Manchester United face tough opener as experts savage worth of investment

By GARETH MACKIE
Published on 05/08/2012 00:00

MANCHESTER United looks set to receive a frosty welcome when shares in the football club make their stock market debut in New York later this week.

The 134-year-old club chose to float in New York after scrapping listings in Hong Kong and Singapore, and it is set to raise as much as $333 million (£213m) through the move.

However, Paul Mumford of Cavendish Asset Management was scathing about the flotation, claiming the club and its advisers had chosen Wall Street as a “last resort” after deciding a public listing in London would not have been well received.

“I think it is one to avoid like the plague,” he said, adding that Malcolm Glazer and his family will remain firmly in control of the club after its initial public offering (IPO), with 89.8 per cent of the combined class A and B shares.

The Glazers’ class B shares will have ten times the voting power of the class A shares being offered to the public, and fans have voiced their anger that the club’s debt pile, which stood at £423.3m as of 31 March, will only be reduced to around £345.4m through the IPO proceeds.

Mumford said: “United is a great brand but when it comes to a future investment it is best to leave it alone. I certainly won’t be getting involved in the American offer.”

His comments were echoed by James Clunie, investment director for UK equities at Scottish Widows Investment Partnership, who said the Edinburgh-based fund manager was “highly unlikely” to be interested in investing in the club. He added: “It just makes me curious, because it almost looks like they’re going round the world trying to see who will pay the most, as opposed to listing in the market where people know you and getting the right price.”

Shares in the club are expected to be priced on Thursday before listing the following day.

Sverrir Sverrisson, an equity analyst at Saxo Bank, has described the club as a “terrible investment”, pointing to a predicted fall in revenues and increased operating costs.

He said: “A major factor in running a football club is players’ salaries. As the world of football becomes more competitive, salaries have increased significantly.

“If the club fails to grow revenues at a higher pace than salaries and other costs, you will end up with a significant problem.”

In its IPO filing with the US Securities and Exchange Commission, the club said it expects to report total revenues of between £315m and £320m for the year to the end of June, a fall of up to 5 per cent compared with last year’s figure of £331.4m.

Total operating expenses are forecast to rise to between £283m and £286m, up from £272.7m a year ago, because of higher player and staff wages.

Sverrisson said: “The main factor that can boost revenues is the brand’s commercial value. That is simply not enough for me to make an investment case out of it.”

A recent survey commissioned by Manchester United said it had 659 million followers around the world, but it still remains at the mercy of performances on the pitch, with revenues hit last season by an early exit from the lucrative European Champions’ League.

However, Clunie said he was not convinced by the club’s perceived brand strength and investors needed to “take heed” of the track record of football clubs as equity investments.

He said: “Football is a multi-stakeholder business. The players are powerful and grab a large amount of the money, and the fans are a very powerful stakeholder who demand victory. Often, shareholders are one of the weaker stakeholders.”