Last Thursday Manchester United’s share price hit $17.49, an increase of 25% over the flotation price back in August. If you sold out at this price you would have made a hefty 25% over just 4 months. To compare, the FTSE 100 index of London based stocks appreciated by 7% (still a pretty good return). There were lots of naysayers at the time, saying the stock was overpriced, that the voting structure would deter investors, etc, etc. and they seemed to vindicated by early underperformance of the stock. But the Glazers claimed that fair value was in the region of $16-$20 and it now looks as if they were right. Interestingly, Facebook, whose flotation was labeled an even worse disaster and to whom many comparisons were being made in August has seen its price rise 50% since then, but is still trading below its original offer price.
So, if you bought the stock as a short term investment and sell it now you will have made a handsome profit. But should you hold on for more? There are of course all the worries about a post-Fergie world, but I think there are reasons to believe that, financially at least, the prospects are good. Financial Fair Play will restrain economic competition, and with the backing of the UK Parliament the clubs might well succeed in imposing domestic restraints which will only make the clubs more profitable. The EPL continues to extend its global reach and the problems of the Glazer debt seem with hindsight to have been overstated. Forbes affirmed this week that in their opinion Manchester United is the most valuable “sports franchise” in the world, valuing the club at $3 billion.
This must be exasperating if you LUHG – every increment in joy from the success of your club seems to be exactly offset by an increment in despair at who is profiting from this success.
As Steve_mcfc has just pointed out to me, the price was only $14.43 the weekend before the proposals to extend FFP to the Premier League became public knowledge. so as I have argued, whatever else it might be, FFP looks like surefire vehicle for increasing the profits of owners.
Hi Stefan,
This was very interesting.
On the FFP issue, I wanted to pick your brains with regards to Mohamed Al-Fayed’s move earlier this week to turn his personal loans to Fulham (of c£210m) into equity, therby effectivly rendering the club debt free: How does that work in practise (turning debt into equity), what are the benefits for him, and how does such a move impact when it comes to FFP? I know that Fulham are one of the few clubs against the PL’s FFP plans, so I’m trying to work out Al-Fayed’s rationale.
Many thanks, Henry
Good question- I have an answer but I’m not sure it’s the right one. the problem is that the company which owns the club and owed the debt, Fulham Football Leisure Ltd, is ultimately controlled by Mafco Holdings Ltd, incorporated in Bermuda and the accounts say “All interests in the company continue to be held for the benefit of the Fayed family”. So moving debts from one company you own to another may mean nothing at all.
But here’s one interpretation: under FFP clubs have to submit “future financial information” to show if it is breach of either of two indicators, one of which “negative equity” , which basically means (and accountants might get stuffy about my precision here) that the value of the company assets is greater than the liabilities. In the 2011 accounts the assets totalled GBP 63 million, the current liabilities (short term debts) were GBP 24 million. So if you take away GBP 200 million of debt from this you have negative equity of GBP 178 million, clearly breaching the indicator. This could have caused problems, so shuffling the debt out of the company that owns the football club makes sense.
Thanks Stefan, that’s really interesting. Just wondering if you’d mind if I quoted you (from the above) in a blog on the Al Fayed debt-to-equity move? Your comments really shed some light on a topic not understood by many FFC fans. No financial benefit for me, but would totally understand if you’d rather not. Please let me know (you have my email address). Many thanks, Henry
Yes of course, no problem
What does LUGH mean?
Love United Hate Glazer- it’s been a very popular tag for Green and Gold supporters, plenty of references on the web