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The Globe and Mail

Manchester United: Step aside, billionaires

Shoppers walk past a Manchester United merchandise store at a mall in Singapore.


When English soccer club Manchester United filed for an initial public offering in New York on Tuesday evening, it didn't matter whether you loved or loathed the beautiful game: Here was an opportunity for investors to own the game.

But is it a good investment opportunity?

Professional sports franchises are often discussed in the context of money – player contracts, labour disputes, purchase prices and the like.

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But despite all the money-talk, there are preciously few investment opportunities if you're not a billionaire who takes full control of a team.

For a team as high profile as Manchester United to go public, the low supply of pro-team stocks could be met with a lot of demand.

For sure, team franchises can do very well for investors. Madison Square Garden Co., which owns the New York Knicks basketball team and the New York Rangers hockey team along with the famed arena, is a good example of what can go right.

The company was spun off from Cablevision Systems Corp. in early 2010. Since then, the shares have risen 79 per cent – or three-times the pace of the Russell 1000 index over the same period – including a 36 per cent gain this year.

The share price is now at a record high, and you can see why. Revenue, cash flow and earnings have been rising a a brisk clip.

Here's another example of a good investment: The Cleveland Indians baseball club went public in 1998 at $15 (U.S.) a share, only to sell out to a private investor within less than two years at a 48 per cent premium to the IPO price.

Manchester United come with mixed impressions as an investment. The bullish case is easily stated.

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The club is recognized by Forbes magazine as the world's second most valuable sports brand – and would be No. 1, ahead of the New York Yankees, were it not for an increase in the value of the U.S. dollar relative to the British pound.

It can also count on big streams of regular cash, including the $31-million Aon PLC pays each year to have its name emblazoned on the team's red uniforms and the $40-million deal with Nike Inc.

Manchester United, too, once enjoyed success on the stock market, providing a good template for round two.

When it traded in London from 1991 to 2005, before being taken out by its current owners, its value rose from £47-million to £790-million – marking nearly a 17-fold increase.

However, United is not at the top of its game right now.

It is saddled with a massive $664-million debt load, which could impact its ability to attract top-notch talent (the money raised through the IPO will go toward paying down this debt).

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It tried to list publicly in Singapore last year, but pulled out because of volatile markets. New York is seen as a curious second choice, given that soccer doesn't enjoy massive popularity in the United States.

The structure of the deal is also likely to raise eyebrows, with the current owners maintaining control of the company through multiple-voting shares.

Whether or not the stock ultimately looks attractive will come down to how much the shares are valued at, which is information we don't have at this early stage of the IPO process.

But for now, it's fun to think like a billionaire – where the prestige of owning a sports team outweighs the wisdom.

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