21 November 2024

Howe Street Reporter Title

A fool’s errand: Why spending $6 billion on Manchester United (MANU.NYSE) is folly


There’s a circus playing out in the Theatre of Dreams, and friends, it’s piling on more drama than a Mexican telenovela.

The spotlight shines on the venerable Premier League football club Manchester United (MANU.NYSE) and two fat cats, Sheikh Jassim of Qatar and Britain’s billionaire, Sir Jim Ratcliffe. They’re both fighting tooth and nail, elbowing and nudging for the right to buy the Old Trafford juggernaut, but the pesky American Glazer family, the current lords of the manor, are insisting on a tidy £6 billion in return for their plaything.

It’s worth pointing out that Man Utd’s public company market cap is around £2 billion, so the price tag requested is somewhat mental, and the MANU chart reflects that.

On multiple occasions these last few months, we’ve watched the Sheikh’s patience snap like a worn rubber band. He’s tried intimidation, played the brinkmanship card, even threatened to walk away in order to close the deal, but the Glazers are more than content to call his bluff, as long as there’s another suitor. There’s some question as to whether Sir Jim Ratcliffe can afford to match the Saudis, but if the Glazers want to hold on to some portion of ownership, which Ratcliffe is reportedly open to, there may be an opportunity. The Qataris, meanwhile, reportedly want the whole enchilada.

Either way, the Glazers aren’t biting… yet.

Why? Because they’re dealing with the Middle East, and everything folks from the Middle East buy from the West earns a 2x-5x mark up in price right now.

Think of the Saudi team that paid Cristiano Ronaldo $220m to come spend the last three seasons of his aging career playing alongside bus drivers and plumbers. Or LIV Golf, that offered Tiger Woods $700 million to leave the PGA – and was turned down!

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The Saudis have made bids for the WWE ($9 billion) and Formula 1 ($20 billion), both of which were rejected, and UFC (and now WWE) owners Endeavour reportedly gave back $400 million to the Saudis to reverse an investment, presumably realizing they could get a lot more if they were going to get in bed with bonesaw wielders. Qatar spent a king’s ransom being awarded the last World Cup, and billions more building stadiums that would largely be dismantled after that one event. If there’s a way to waste money in sport that the Saudis and Qataris haven’t tried yet, I’m unsure what it is.

Here’s the thing: There’s no upside in buying a Premier League team, especially one that is priced at the Saudi/Qatari premium.

When you buy a sports team in the US, you’re buying the right to sell hot dogs and earn revenue from a national TV contract that, over time, just keeps growing. You will never – ever – see that investment go away because there’s no promotion and relegation in North America. Once you’re in, you’re in. It’s a license to be a part of the syndicate that makes money no matter whether you win or lose and, because of that, it always grows in value.

But in the UK, a Premier League side has a chance every season that it may lose enough games to drop down a division, and lop a digit off its value. Often, when that happens, a further drop follows. It can be catastrophic and domino-like, turning a once valuable asset with a century or more of history into a financial dumpster fire and ultimately an ex-club.

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Then there’s the high level of expectations involved; If Manchester United win enough games to be competitive and sit in the top 4, their fans will accept that as a ‘mostly good enough’ baseline result. But drop down a few places and they’ll call you an arsehole by the thousand, while demanding that you spend hundred of millions of pounds buying new players, you wanker.

Ryan Reynolds showed, with his Wrexham FC adventure in the non-league level, that there’s massive upside in taking an ailing ‘big club’ that has lost its way, making some solid investments and management upgrades, investing in a little ground work, and doing things slowly but surely. To be sure, Wrexham has lost arond £10 million over the last few years, but the valuation of the club has soared, as has the reputation of the man behind the ascension. Just today I saw a local Vancouver news story about an old restaurant closing down, and the online comments were rife with folks calling for our Ryan Reynolds to save the day.

Counter that with the everlasting rain of shit the Glazers have to withstand for the crime of buying an esteemed club at the height of its value, and not maintaining it’s top spot for long enough. Realistically, if the Qatar group wants to spend £6 billion, or anything close to it, buying Man Utd, even folks who don’t like the way Middle Eastern money is buying western sport should sit back and grin.

“Sure. Go ahead.”

For stock holders and, yes, MANU is a public company so there are many of those, the thinking is there’s going to be a big pay off ultimately and everyone involved will get rich, which is why the stock is up so hard, but that may not be the case. Sure, if the Qataris want to take it all private there’ll be a nice return to shareholders, but if the local syndicate wins, they may only buy the Glazers out, which would leave shareholders high and dry.

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The limbo continues, and it’s causing agita for Man Utd’s manager, Erik ten Hag. His hands are tied, with the transfer window slipping away, and the poor guy was left chewing his fingernails til he managed to wrestle up enough dough to buy two much-needed players today.

Frankly, the whole exercise is all about vanity. There’s no good financial reason to buy MANU at a record price that competes with Qatari oill money, and if what the Qataris want is friends, taking over Man Utd isn’t exactly going to cover them in cheers. When Newcastle was bought for a comparatively small $400 million by the Saudis recently, Bonesaw FC quickly became a lot of peoples second most hated club.

Because, let’s be honest, everyone hates Spurs most.

— Chris Parry

FULL DISCLOSURE: Equity.Guru is a shareholder in Non-League National club Altrincham FC, which is an awesome club doing interesting things eight minutes down the train line from Old Trafford, and nobody has called me a wanker yet… Publicly.

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