment. Outsourcing to external vendors or in-house staff such as cleaning of football kit is also a consideration.


Wage costs and unbelievable agent fees will be other factors such as sky high players wages, backroom staff and the Manager's salaries. It's made worse if the player is on a Free Transfer or being redundant in the team after the team incurs high player purchased fees. This will squeeze their margins and translate to monetary losses for Manchester United.

Therefore, do be cautious on the marketing aura created - the high level of brand equity Manchester United commands with a large fan base, including the sales of the retail merchandises and TV rights licenses. Other income is the touring of the stadium by foriegn visitors and other miscelleanous income.

It's always helpful to list down Manchester United revenue streams and expenditure outflow. Rank it accordingly to evaluate where the money will come in the most and which part of the money flows out on the maximum. Read their cash flow carefully.

No comments if the objective of buying up Manchester United shares based on short term market sentiment or trading purposes.

The best possibility that I can think of is a buyout offer to delist the shares in future but it can very sticky and may not happen. I am sure the Glazer family will ask for a high price to the buyers who will not budge.

Rather than being concerned, I will prefer watching the beautiful game over my pint of beer and bowl of peanuts. There are better investment opportunities out there worth my personal 2 cents of thoughts.

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