The Manchester United (NYSE: MANU) share price jumped nearly 7% on Monday, building on the company’s positive performance over the past six months.
Since the end of October last year, the stock has increased in value by nearly 30%. However, over the past 12 months, shares in the football club have increased in value by just 8%.
Shares in the company have pushed higher as investors have been weighing up the potential financial rewards from the breakaway European Super League.
Financial rewards
While the creation of this league has caused plenty of controversy, it’s becoming clear the clubs involved could be in line for significant financial rewards.
Arsenal, Chelsea, Tottenham, Liverpool, Manchester City and Manchester United are among 12 clubs who have agreed to join the new super-premium tournament.
It’s being reported that JPMorgan has provided $6bn in debt financing for the deal. The founding members will share this pot. They will be given a €3.5bn grant to spend on infrastructure investments and a potential €100m-€350m each to join the contest, although this hasn’t yet been confirmed.
Revenues from the new competition could total €4bn. Clubs would receive a fixed payment of €264m a year from media and sponsorship sales.
Based on the sums involved, it’s clear to me why investors have been so keen to buy Manchester United shares. It looks as if the club could achieve a substantial financial boost from this agreement.
All of the figures have yet to be confirmed so there’s some level of uncertainty in the numbers. However, in 2020, Manchester United’s revenues totalled £509m (€590m). A fixed payment of €264m a year and a one-off bonus of as much as €350m could almost double group revenues in 2021.
Still, I should note these numbers are only rough estimates at this stage. We won’t know how much the new league will be worth to the company for at least a year.
Nevertheless, I think these figures show the Manchester United share price potential. But I’m not going to buy the stock today. Football clubs are notoriously bad investments. This business is no exception.
Manchester United share price under-performance
Over the past five years, the Manchester United share price has returned 10%, excluding dividends. Over the same time frame, the FTSE All-Share Index has added 15%, excluding dividends.
The new Super League might change the company’s trajectory if the potential financial rewards live up to expectations. However, there’s no guarantee they will.
What’s more, being in this league in the first place could have severe repercussions for the business. It may lose revenues from supporters who no longer want to support the club. There have also been reports of possible sanctions and legal action against the founding members. All of these challenges could increase costs and hurt sales.
Further, just by being in the league, Manchester United’s staffing costs and general spending may increase enough to offset the potential financial reward. The high costs of managing a top-flight club are among the reasons why football clubs are such bad investments.
As such, I am not a buyer of Manchester United shares.
