Football and money have long had a contentious relationship. For fans, the beautiful game, with the passion, affection, and tribal loyalties it attracts, is not, to quote an old Prime Minister, measured by material computations.
But what lovers of the sport view as something bordering on the spiritual, is seen by others as a wonderful opportunity to make a monumental amount of money.
Most clubs continue to be held in private hands, meaning the average person doesn’t have much of an opportunity to come along for the ride, if indeed the ride is worth taking. Others, including Juventus and Celtic, have shares listed on various stock exchanges.
Man Utd is by far the most valuable of these publicly traded teams. Listed on the New York Stock Exchange since 2012, it has a market capitalisation of just over $2.8bn at the time of writing. Juventus, the next largest publicly-owned football team, is only worth $1.1bn.
The Red Devils have also embodied the tug of war that’s going on between money-focused investors and football-loving fans who would prefer the club to pursue a more ascetic approach to its operations.
Assuming you don’t care about football, support Man City, or simply take a more Machiavellian approach to life, you may side with the former and wonder how you can take advantage of the club’s success (or lack thereof).
Given the epithets flung from the Old Trafford crowd at the Glazer family, which has owned Man Utd since 2005, you’d think they were making a fortune from the club. As we’ll see, this is partly true but it’s also not a sign that you should rush off and invest in its shares.
To understand why that’s the case, it’s worth going back and looking at how they acquired the club in the first place.
The Glazers bought Man Utd via a leveraged buyout. Think of this as like a mortgage but on a much grander scale. When you buy a home, your bank will lend you a large amount of money, with the house itself acting as a security against the loan.
Similarly, a leveraged buyout is where a group of investors borrow a large amount of money to acquire a company and then use the business itself as security against the loan.
The difference is that, although you are liable for your mortgage bill, with a leveraged buyout, the company being acquired then becomes responsible for paying back the debt used to undertake the acquisition.
This is a huge part of the reason Man Utd fans have been so opposed to the Glazer’s ownership of Man Utd. Their purchase of the club meant the firm was saddled with £525m in debt, a figure that rose to £716.5m in 2010.
Since then they have refinanced their debts several times, taking out new loans at lower rates of interest to pay back their old ones. Despite those efforts, debt payments appear to have cost Man Utd over £1bn since 2005.
And they haven’t gone away either. The firm currently has a set of corporate bonds worth $425m maturing in 2027 and loans totalling $225m due in 2029. Interest on both comes in at around $27m every year, which is often more than the firm makes in net profit.
Those debts will probably just be refinanced again and are likely to stifle profitability for years to come, as they have done for the past couple of decades.
Future refinancing may also carry some risk with it. The Glazers’ efforts thus far have benefited from the ultra low interest rates we’ve seen over the past decade or so. A hike in rates could easily cause big problems for the firm if it wants to try and rejig its finances again in the near future.
Aside from its debt problems, Man Utd also offers pretty paltry returns to investors. You’d expect the club, with its purported 1.1bn fans and followers, to be raking it in.
The reality is a little more complicated. One area where the Glazers have been given some credit is in boosting revenues. Those rose from £208m in 2006 to £627m in 2019, an approximately three-fold increase.
The thing is, the other Premier League clubs which haven’t experienced relegation in that time have seen pretty similar growth. Revenue at Arsenal increased from £137m to £394m, Everton £58.1m to £185m, and Liverpool £121m to £533m
That suggests the Glazers haven’t done anything particularly spectacular and makes you wonder if the club would actually be in a better financial position if the prior owners hadn’t sold to them.
Digging into those revenue numbers also provides some insights into why it’s quite tricky to make a decent return on a football club, at least if you’re a regular investor.
Sales at Premier League teams are generated in three main areas: commercial deals, broadcasting agreements and matchday sales.
Ticket prices at Man Utd have been frozen for a decade, meaning sales have been around £105m to £110m for the entire period.
Changing this is hard because it will quickly result in fans saying the club is trying to milk them for even more money. For instance, Liverpool tried to raise ticket prices from £59 to £77 in 2016 and immediately backed down after fan protests.
Tickets are also already very expensive. A Man Utd season ticket can cost you close to £1,000 per year, so even if the club wanted to ramp up prices, it's hard to see them doing so at a level that would see a sizeable increase in matchday sales.
Another big money-making area is in broadcasting agreements. These are the deals made between competition organisers and media companies.
The Premier League isn’t just a name, it’s also a company, with the 20 clubs playing in it acting as shareholders alongside the Football Association. Similarly, UEFA handles broadcasting rights for the Champions League and Europa League.
