Manchester United (NYSE:MANU) shares jumped in November after the Glazer family owners said they’d be willing to listen to bids. The stock leaped from around $13 to $21, before reaching higher in January.
Speculation that the club will or won’t be sold has generated considerable volatility. Most recently, reports that the club might not be sold saw the share price give back some of its gains.
Today, I don’t want to focus on the takeover speculation, but about how the market values football clubs and whether I’d add this stock to my portfolio.
NFL vs EPL
Data suggests that the three most valuable sports teams are in the NFL (National Football League) — the Dallas Cowboys, the New England Patriots, and the Los Angeles Rams. The top 12 teams are all American and either play in the NFL, the National Basketball Association (NBA) league, or Major League Baseball (MLB).
So why is this? Well, firstly there is no threat of relegation in the NFL, or its baseball and basketball equivalents. That means the clubs, or businesses/franchises as they are in the states, are protected from the financial challenges demotion would pose.
By comparison, relegation from the English Premier League (EPL) represents a huge financial hit to clubs. In 2018/2019, average revenue for the 20 EPL clubs was £250m, while Championship clubs (the old second division) only generated £32.7m.
Non-qualification for the lucrative European Champions League — top four EPL teams — adds another level of uncertainty for the big clubs.
And there’s the simple truth that Americans do the business of sport better. And that’s not something we always like in the UK. On the one hand I’ve been one of the few fans to appreciate Liverpool FC’s owners investing sustainably in players and in the club’s infrastructure. On the other hand, I can’t stand what Liberty Media have done to F1 motor racing.
Finally, fans in the UK don’t seem to like it when their teams make a profit. If it does occur, they demand more incoming transfers.
Valuations
Because of the aforementioned reasons, English football clubs have a history of losing vast sums of money. And that’s not attractive to investors.
But there’s huge potential here. We’re talking about the most-watched sports league in the world, along with a sizeable, wealthy, domestic population.
Traditional methods for valuing companies — discounted cash flow analysis and near-term metrics — don’t really apply to football teams, especially as they’re rarely profitable.
One way of valuing a club is the Markham Multivariate Model, developed in 2013. But a decade later, I’d suggest that top English clubs may trade at a premium to the model’s valuations.
That’s because the EPL is continually growing commercially — it’s a huge success. For one, TV revenue tripled from £1.7bn in the 2010-2013 period, to £5.1bn in 2016-2019. And I only see this growing further.
But even as the most-watched league globally, total revenue still lags far behind the American leagues, notably the NFL, which generates more than double the income.
With money piling into the EPL, and more interest in the increasingly competitive league, EPL clubs could represent a good investment. And Manchester United is the only EPL club listed publicly.
