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Manchester United look immune to banking crisis

Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure out of London. A former editor and bureau chief for Bloomberg News and deputy business editor for the South China Morning Post, he is a CFA charterholder

What is a rare painting or an antique vase worth? The simplest answer is: what someone is willing to pay for it. When beauty is in the eye of the beholder, estimating valuations can be a wildly uncertain art. Collectibles can sometimes sell for multiple times what was expected. The scarcity value of a unique object may be the best lens through which to consider the sale of Manchester United. Good luck making sense of the bidding based on the club’s present financials.

The Glazer family, who have owned the club since 2005, are aiming for a valuation of as much as £6 billion (about $7.4 billion). A Qatari consortium, led by Sheikh Jassim Bin Hamad J.J. Al Thani, and British billionaire Jim Ratcliffe were both preparing to raise initial bids ahead of a 9pm deadline in London on Wednesday, Bloomberg News reported, citing people familiar with the matter. That cut-off was later extended, according to reports in British media. The Qatari group’s opening offer valued the club at about £4.5 billion. It is possible other suitors will enter the fray, while Elliott Investment Management, Ares Management and Oaktree Capital are willing to provide financing, the Bloomberg report said.

That is an impressive level of interest for a sale process that is taking place during the worst banking turmoil since the 2008 global financial crisis. A £6 billion valuation would rank as by far the most expensive acquisition of a Premier League football club by multiple of revenue, representing more than ten times Manchester United’s sales in the year ended June 30, 2022. US billionaire Todd Boehly and Clearlake Capital paid about six times revenue last May for Chelsea Football Club. Other teams have changed hands for far less.

Sustained bidder interest in the face of the Glazers’ demanding valuation has bolstered confidence that a deal for the entire club will be done, rather than a minority investment that leaves the existing owners in control. Manchester United’s New York-traded stock has risen 27.5 per cent in the past eight sessions, giving the company an enterprise value of $5.1 billion, just shy of the $5.3 billion peak reached on February 16. Even that, which is still some way short of the minimum $6.2 billion the owners are reported to be seeking, would comfortably eclipse the $4.65 billion paid for the Denver Broncos National Football League team last year as the biggest takeover of a professional sports team on record.

By all traditional valuation metrics, a price of £6 billion, or about $7.4 billion, looks nearly impossible to justify. Manchester United have posted three consecutive pretax losses, on revenue that has barely climbed in the past five years, while net debt has more than doubled over the same period to the equivalent of about $763 million. After dominating the Premier League for the first two decades of the competition’s existence, the team have mostly lacked on-field success in recent years. The club plainly need investment, with their Old Trafford stadium crying out for an upgrade or redevelopment to match the newer facilities of bigger-spending teams such its Abu Dhabi-owned crosstown rival, Manchester City. That project could cost upwards of $1.2 billion.

Against all that, the chance to own a sporting institution with supporters around the world does not come along very often. Sheikh Jassim is a lifelong fan, according to a statement last month. So is Ratcliffe, who was born in the Manchester area. “What you don’t want to do is pay stupid prices for things because then you regret it subsequently,” the founder of chemicals company Ineos Group was quoted as saying in an interview with The Wall Street Journal last week. That may appear to rule him out of bidding at all, let alone raising his offer. But who can put a price on boyhood loyalties — even if Ratcliffe also bid to buy Chelsea last year (a little half-heartedly, in fairness).

So what will it go for in the end? Conventional valuation tools do not reflect the scarcity of the asset, its history or potential trajectory, says Rob Wilson, who specialises in football finance at Sheffield Hallam University. He reckons the club will sell for $6 billion to $8 billion, including the cost of writing off debt and redeveloping the stadium.

Both the Qatari consortium and Ratcliffe have more pragmatic reasons for trying to buy the club. Attaching a brand to a popular sporting asset can help to deflect attention from less attractive aspects, an image-management strategy known in the vernacular as “sportswashing”. Greenpeace has called the Manchester United sale a “dirty derby” because of the leading bidders’ links to fossil fuels.

But there is also a financial case for such a valuation. That is if football is on the cusp of a revolution that vastly increases future revenue. Advances in technologies such as augmented and virtual reality offer the potential for clubs to engage more directly with the fanbase — and Manchester United, with an unrivalled global following that they put at 1.1 billion people, have by far the biggest digital footprint in the Premier League. The club generate the equivalent of about 67 cents per follower per year. Add another 67 cents and it is already a $1 billion-a-year business. That is still far less than the revenue per customer that some US sports franchises command, according to Wilson.

If such an upturn in fortunes seems difficult to envisage given the club’s lacklustre recent history, remember than the Premier League’s creation and subsequent rise to global dominance was largely driven by an earlier revolution in communications technology: satellite television. As every true fan knows, you have to keep the faith even in the lean times.

Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure out of London. A former editor and bureau chief for Bloomberg News and deputy business editor for the South China Morning Post, he is a CFA charterholder

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Published March 24, 2023 at 6:16 am (Updated March 24, 2023 at 6:16 am)

Manchester United look immune to banking crisis

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