TV deals for the UK’s top flight are sold in three year tranches, the current one being 2019-2022. They have also risen massively in value since the Glazer’s took control of Man Utd.
The 2004 - 2007 rights were worth £1.02bn for domestic broadcasters and £325m for overseas ones. Those figures had risen to £5.14bn and £3bn respectively for 2016 - 2019.
What’s interesting is domestic rights then dropped by 11% to £4.55bn for 2019 - 2022 but overseas ones rose to £4.2bn. Domestic rights were then renewed for 2022 - 2025 at the same value earlier this year, with overseas deals still being made.
There are a few things here that should make any Man Utd investor feel uneasy.
Broadcasting deals are basically out of the club’s hands. They may play some role in them behind the scenes but as the team said in its own latest financial report:
“We are not a party to the contracts negotiated by the Premier League and UEFA. Further, we do not participate in and therefore do not have any direct influence on the outcome of contract negotiations.”
Having no 'direct influence’ on one of your biggest sources of revenue isn’t ideal. That domestic broadcasters seem unwilling to pay much more than they already are also doesn’t bode well for the future, especially if there is a similar pay ceiling with overseas broadcasters lying further down the road.
On top of this, broadcasting payments are partly distributed based on performance. To put that in simple terms, lower finishes in the league table result in less money. If that means failing to qualify for a European competition, you also lose out on the millions of pounds in revenue those contests’ own broadcasting rights bring with them.
Man Utd’s owners, along with several other clubs, seem to have realised how annoying this all is and decided to do something about it by creating the almost universally despised Super League earlier this year.
This would’ve removed the risk of poor performances resulting in less pay and probably led to better broadcasting deals. Of course, this didn’t work as fans hated the idea and it was immediately scrapped.
As they have little influence on broadcasting agreements and seem unable to increase sales from matchdays, this effectively means commercial agreements are the only avenue where the Glazers can truly be masters of their own domain.
And they have done rather well here. Back in 2009, commercial agreements made up just under a quarter of the company’s total revenues. In the year prior to Covid that number had risen to almost 45%.
But this doesn’t seem to have made much difference to the company’s bottom line. Looking back over the past decade, the firm has seen a substantial rise in total sales but no consistent increase in profitability.
Net income in 2019 was £18.9m, up from a £37.6m loss in 2018 but down from £39.2m in 2017. A big factor here is the annual wage bill. Better broadcast agreements mean players know they can ask for higher pay, which is probably why Man Utd’s salary costs grew from £131.7m in 2011 to £284m last year — which was actually down from £332.4m in 2019.
Buying new players has also become extremely costly. Man Utd’s net spending on players has totalled £378.9m in the past five years alone. Again, this crimps the company’s profitability.
All of this means that the impressive headline sales growth we’ve seen at Man Utd since the Glazers took charge has been matched by operational cost increases, along with stagnant ticket sales, that mean profits haven’t really improved in a meaningful way.
Combined with the risks associated with broadcasting rights, and the club’s inability to influence how much those increase in value, this makes it hard to see Man Utd shares delivering the sort of growth opportunities that something like tech has over the past decade.
The problem is they’re priced as though they will. Shares in the club are trading at a forward price-to-earnings ratio of 66. This is extremely high considering there isn’t much evidence to suggest the club will deliver the sort of profit growth that would justify that number.
Those willing to pay up for the shares will most likely point to the intangible brand identity the club brings to the table. In fairness, it’s one of only a handful of teams universally recognised and supported around the world.
But being a leading brand is meant to bring with it a robust ability to maintain consistent profit margins and steady growth where less popular competitors might struggle.
The jury’s out on whether United can achieve that meaningfully over the long term.
None of this is very likely to bother the Glazers. When the club IPO’d in 2012, they pocketed half of the £150m raised. They also attached clauses to a 2010 bond issuance that allowed them to start paying dividends in the following years.
They’ve subsequently made over £100m from those payments, along with annual salaries worth tens of millions of pounds.
And as they still control about 78% of the club’s shares, any sale of the team would be likely to net them a hefty return too.
United fans will probably hate to hear that but it’s been a great bit of business from the family’s point of view. The Glazers didn’t put down much money to buy the club but have managed to extract lots of cash from it, as well as seeing the value of their holdings increase too. They also aren’t liable for any of the debts the club has.
For regular investors, the same sort of returns aren’t likely to be possible. The Glazers' use of leverage to undertake their purchase of Man Utd is really what’s made the club so profitable for them. Regular investors buying shares would be very hard-pressed to see similar returns, even on a relative basis.
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