Manchester United manager David Moyes was forced out of the club Tuesday after failing to qualify for next year’s Champions League competition for the first time in 19 years, leading his team to 7th in the English Premier League standings.
With news of Moyes departure hitting the wires, stock in the historic football franchise surged 6 percent.
It’s been a disappointing year for Manchester United the stock, declining 14.6 percent from its peak of $19.04 per share May 2, 2013, before Moyes’ canning.
So is now the time to buy?
The Financial Story
Revenue streams for the team—commercial revenue (sponsorship and merchandising), broadcast revenue (Manchester United TV), and matchday revenue (stadium)—on a whole have increased 13.4 percent compared to prior year.
Deals with GM’s Chevrolet and Nike have contributed to the team’s revenue increase with more lucrative TV deals and a possible re-extension in its Barclays partnership on the horizon.
Yet relative to its earnings, the stock appears to be trading at a premium. Per Zack’s Research, the stock trades at a forward P/E of 46x compared to the industry average of 29x.
The biggest concern going forward is the team’s huge debt load. The Glazer family took on significant debt to purchase the team that naturally ended up on Manchester United’s balance sheet (approximately $566 million in long-term debt as of last financial report date).
Fodder For Fans
Manchester United is one of the unique franchises where fans can literally own a piece of their favorite team through the public equity markets.
But is it a worthwhile investment and a good place to park your money?
Owning the stock doesn’t mean you own the team. Only Class A shares are available to the public with little to no voting power. Class B shares—owned by the Glazer family through holding company Red Football LLC—have 10 times the votes of A shares and represent 98.7 percent of the company’s voting power.
Given this ownership structure, institutional investors—regarded as the big, smart money—have shied away from the stock which should serve as an alarm bell to any retail investor. Manchester United only has 11 percent institutional ownership. By comparison, Madison Square Garden and International Speedway Corporation stocks have 74 percent and 56 percent institutional ownership, respectively.
Other popular franchises such as the Boston Celtics, Cleveland Indians and Florida Panthers have listed stock in their teams on public equity markets in the past but have failed to serve as good investments.
Investors received David Moyes’ departure with open arms Tuesday, but the red flags surrounding the stock (huge debt, class A voting structure) should not be attributed to Moyes but to the Glazers, who don’t appear to be parting ways with the team any time soon.