A losing stock

A £2,000 investment in Manchester United stock half a decade ago (using the exchange rate at the time) would have bought me 145 shares. The price then was $18.25 per share. Today, one share is $13.06, which means I’d be nursing a 28% loss. My 145 shares would be worth just £1,630.

The stock would have paid me a small dividend along the way, but that would only have been a little over £100 in total. That still wouldn’t have brought me back to break-even. So, like the football team, this stock hasn’t been winning over the past five years.

Just for context, if I’d invested my £2,000 in an S&P 500 index fund instead, I’d have £2,833 today, without factoring in dividends. That’s because the 500 largest companies listed in the US are up a collective 50% in five years.

With a current market cap of $2.15bn, Manchester United is too small to be included in the S&P 500 index.

Financial performance

In its recent financial results for the 2022 fiscal year, the company reported that overall revenue was up 18% on the previous year at £583.2m. This reflected a return to full stadiums after two pandemic-hit seasons.

The club’s net debt, though, has increased by 22.7 %, from £419.5m to an eye-watering £514.9m. That rise is partly due to a “revolving credit facility” the club has used to offset the almost £200m lost during the pandemic. The annual operating loss was £87.4m.

On the field

The performance of Manchester United stock ultimately hinges on how the team does on the pitch. And the team hasn’t been doing that well since long-time manager Sir Alex Ferguson retired back in 2013.

Winning cup competitions means more games, which means more broadcasting and match day revenue. But after failing to qualify for the Champions League (the highest level of European football, both competitively and financially) last season, the club is today left competing in the less prestigious Europa League.

This would have almost unimaginable a decade ago, showing just how far the competitive standing of the club has fallen.

A change of ownership is likely

Malcolm Glazer acquired control of the club by buying out existing shareholders for around $790m in 2005. This ownership, however, has been unpopular with a large section of the club’s fans almost since day one.

Some recent reports suggest that the Glazer family might be finally ready to sell out. One rumoured buyer is Sir Jim Ratcliffe, Britain’s richest man and founder of chemical powerhouse Ineos Group. Were such a sale to be announced, I can imagine the shares would shoot much higher.

Still, the club’s £514m net debt, coupled with the team losing its top dog status on the pitch years ago, means I won’t be adding Manchester United shares to my portfolio. I’ll be watching this stock from the touchline.

Manchester United shares slump

Manchester United shares floated on the New York Stock Exchange on 10 August 2012, just short of a decade ago. Priced at $14 each, this valued the club at $2.3bn, making it the world’s most valuable soccer team. Man Utd stock then bounced around until late 2016, when it set off on a run-up to a record high. On 31 August 2018, the shares closed at $26.20 — up over 87% since listing.

However, the stock has been on a downward path almost ever since. Here’s how the shares have performed over seven different timescales (excluding dividends):

As you can see, Manchester United shares have fallen over all six periods ranging from five days to five years, but have rebounded a little since Tuesday’s close. Thus, in investment terms, they’ve hardly been a Premier League stock for at least half a decade.

Would I buy these shares today?

At their 52-week high in late September 2021, Man Utd shares hit an intra-day peak of $20.86. As I write on Wednesday afternoon, they trade at $10.99, just $0.48 above Tuesday’s all-time low of $10.51. So after recent steep falls, are they a bargain buy or a busted flush?

The first thing to note is that MUFC’s corporate returns are heavily influenced by club results, but it’s so much more than that. The club’s global popularity enables it to make money from multiple sources, including shirt/kit sales, merchandising, sponsorship deals, broadcasting revenue, etc.

Even so, the club’s relatively unimpressive form in recent years has impacted on its commercial income. For example, total revenue was $627m in 2018/19, versus just $494m in 2020/21. And with Man Utd finishing only sixth in the Premier League last season, yearly revenues might continue to decline. Also, new manager Erik ten Hag has admitted that he must sign several top players to turn the Red Devils’ form around.

At the current Manchester United share price ($10.99), the club is valued at $1.8bn, while the stock offers a dividend yield of 1.6% a year. Would I buy the club for this price tag? My immediate answer is no, so it follows that I would not buy these shares at their current price. To my mind, MUFC shares show little sign right now of supporting market-beating investment returns in future!

This is the biggest drop in valuation since its initial listing on the New York Stock Exchange in 2012. While ‘noisy neighbour’ Manchester City celebrates the league title, Manchester United is in the middle of a backroom shake-up.

And after rival Chelsea’s £4.25bn takeover deal with Todd Boehly, analysts are predicting Manchester United owners, the Glazer family, could consider selling the club for over £4bn as well.

Is a market comeback possible? 

