Delicious little post that in fairness. What are you thoughts on the rumours about them being willing to part with a 20% stake in the club for £1B? Do you reckon that is the strategy they will adopt when they're in selling mode, auctioning off cheeky little slices one at a time and play the long game, or do you think they would demand the whole cake in one go?
Thank you for your kind words.
I think the answer to that question is to be found in the cohesiveness of the Glazer siblings. Which is a bit of a guessing game. I think it’s viable that individuals will sell their stakes as they have different investment objectives, and different tolerances to medium term fluctuations of their holdings.
There is also the possibility that a minority stake sale, of say under 35%, to a wealthy fund such as that run by the Saudi’s, could eventually increase the value of the club if that investor was willing to (a) inject additional capital into the club for infrastructure improvements, or (b) buy out the long term debt obligations of the club and eliminate interest payments. That debt could ultimately be converted to equity.
It’s very hard to tell the direction this will go. It’s possible the family will sell a portion of their stake now, and keep the rest (and control) for a few more years, in the hope that share price and overall valuation will increase based on improved sponsorship and media deals, as well as performances on the pitch.
My gut tells me that an investor like the Saudi’s will only buy the club for the associated image rehabilitation (“sportswashing”), at which point they’d want to own it outright.
Currently United isn’t a commercially viable asset for purchase. The valuation of the club vastly exceeds what the market can support. And it is only buyable for a select few of investors who have interests far wider than economic gain. However, if the club continue to experience downward pressure on revenues due to underperformance on the pitch, a damaging spiral of underinvestment in the playing squad and amenities will occur (through necessity), and the club’s valuation will begin to fall. Thus bringing into a more desirable investment profile of a wider selection of potential owners, as an underperforming asset.
United remains very robust financially, but it is far from immune to the effects of escalating costs and declining revenues. And ultimately if the trend of the last six years continues, it will be under tremendous pressure within 3-5 years. That isn’t even debatable. Most of the key ratios of the business are markedly worse than they were in 2013.
There is a general mythology that the company is performing well, but analysis of the last few annual results show just how significant the risk are financially for investors. This year will see an 70m drop in revenues, and next year revenues will drop even further if CL participation is not secured, as penalties in sponsorship clauses will come into effect. The fact that these clauses (previously seen as an insignificant risk) have become relevant, will only increase their prevalence in future sponsorship negotiations. Which is a worrying position for the club to be in.
I am interested to see where this goes. When I look at the value of the club, and identify the risks moving forwards - including the importance of CL participation, the expense of rebuilding the squad, the escalation of player wages, and the desperate need for infrastructure investment - I don’t see the club becoming more valuable in the medium term. I think it is at peak valuation now. If the Glazer’s choose to hold on beyond the next 12 months, I think they will hold it until they are either forced to sell due to a serious downturn in economic performance, or there is a significant milestone reached which allows the scope for considerable growth.
There remains juice to be squeezed from the Asian markets, particularly with mobile streaming rights; but the club is becoming uncompetitive on the field at just the wrong time, as other elite clubs have caught up and even surpassed our global marketing efforts.
What we cannot ascertain, from the outside, are the prospects of major change to the European football landscape. The notion of a top four is one that doesn’t offer any strategic stability to United, and due to the aggressive competitiveness of the domestic game, the club will require massive ongoing investment to ensure CL participation. The solution, (and previously a key assumption of their leveraged buy out) is a closed shop to eliminate the uncertainty of annual participation in top competitions. Even an expanded CL is unlikely to ameliorate these concerns, as the spots will go to 2nd tier leagues.
The stability will only be achieved through a European Super League, without relegation, that assures the club of ever growing revenues. Only those on the inside can be sure of the reasonable prospect of that; but it remains a politically and logistically fraught proposition, and I would deduce something that is far more likely to not occur, than it is to occur. Again we come back to the deeply flawed inherent assumptions to the long term strategic intent of the Glazer family, and their advisor EW.
A Super League is a concept that is sure to get support from leading teams of 2nd tier leagues, such as PSG and Juve. Teams who dominate their markets, but whose markets are ultimately tiny. But it is one that will be derided amongst the more competitive leagues, the leagues for whom their will be no place, many fan groups, and most governing bodies. Even if it does ultimately happen, it won’t be in the foreseeable future.
Again, I would think the Glazers have to be close to an exit strategy. The cost of ownerships versus the returns, have passed the sweet spot; and the inherent risks of the market would indicate to me that long term ownership is increasingly undesirable for an ownership profile like the Glazers. This is vastly different to the protectionist market that is the NFL, where on field performance is markedly irrelevant to economic outcomes. My belief is that the Glazer’s saw United as an ever present at the CL top table, and nothing can have prepared them for the horrific performances of the last seven years.
People will assume that the effects of poor on the field performance will be felt acutely, whereas I believe the deleterious impacts will be felt with delayed onset. What is occurring now is a general weakening of the brand which will take a decade to truly manifest. Meanwhile the escalating cost of player acquisitions without return, will continue to mount, until liabilities prevent significant investment in the playing squad without the returns bequeathed by recurring CL participation. The pain, is just beginning to be felt, and if the situation is not remedies over the next 24 months, I do believe the Glazer’s will have to get out.
Whatever happens, the club is only likely to fall into the hands of a group like the Saudi’s who can assign value beyond economic performance.
