It has been said that a week is a long time in politics. This week, the phrase can be applied to football! It’s unusual for football news to be the focus of the front pages for days on end, as well as impacting investing decisions in the stock market. Yet the events relating to the European Super League saw high volatility for related stocks, none more so than the Manchester United (NYSE:MANU) share price. So what’s my game plan as a potential investor right now?
What’s the story so far?
Last Sunday, it was announced that a group of clubs from around Europe (including Manchester United) were going to form a new league (the ESL). Aside from the football element, it was reported that large sums of money would be given to the founding clubs.
When the stock market opened on Monday morning, the Manchester United share price jumped 10%. Although it gave back some of the gains as it closed the day, it was still up significantly on the news. From a business standpoint, the ESL was good news due to the financial benefits of being in the league.
Also on Monday and into Tuesday, there was widespread criticism of the potential move. This ranged from the Prime Minister to hoards of ordinary fans protesting around the country. These scenes saw the Manchester United share price fall lower. Late Tuesday night, the club confirmed it was pulling out of the ESL.
The net result of all of this is that the share price trades almost exactly at the level seen before the news broke last weekend. At just above $16, it’s not only close to the level seen last Friday before markets closed, but almost the same level seen a year ago. This makes the one-year performance of holding Manchester United shares broadly flat.
My outlook for Manchester United shares
Ignoring the events of the past week, would I invest in Manchester United? Although it has generated an operating profit for the past four years, it has posted a net loss in two of those years.
It’s obviously reliant on match day sales, from tickets to hospitality. But it also generates revenue from museum tours, megastore sales and other physical attractions. So the impact of Covid-19 was felt in 2020, exacerbating the loss.
It could bounce back strongly in the next financial year. Higher revenue from sponsorship was seen in 2020, and although physical footfall may be down, the club has one of the largest global followings in the world. It estimates this customer base to be 1.1bn fans.
Ultimately, as the 2020 report mentioned, “the success of our business depends on the value and strength of our brand and reputation”. The hallmark of this is the performance on the pitch by the team. A good season increases brand coverage, sponsorship revenue and other elements. As an investor, I don’t feel comfortable that the performance of the business is dictated by the sporting team.
I think the spike and slump in the Manchester United share price was just a flash in the pan. The fact that it is now back to previous levels shows me it was a short-term move. For the long term, I don’t see it as a viable growth opportunity for me to invest in.
