Wednesday 17 August 2011
Manchester United’s IPO Looks Offside
You’ve got the replica shirt, now buy the shares. That may be Manchester United’s pitch if the U.K.’s leading soccer team pursues plans to raise up to $1 billion through an initial public offering in Singapore. With two-thirds of its 333 million global fan base based in Asia, looking East to raise capital is an understandable move by United’s American owners, the Glazer family. But investor faith in United shouldn’t be as blind as that of its fans.
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Manchester United’s IPO Looks Offside
By Andrew Peaple
A DOW JONES COLUMN
17 August 2011
You’ve got the replica shirt, now buy the shares. That may be Manchester United’s pitch if the U.K.’s leading soccer team pursues plans to raise up to $1 billion through an initial public offering in Singapore. With two-thirds of its 333 million global fan base based in Asia, looking East to raise capital is an understandable move by United’s American owners, the Glazer family. But investor faith in United shouldn’t be as blind as that of its fans.
Few top U.K. soccer teams are profitable, and Manchester United, despite winning the English Premier League in 12 of the last 19 seasons, is no exception. The club’s real problem is its near $1 billion of net debt. In 2010, the company earned $47 million before interest and tax, but its interest expense was $119 million according to its financial statements. That interest cost included $50 million of interest accumulated on payment-in-kind loans that bear a 14.25% annual rate.
Asian investors, attracted to the United brand, may support the offering anyway as they have with other big brands such as Prada’s Hong Kong flotation in May. Still, the Glazers paid 4.6 times annual revenue when they bought United in 2005, according to Deloitte’s Sports Group: A similar ratio now would value the team at around $2.3 billion. That is substantially more than the $1.8 billion a group of investors, including Goldman Sachs’s Jim O’Neill, were willing to pay for Manchester United last year.
Sure, United’s revenues, based on television rights and ticket sales, look solid enough. But with massive player costs--accounting for 46% of revenue--and a heavy debt burden, even a listing in soccer-mad South East Asia would be no open goal.
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