Thoughts on the Manchester United IPO

I was going to write about this a couple of weeks ago, but decided to hold off to see what the investors’ initial reactions to news of the IPO were.

Earlier this month, United announced that it planned to float on the NYSE and raise up to $100mn. A couple of things about the announcement were surprising. Firstly, the decision to float in the NYSE rather than in Singapore as they were rumored to last year. United have a reported 300mn fans in Asia, as compared to only about 30mn in America. On a macro level as well, Football is nowhere nearly as big in America as it is in Europe or Asia. Second, the timing, this being one of the few seasons in the last decade or so where United finished trophy-less.

Why NYSE

I looked into the issue a bit, and it appears that the Glazers have opted for the US for two reasons:

  1. United are positioning themselves as a global media business, rather than a sports franchise, since a significant portion of revenue comes from broadcasting rights, and they feel that this would lead to a better valuation. In this case, a NYSE listing makes sense.

  2. Another key reason is that the Glazers are selling Class A shares, which come with only a 10th of the voting rights as a Class B share, which allow the Glazers to retain a strong control of the club. There were delays in approval of this structure from the Singapore Exchange, which is believed to have frustrated the Glazers in to looking to the NYSE. Interestingly, This structure is not permitted at all in the UK.

IPO Details

The good news about the IPO is that it appears that the Glazers have finally changed their view of the debt, and the proceeds are likely to be used to pay off debt, as the SEC filing indicates:

We intend to use all of our net proceeds from this offering to reduce our indebtedness

The bad news is that the IPO doesn’t doesn’t reduce the Glazers’ control of the club. Since they are floating Class A shares, they retain over 95%  of ownership. This has actually not been received too well by institutional investors, as this article points out.

 “A dual class structure is definitely a red flag,” said Mohannad Aama, senior portfolio manager at Beam Capital Management in New York. “You don’t know if the family really knows what they’re doing or is someone doing this as a hobby,” said the investor.

In terms of Valuation, no concrete details have emerged. A recent Forbes study named United as the most valuable sports team in the world, valued at $2.24bn. The Glazers however are seeking a valuation of $3bn, though it was deemed too high by some. I expect the valuation to be around $2.7bn, though more about this should emerge soon.

SEC Filing

Below are some interesting nuggets I found in the SEC filing:

Under key strengths,

 We enjoy the support of our global community of 659 million followers

That number seemed a bit high to me. After some close reading I found this footnote:

References to our “659 million followers” are based on a survey conducted by Kantar Media (a division of WPP plc) and paid for by us. As in the survey conducted by Kantar Media, we define the term “followers” as those individuals who answered survey questions, unprompted, with the answer that Manchester United was either their favorite football team in the world or a football team that they enjoyed following. For example, we and Kantar Media included in the definition of “follower” a respondent who either watched live Manchester United matches, followed highlights coverage or read or talked about Manchester United regularly. Although the survey solicited unprompted responses, we do not distinguish between those respondents who answered that Manchester United was their favorite football team in the world and those who enjoy following Manchester United

It seems that ‘followers’ would be any one who spoke about/saw United games, which could include Chelsea/Arsenal/Liverpool fans and so on. The number of fans is believed to be in the ~300 million region.

United’s risk factors were pretty interesting. This one struck out in particular, an obvious reference to Manchester City (and Chelsea).

 In the Premier League, recent investment from wealthy team owners has led to teams with deep financial backing that are able to acquire top players and coaching staff, which could result in improved performance from those teams in domestic and European competitions

Conclusion

The IPO in itself is a good move as it finally looks like the Glazers are committed to paying off the debt. However, initial reaction to the offering has been lukewarm, due to the selling of Class A shares that offer no real voting rights as well as the current debt the club has. As a sidenote, although reports indicate that only $100mn will be raised initially, I expect that the amount raised will be much higher, depending on the valuation and performance of the IPO.

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