As a hobby, I’ve followed sports-related stocks for decades. 

One bet that’s rarely been rewarding over the years is the professional sports team. They never seem to reach their full potential, ultimately taken private, to fix what needs fixing out of the Wall Street spotlight.

Consider Manchester United (MANU). 

The Premier League football team, whose history dates back to 1878, went public in August 2012, selling shares to investors for $14 apiece. As recently as July, MANU traded for $10.41, its lowest level since its IPO.

Including dividends, if you bought IPO shares back in 2012, you’d have an annualized total return of 2.1%, one-sixth the return of the SPDR S&P 500 ETF Trust (SPY). 

The truth is: publicly-traded sports teams are an emotional bet with little economic justification. 

The speculation that the controlling Glazer family will put the team up for sale justifies investors considering making a small wager on the team selling for more than its current value.

Here’s why.

Owning a Sports Teams Is Like Farming

I’ve always believed that if you own a sports team for a decade and can avoid taking money out of your pockets to finance growth, effectively breaking even over that decade, the sale will bring you a reasonable return on your investment.

That’s why I compare sports teams to farming. 

While you’re actively a farmer, you’re relatively poor by most standards, barely breaking even. However, the land you own under your operations has spent years appreciating. When you sell, you’re suddenly flush with money. 

The same situation applies to sports teams and Manchester United, specifically. 

Malcolm Glazer, the owner of the Tampa Bay Buccaneers, first invested in the team in 2003, buying slightly less than a 3% stake. The Glazer family added to their position over the next two years, buying it outright in 2005 for $1.5 billion.

Manchester United fans dislike the Glazers because they’ve failed to invest in the club over the past 17 years. The team’s stadium is badly in need of a makeover. Most of the team's followers would love seeing a new owner willing to fix the club’s shortcomings.

So, the official press release from the team on Nov. 22 that it’s exploring strategic alternatives for the club is welcome news for its fanbase. 

“As part of this process, the board will consider all strategic alternatives, including new investment into the club, a sale, or other transactions involving the company,” United’s statement read. 

While not a certainty, the sale of the team would draw plenty of interest.

How’s Man U’s Growth?

In fiscal 2012 (June year-end), Manchester United’s revenue was 320.3 million British Pounds. It generated an operating profit of 44.9 million British Pounds on those revenues.

Flash forward to fiscal 2022. Its revenues were 583.2 million British Pounds, with an operating loss of 87.4 million British Pounds on those revenues. That works out to compounded annual growth of 6.2% on the top line. 

Adding up the operating profits and losses over the past decade, Man U. generated cumulative operating profits of 331.1 million British Pounds. In current dollars, that’s an average annual operating profit of just under $40 million. 

So, except for a couple of banner years, the company’s growth has been abysmal. That’s the world of sports. 

Could it make more in the hands of a better owner? It probably could, but that would involve hundreds of millions, if not billions, to do so. And that’s after paying billions to buy the club.

Forbes estimates that the football club is worth $4.6 billion. That’s nearly a 60% premium to its current market cap. 

There will likely be no shortage of tire kickers on both sides of the Atlantic. UK billionaire Sir Jim Ratcliffe is a Man U. fan and owns the Nice soccer club through Ineos Group, Ratcliffe’s majority-owned chemical business. 

But consider this: In Man U’s best year as a public company in 2017, it had an operating profit of 80.8 million British Pounds ($97.2 million) from revenues of 581.2 million British Pounds ($699.4 million).

Based on its best year, a buyer would be willing to pay 6.6x revenue and 47.3x operating profits. But it’s long past its best year, losing money in the past two fiscal years. An offer of $4.6 billion would be very generous based on its current financial situation. 

That said, after today’s pop, Manchester United stock is trading around $17.45 a share, its highest level since October 2021. Based on 164.75 million shares outstanding – was the accepted offer to be for $4.6 billion -- it would sell for close to $30 a share.

Under normal circumstances, I wouldn’t recommend its stock, but a little wager never hurts in this situation. I’d consider using options to limit your downside should a complete sale fail to materialize.

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