As far as ticket and merchandise sales go, Manchester United dominates the charts. In fact, the club had the highest average attendance of all top teams in Europe across all leagues in 2021. With an average attendance of 73,156 fans per game, 97.7% of total tickets were sold last year.

But the Manchester United share price is closely tied to how the team performs on the field. According to data from Saxo Markets, the last time the club finished first (in 2012) its share price grew 36%. Even in 2017-18, when it finished second, the shares jumped 20%. However, the club has failed to qualify for the Champions League five times in the last 10 seasons.

In response, the board sacked Ole Gunnar Solskjaer and appointed popular Dutch coach Erik ten Hag for the upcoming season. The club has been on the lookout for Sir Alex Ferguson’s long-term replacement for nearly a decade now. Four full-time managers and three interim managers have held the post in the last nine seasons, which tells me it’s still transitioning.

And if I had purchased Manchester United shares in 2012, my investment would be down nearly 10% today. Even the most passionate fans would agree that this is a disappointing return on investment.

Takeover target

But after the recent drop in the Manchester United share price, analysts think the business is an attractive takeover prospect. The brand is still a cash cow and a change in ownership and champions league qualification could send its shares skyrocketing.

In fact, fans have been calling for the Glazers to quit for over a decade. And there are rumours that Britain’s richest man, Sir Jim Ratcliffe, could place a bid.

Analysts say that the club is undervalued now but any takeover could take months, if not years. In the meantime, the business has debt of nearly £500m. And the new manager has demanded a transfer budget of £115m, which could make the summer a pricey affair. If results are not favourable next season, the Manchester United share price could tumble further. 

There’s a lot of uncertainty around the club, keeping me from investing right now. But, the brand remains very strong and things could turn around in a short time. I’ll be watching media reactions to transfers and early performances next season before considering an investment. 

Seven listed football clubs

Another parallel between Euro 2020 finalists England and Italy is both countries have football clubs with listed shares. I count seven European football clubs with shares listed on three different stock markets:

Four of the seven listed clubs are from the UK. These are leading English clubs Manchester United and Arsenal, plus Glaswegian giants Celtic and Rangers. Two clubs are listed on Euro 2020 finalist Italy’s Borsa Italiana in Milan: Turin’s Juventus and Roma of the Eternal City. Shares in Germany’s Dortmund have been listed on the Deutsche Börse since 2000.

Unsurprisingly, given their winning heritages, several of these clubs have players appearing in Sunday’s Euro 2020 final. These include England players Luke Shaw and Harry Maguire of Man Utd, Arsenal’s Bukayo Saka, and Jaden Sancho and Jude Bellingham of Dortmund. Likewise, Italy’s Wembley side includes Juventus regulars Federico Bernardeschi, Leonardo Bonucci, Giorgio Chiellini and Federico Chiesa. Italy’s Roma players are Bryan Cristante, Alessandro Florenzi and Leonardo Spinazzola.

Which club’s shares would I buy?

Despite the hype surrounding Euro 2020, it would be tough for me to actually invest in a listed football club’s shares. That’s because football clubs are notorious money pits — thanks to spiralling player wages, transfer fees, expensive stadium refurbishments, etc. Indeed, one old joke goes: “How do you make £100m? Start with £1bn and then buy a football club!”

However, if you forced me to choose between these seven stocks, I’d look for a company with a strong winning heritage. By this, I mean a team that combines footballing wins on the pitch with financial success in the boardroom. In Italy, Juventus (‘the Old Lady of Turin’) has won over 70 titles and is regarded as the premier Italian side. It also has four players in Italy’s Euro 2020 squad. But 63.8% of Juventus shares are owned by the billionaire Agnelli family, so I wouldn’t want to be a minority shareholder in this £811m family-controlled firm.

Of the remaining six clubs, for me, only one has the prestige and pedigree worth buying. As a West Ham fan, it pains me to say that, of the six remaining clubs, I’d buy shares in £1.8bn Manchester United (NYSE: MANU). That’s because they’ve won more trophies than any other club in English football. But it’s also because the business consistently has some of the highest revenues and profits in world football. When I buy shares, I like to buy solid winners, so Man U is my Euro 2020 pick!

What’s the story so far?

Last Sunday, it was announced that a group of clubs from around Europe (including Manchester United) were going to form a new league (the ESL). Aside from the football element, it was reported that large sums of money would be given to the founding clubs. 

When the stock market opened on Monday morning, the Manchester United share price jumped 10%. Although it gave back some of the gains as it closed the day, it was still up significantly on the news. From a business standpoint, the ESL was good news due to the financial benefits of being in the league.

