Two years ago, Manchester United (NYSE:MANU) shares were valued at just over $15. Under Ole Gunnar Solskjær, the club had just finished second in the Premier League, and lost the Europa League Final on penalties. But broadly, things were looking up.
The following two years haven’t been straight forward on and off the pitch — mixed performances and an enduring takeover saga.
However, the share price currently sits at $23.48, representing a 62% increase. So if I had invested $1,000 in the US-listed football club two years ago, today I’d have $1,620.
The takeover
Naturally, takeovers can have a profound impact on share prices. For one, the buyer tends to pay a premium for the acquisition, in order to provide an incentive for the target company’s shareholders to approve the takeover.
After months of negotiations and bids, Qatari billionaire Sheikh Jassim bin Hamad Al Thani and British businessman Sir Jim Ratcliffe remain the frontrunners. It’s understood that Sheikh Jassim’s latest bid is around £5.5bn. That’s significant, because at this moment in time, the share price suggests the club is worth $3.9bn.
Vive Mukherjee — a chartered accountant and football finance analyst — believes the Sheikh’s offer is seeing him overpay by £2.5bn, with the club’s true value being between £3.4bn-£3.9bn.
However, the current share price doesn’t reflect the value of the bid because it’s not certain to go ahead. Moreover, Ratcliffe’s bid doesn’t include buying out the listed shares.
So these are the factors weighing on the share price. If I was certain that Sheikh Jassim’s bid would be accepted, I’d buy the stock today.
Valuing football clubs
One way of valuing a club is the Markham Multivariate Model, developed in 2013. It makes discounted cash flow calculations look simple. This is how it’s calculated.
| Club value = (Revenue + Net Assets) x [(Net Profit + Revenue) ÷ Revenue] x (% stadium filled) / (%wage ratio) |
However, I don’t think it’s perfectly fitted to elite level sport. It suggests, based on the club’s most recent full-year results, that Manchester United is worth about £857m. That’s far below the $7.4bn that the Glazer family are understood to want for the club.
The thing is, there are so many variables, especially in European football. One being relegation, another being qualifying for the Champions League. The rate of a competition’s growth is another consideration. As a competition, the commercial value of the Premier League has been surging, and will continue to soar. It’s undisputedly the best league to watch, the best league to play in, and the best league to sponsor.
I’ve been interested in buying shares in football clubs for a while, but not that many are listed. And, as I’m not sure Shiekh Jassim will win, I might have missed the boat with United. Another option in Borussia Dortmund. It hasn’t finished outside the top four in nine years, meaning its Bundesliga income is topped up by Champion League revenues.
Recently, the stock soared after a crucial win against Bayern Munich, only to collapse when it missed out on the league championship on goal difference. Where will the stock go next? Can the club perform without Jude Bellingham? Clearly, lots of questions, and football-related ones too. It might be an investment I make.
