June 2, 2023

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Could Manchester United really be worth £7bn?

Could Manchester United really be worth £7bn?

The Glazer family’s pitch to entice bidders for Manchester United is simple: its vast global fan base makes it far more valuable than the average top football club.

“It’s a once in a generation opportunity to own probably the biggest available team in the biggest sport in the world,” said Dan Jones, a consultant and former head of Deloitte’s sports business practice, after the Glazers said this week they were considering selling the club.

Even so there is scepticism around claims from people close to the sale process that United could command in the region of £7bn, or even more in a “frothy” auction.

United’s shares rose sharply this week and were trading at about $21.50 in New York on Friday, valuing its equity at about $3.5bn, and more than $4bn including debt. Ariel Investments, one of the club’s biggest outside shareholders, had previously estimated it could be worth $21.31 a share.

A takeover at those prices would make United by far the world’s most valuable football club, beating the £2.5bn paid by US investors Todd Boehly and Clearlake Capital for Chelsea this year.

“I can’t see why United is worth much above £3bn given everything we know — including the money needed to rebuild,” said Jim O’Neill, former Goldman Sachs chief economist and member of the Red Knights group that previously tried to buy the club.

In theory, United should fetch more than its rival Chelsea.

The power of the Manchester club’s brand — it claims to have more than 1bn fans and followers around the world, the most of any Premier League side — makes up for the fact it is not based in an exclusive area of west London. Experts said only FC Barcelona and Real Madrid rivalled United’s global reach; but the Spanish clubs are member-owned, so widely considered too complicated to buy.

Bidders would have opportunities to monetise United’s fan base, through merchandising, bespoke advertising and sponsorship as well as newer channels such as non-fungible tokens and other crypto assets. There is also the potential for the Premier League to grow in the US.

However one football analyst said converting the fan base into revenue and profit was “a challenge no big club has solved”.

“A valuation of £4bn-£5bn for a business that’s struggling to make a profit and in need of capital investment looks very steep and hard to finance,” he cautioned.

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Oakwell Sports Advisory estimates that Chelsea’s price tag implied an enterprise value of 5.7 times revenue. Applying the same multiple to United would give an enterprise value of about $4bn. Andrew Umbers, Oakwell’s managing director, said the club appeared “extraordinarily undervalued” when considering the potential value of its fan base.

There is already interest from potential buyers. Sir Jim Ratcliffe, the billionaire owner of petrochemicals group Ineos who made a bid for Chelsea, has in the past year declared his interest in United, while former player David Beckham is open to talks with bidders. Saudi sports minister Prince Abdulaziz bin Turki Al Faisal told the BBC the kingdom would “definitely support” private sector bids.

To secure the highest valuation, Raine Group, the merchant bank handling the United sale, may need to appeal to a different type of suitor — big tech, streaming platforms and ecommerce groups — alongside the usual queue of rich American investors and state-backed funds.

But the question for media and retail companies is whether they want to “rent or own” sports rights, according to one person close to the process.

“No one has talked about direct-to-consumer broadcasting replacing traditional broadcasting in the next 10 years,” said Umbers.

“What happens when Man Utd play Liverpool and 1bn people watch it live for 10p-50p or £1?”, he added, alluding to the potential opportunity to drive broadcast revenue.

Ultimately, it could be a matter of viewing the football club as an intellectual property asset more akin to Gucci, Louis Vuitton or Star Wars, said François Godard, who covers media for research group Enders Analysis.

“If you start looking at football clubs how you look at fashion brands and Hollywood franchises, then you’re on to something,” said Godard. “From that point of view, there’s potential. You’d think Man United could be much bigger eventually.”

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Before the pandemic, United’s annual revenue peaked at a club record of £627mn in 2018/19.

But for the 2021-22 season that slipped back to £583mn, and it recorded a net loss of £115.5mn, as the men’s team dropped to sixth place in the Premier League and missed out on qualification for the lucrative Uefa Champions League. Local rivals Manchester City, controlled by Sheikh Mansour bin Zayed al-Nahyan, a billionaire member of the Abu Dhabi ruling family, made a profit of £41.7mn on revenues of £613mn.

The Glazers have multiplied United’s commercial revenues, but recently suffered setbacks. The club’s main shirt sponsor, German remote working technology provider TeamViewer, wants to end the relationship early. United also lost Cristiano Ronaldo, its most famous player, and the most followed person on Instagram, this month.

The club has other challenges. Competition in the Premier League has become fiercer — Saudi Arabia’s sovereign wealth fund has acquired Newcastle United and rapidly turned the north east club into a challenger for qualification into the Champions League. Sheikh Mansour has turned Manchester City into England’s dominant team, with four out the past five league titles.

United boasts the biggest stadium in the Premier League but some fans have criticised the Glazers for allowing Old Trafford to deteriorate, as rivals Arsenal and Tottenham Hotspur have moved to new stadiums. Modernising Old Trafford would require a big injection of funds, possibly in the region of $1.5bn.

“The field of credible buyers is limited,” said Jones. “But it only takes one.”