Also on Monday and into Tuesday, there was widespread criticism of the potential move. This ranged from the Prime Minister to hoards of ordinary fans protesting around the country. These scenes saw the Manchester United share price fall lower. Late Tuesday night, the club confirmed it was pulling out of the ESL.

The net result of all of this is that the share price trades almost exactly at the level seen before the news broke last weekend. At just above $16, it’s not only close to the level seen last Friday before markets closed, but almost the same level seen a year ago. This makes the one-year performance of holding Manchester United shares broadly flat.

My outlook for Manchester United shares

Ignoring the events of the past week, would I invest in Manchester United? Although it has generated an operating profit for the past four years, it has posted a net loss in two of those years.

It’s obviously reliant on match day sales, from tickets to hospitality. But it also generates revenue from museum tours, megastore sales and other physical attractions. So the impact of Covid-19 was felt in 2020, exacerbating the loss.

It could bounce back strongly in the next financial year. Higher revenue from sponsorship was seen in 2020, and although physical footfall may be down, the club has one of the largest global followings in the world. It estimates this customer base to be 1.1bn fans.

Ultimately, as the 2020 report mentioned, “the success of our business depends on the value and strength of our brand and reputation”. The hallmark of this is the performance on the pitch by the team. A good season increases brand coverage, sponsorship revenue and other elements. As an investor, I don’t feel comfortable that the performance of the business is dictated by the sporting team.

I think the spike and slump in the Manchester United share price was just a flash in the pan. The fact that it is now back to previous levels shows me it was a short-term move. For the long term, I don’t see it as a viable growth opportunity for me to invest in.

Since the end of October last year, the stock has increased in value by nearly 30%. However, over the past 12 months, shares in the football club have increased in value by just 8%. 

Shares in the company have pushed higher as investors have been weighing up the potential financial rewards from the breakaway European Super League.

Financial rewards

While the creation of this league has caused plenty of controversy, it’s becoming clear the clubs involved could be in line for significant financial rewards. 

Arsenal, Chelsea, Tottenham, Liverpool, Manchester City and Manchester United are among 12 clubs who have agreed to join the new super-premium tournament.

It’s being reported that JPMorgan has provided $6bn in debt financing for the deal. The founding members will share this pot. They will be given a €3.5bn grant to spend on infrastructure investments and a potential €100m-€350m each to join the contest, although this hasn’t yet been confirmed. 

Revenues from the new competition could total €4bn. Clubs would receive a fixed payment of €264m a year from media and sponsorship sales. 

Based on the sums involved, it’s clear to me why investors have been so keen to buy Manchester United shares. It looks as if the club could achieve a substantial financial boost from this agreement. 

All of the figures have yet to be confirmed so there’s some level of uncertainty in the numbers. However, in 2020, Manchester United’s revenues totalled £509m (€590m). A fixed payment of €264m a year and a one-off bonus of as much as €350m could almost double group revenues in 2021.

Still, I should note these numbers are only rough estimates at this stage. We won’t know how much the new league will be worth to the company for at least a year. 

Nevertheless, I think these figures show the Manchester United share price potential. But I’m not going to buy the stock today. Football clubs are notoriously bad investments. This business is no exception.

Manchester United share price under-performance 

Over the past five years, the Manchester United share price has returned 10%, excluding dividends. Over the same time frame, the FTSE All-Share Index has added 15%, excluding dividends. 

The new Super League might change the company’s trajectory if the potential financial rewards live up to expectations. However, there’s no guarantee they will.

What’s more, being in this league in the first place could have severe repercussions for the business. It may lose revenues from supporters who no longer want to support the club. There have also been reports of possible sanctions and legal action against the founding members. All of these challenges could increase costs and hurt sales. 

Further, just by being in the league, Manchester United’s staffing costs and general spending may increase enough to offset the potential financial reward. The high costs of managing a top-flight club are among the reasons why football clubs are such bad investments. 

As such, I am not a buyer of Manchester United shares. 

News broke last night that England’s most successful football club is attempting to form a breakaway European Super League with several other top European teams. It’s a proposal that has the potential to deliver truly-staggering revenues to the continent’s biggest teams.

So is now the time to buy Manchester United shares? They’re up 10% in pre-market trading.

What is the European Super League?

Talks about forming a European Super League has been circulating behind closed doors for years now. A formal announcement on the competition was finally made last night amid recent rumours that JP Morgan will finance the scheme, news of which was also confirmed this morning.

Under the plans, 20 of Europe’s best and biggest football clubs will come together from this August to compete in mini-leagues and then knockout ties. In effect it will replace the current UEFA Champions League in terms of continental competition for the big teams. Games will be played midweek as they are now.

