Valuing a team no longer a gamble
Manchester United’s shareholders instantly know the team’s worth
When English soccer superclub Manchester United won its record 20th English Premier League title last month, stock markets shrugged — share price for the publicly traded team actually dropped slightly when trading resumed.
But on Thursday morning, when the team released a third-quarter earnings statement detailing a 29per-cent increase in overall revenue, the market snapped to attention. By Thursday afternoon, its share price had jumped 3.42 per cent to $19.04 (U.S.) on the New York Stock Exchange, pushing the club’s market capitalization to $3.13 billion.
As the valuation of sports franchises becomes an increasingly popular and influential practice, publicly traded Manchester United removes speculation from the process.
Last spring, the St. Louis Blues sold for $130 million (U.S.), less than the widely accepted valuation for the club. In 2009, the Molson family bought the Montreal Canadiens for $500 million, far more than published valuations of the franchise would have projected.
But since fluctuations in Manchester United’s stock price and overall value are visible to everyone, the club becomes a perfect test case in the factors that drive franchise value.
“You might say the Canadiens are worth $500 million, but if nobody’s willing to write a cheque right now for $500 million, they’re not (worth that amount),” says University of Ottawa economics professor Norman O’Reilly. “But for a sports finance researcher (Manchester United’s public trading) is really good because it gives you true market value . . . If it’s open market, you know what the market is willing to pay. It’s not just fans. It’s investors who have put their own money into the organization.”
For the quarter ended March 31, Manchester United recorded revenue of £91.7 million, its highest ever quarterly total and a 29.7-per-cent increase over the third quarter of 2012. Net profit increased to £25.7 million, 22.5 per cent above the same quarter last year. The earnings report also detailed sharp increases in broadcast revenue (up 28.4 per cent to £21.7 million) and game-day revenue (27.8 per cent to £34 million). Manchester United’s executive vice-chairman Ed Woodward says those numbers are a direct reflection of the club’s success on the field. Last year’s early exit from the UEFA Champion’s League meant the club missed out on TV rights from the high-stakes games that came later in the tournament, while extra FA Cup games this winter gave Manchester United extra income from home games. But more broadly, Woodward says, franchise value depends on other factors, like the club’s massive reach and unwavering popularity with fans and sponsors. “We didn’t even get out of the (Champions League) group stage but our business continued to grow strongly,” he said during a conference call. “We had huge demand for our merchandise, for our sponsorship and for our media product.”
But while Woodward maintained that last year’s lacklustre showing in the Champions League didn’t hurt franchise value, O’Reilly pointed out that all the other factors that make a team move valuable depend heavily on that club having a strong track record of on-field success.
“Winning is one of many components that drives what someone is willing to invest,” he says.
“That’s what (Manchester United’s share price) is capturing right now. They’re winning, plus they’ve got the right players and the right team.”