In the sporting world over the past weekend, the “global game” of football saw the fairytale return of one of the world’s best players.
Cristiano Ronaldo, who started out the early years of his illustrious career at Manchester United, returned to Old Trafford as a still-formidable 36 year-old superstar.
In keeping with his goalscoring prowess, Ronaldo bagged two goals on his second Manchester United debut as the team ran our 4-1 winners against Newcastle United.
However, for many fans of the “Red Devils” in Asia, it might not be a widely-known fact that Manchester United PLC (NYSE: MANU), also known as Manu Utd, is indeed a listed company – allowing any of us to purchase its shares.
Following the return of Ronaldo, and a possible resurgence in the club’s on-pitch fortunes, should long-term investors think about buying Man Utd shares?
A good business?
While Man Utd is undoubtedly one of the biggest clubs in the footballing world, whether it’s a great investment is another question.
Ronaldo’s return to Manchester has seen a massive boost in shirt sales with his name emblazoned on the back of them.
Yet does this really make much of a difference to the top and bottom lines of Man Utd as a business? Arguably not.
The club went public in the second half of 2012 at a price of US$15 per share. Today it trades at around US$17.70, meaning it’s returned to investors less than 20% over the past nine years.
That’s a poor performance versus the S&P 500’s 215% return over the same timeframe.
Dependent on competitions
One of the biggest reasons for this underperformance has been the fact that football clubs generally have lumpy revenue.
Think of the Champions League, the premier club competition in Europe for the continent’s best teams.
In its third-quarter fiscal year (FY) 2013 earnings, shortly after it went public, the club stated that its £21.7 million in broadcasting revenue for the period was up 28.4% mainly due to the club progressing to the Champions League Round of 16.
The previous year, Man Utd had been eliminated at the group stages. Not having the revenue visibility due to the success of the club’s ventures in European competition mean investors have to be sure Man Utd will be victorious in the Champions League.
Meanwhile, Man Utd’s latest earnings report for the third-quarter FY 2021 (for the three months ending 31 March 2021) saw £58.1 million in revenue. This was down 15.3% year-on-year as the closure of Old Trafford due to Covid-19 hit this segment.
Matchday revenue was even worse as revenue clocked in at £1.6 million for the period, down a whopping 94.5% year-on-year as matches had to be played behind closed doors.
While the nation is opening up after widespread vaccination, there is talk that another lockdown could be imposed if Covid-19 cases rise in the UK going into winter.
If there are new restrictions, attendance at football games will be among the first to suffer.
Focus on returns
Football clubs are a lot like the airline industry in that there is a lot of cachet attached to specific brands.
However, both are also fundamentally poor investments as costs tend to outweigh revenues – leading to margins which are razor thin.
For Man Utd fans who are applauding the return of Ronaldo it might be better to just enjoy the games and leave your investing dollars for other less emotionally-driven ventures.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.