Revenues poised to explode?

So why has the Manchester United share price jumped? Well, as one of the European Super League’s 15 Founding Member clubs, the Red Devils stand to receive payments worth hundreds of millions of pounds.

The European Super League claims that the new tournament “will provide significantly greater economic growth and support for European football via a long-term commitment to uncapped solidarity payments which will grow in line with league revenues.”

These solidarity payments “are expected to be in excess of €10bn during the course of the initial commitment period of the Clubs,” it said. This is far in excess of the sort of revenues that top clubs currently enjoy under the UEFA Champions League.

What’s more, the Founding Clubs like Manchester United “will receive an amount of €3.5bn solely to support their infrastructure investment plans and to offset the impact of the COVID pandemic.”

Should I buy Manchester United shares?

Has the news encouraged me to buy Manchester United shares though? Clearly the plans have the potential to supercharge revenues among Europe’s elite. Television income from lucrative Asian, American and African markets could balloon. And the major clubs mean business, as Manchester United’s resignation from the influential European Club Association this morning shows.

However, the breakaway clubs will face fierce resistance to get their plans off the ground. Footballing bodies UEFA and FIFA, along with domestic league associations like the Premier League, have all threatened to take legal action against participating teams. This could see them thrown out of domestic competitions or hit with other penalties.

There’s been an outcry too from fan groups who claim the move will worsen inequality in modern football. A mass boycott of football games and expensive TV sports packages is clearly not out of the question. Meanwhile, prime minister Boris Johnson vowed to “make sure that this doesn’t go ahead in the way that it’s currently being proposed.”

There’s clearly a long way to go before any European Super League gets off the ground. So, for the time being, I’m happy to sit on the sidelines. I’ll see how things progress before buying Manchester United shares.

Manchester United dividend

Manchester United has paid a dividend of 80 cents per share since 2016. Since then, the stock has traded as high as $27.70 and as low as $12. The dividend yield on the stock has therefore ranged between 2.9% and 6.7%. Manchester United stock yields around 5% at the current price of about $16, assuming an 80p dividend.

So, is that dividend in danger? Well, Manchester United made a £23m loss in 2020. A £118m drop in revenues was to blame for this. The coronavirus pandemic delayed the end of the 2019–20 season and forced games to be played behind closed doors, which hurt gate receipts and broadcasting income. Long-term borrowings increased by around £15m in the 2020 fiscal year.

The 2020–21 season looks like it will be played behind closed doors in its entirety. A loss was made in the first quarter of 2021. A bumper profit — from fat broadcasting revenues from Manchester United’s continuing participation in the UEFA Champions League — was reported in the second quarter.

Dividend cut risk

Manchester United got knocked out of the 2020–21 Champions League. The club does continue to compete in the less richly rewarded UEFA Europa League and looks to be on course for a strong Premier League finish. There is the possibility that 2021 will be another loss-making year, putting strain on the club’s finances. Perhaps fears about further losses help explain the precipitous drop in the Manchester United share price that follows the 11 March 2020 news that a member of the controlling Glazer family was selling 5m shares. This might have been seen as a vote of no confidence from someone considered an insider, perhaps even as a cash raise before an as-yet-unannounced dividend cut.

Speculation is always risky. The Glazer family would still own a 75% controlling stake after the sale. But I think it is safe to say that Manchester United cutting its dividend is more likely due to the squeeze on the club’s finances. Manchester United is not to blame for the rise in risk, all football clubs are feeling the pain, and the pain should be temporary.

Manchester United stock price

Next season fans will return to Manchester United’s Old Trafford ground lifting matchday revenues. Qualification for the lucrative Champions League via a top 4 Premier League finish looks fairly certain. Competition for Premier League and UEFA competition broadcasting rights is increasing. Amazon has entered the broadcasting rights battle, and other streaming services might join in. Manchester United’s broadcasting revenues should grow over the long term.

A new five-year shirt sponsorship deal has been signed for the 2021–22 season onwards. Although it is worth less than the previous deal, it appears to at least equal Barcelona’s, which was also completed during the pandemic. This, I think, speaks to the strength of the Manchester United brand, which is a boon for its commercial revenues.

I would buy Manchester United for my portfolio today. I am concerned about a dividend cut, but I think it would be temporary. Once the pandemic is over, and something like normality is restored, I think Manchester United stock should return to form.

Manchester United’s share price

As I write this, the Manchester United share price is trading for just over $17. It was boosted by news of a record shirt sponsorship deal with software giant TeamViewer last week. A week earlier, its price faltered after the news that 5m shares were being sold by the Glazer family, who own a majority stake. This equates to 3% of total shares. 

Prior to the market crash back in March last year, MANU’s share price was over $20. At its lowest point in the crash, shares were trading for just $12 which is a 40% drop. Since that low, its price has been fluctuating for a number of reasons, some of which I have mentioned.

The Covid-19 pandemic has massively impacted Manchester United and its income, but more on that later. I still believe at its current price, there is an opportunity to pick up cheap shares, which is why I place it on my best stocks to buy now list.

Football without fans

The past year has seen the absence of fans within stadiums. Manchester United possesses the largest club football stadium in the UK, boasting an attendance of over 74,000. Naturally, the Covid-19 crisis has affected revenue as it is estimated match day revenue can total approximately £6m per home game.

In a recent trading update, Manchester United posted a £63.9m profit for the three months to 31 December. Total revenue rose by 2.6% to $172.8m compared with the same period last year. Match day revenue fell 96% due to the pandemic. Commercial revenue declined 11% but broadcasting revenue rose 68%. This timely boost would have been due to the Premier League’s promise to broadcast all league games as fans cannot attend stadiums yet. MANU is one of the most broadcast sports teams across the world.

Best stocks to buy now still present risks

Manchester United has a lot of debt. Currently, it stands at over £400m. This can affect operations off the pitch, which in turn affect performances on it and fan appeal, which affect marketability. The club has not won any silverware for four years now. Furthermore, the sale of almost $96m worth of stock from its owners could also be a sign of those at the top cashing in on a company they may not have utmost faith in either. 

I believe the current Manchester United share price is a bargain. With the vaccine rollout, I believe fans will return to stadia and match day revenue will roll in once more. Furthermore, the recent sponsorship deal worth $275m (a world record amount, matching FC Barcelona’s £47m a year deal) will boost the coffers and investor confidence.

On the pitch, Champions League qualification is beginning to look a certainty for next season. The extremely lucrative European club competition boosts income and worldwide profile massively.

Manchester United is firmly on my best stocks to buy now list as I believe it could be a contrarian reopening stock and enhance my portfolio. I am also looking at other alternatives like this FTSE penny stock for my portfolio.

Empty stadiums

The nature of the Covid-19 crisis meant that Manchester United’s share price has been unable to recover from March’s stock market crash. Football has been played in empty stadiums, hurting matchday revenue. Also, broadcasting income took a hit due to postponement and rescheduling of fixtures. Today a quarterly loss was reported. But, the Covid-19 crisis is temporary. Fixtures are going ahead as planned now, and fans will return to stadiums.

I think the Manchester United share price does not reflect its future, which should be solid, if it’s anything like the past. Manchester United grew its total revenue from £166.4m in 2005, to £627.1 in 2019: that’s a 277% increase. A lot of that gain came from the explosion in broadcasting and commercial revenue, which grew by 398% and 474% respectively, over the same period.

Source: Manchester United plc accounts

There is a limit to the size of a football stadium, and how much a club can charge for seats, pies, and pints. However, there are far fewer restrictions on a global fanbase. Manchester United has built a global following, and, as seen by the impressive commercial and broadcasting revenue growth, managed to monetize it successfully.

According to the Deloitte Football Money League, Manchester United was the richest club in world football in 2016 and 2017. Despite lacklustre (judged by historical standards) on-the-pitch performance since 2013, the club is still a commercial powerhouse. Also, its fanbase appears to be growing. The number of Instagram and Twitter followers of Manchester United has doubled over the last four years. Facebook likes have been flat. The former platforms have a younger demographic than the latter. That suggests older fans are staying loyal and younger ones are being recruited.

Manchester United stock potential

If Manchester United were to finish mid-table and never qualify for European competition again consistently, their days as a commercial force might be numbered. But I don’t think that will happen. The club has qualified for the Champions League this season, has several academy players that are developing well, and still has the financial clout and draw to sign the best players if it wants to. As stated previously, there are no signs of the fanbase shrinking. Matchday revenues will flood in again soon.

I think the increased competition and extension of broadcasting rights will boost Manchester United’s revenues higher in the future. Amazon has already broadcast Premier League matches. Netflix has a content budget of around $6bn. Football makes excellent content, being an unscripted drama, and the entry of the big tech firms into the competition for rights to broadcast it is a boon for revenue.

The potential of Manchester United’s women team – which plays in the top flight in England – cannot be overlooked. Women’s football is growing in popularity and matchday, commercial, and broadcasting revenue could all get a boost from this source.

Investors seem to be ignoring a return to normality, and the potential for growth with this stock. That’s why I think Manchester United shares look cheap.