Manchester United’s US IPO seen a tough sell

LONDON: Manchester United may be one of the most supported sports teams in the world but that doesn't mean the football club is going to find many investors with an appetite for its planned initial public offering (IPO) in the United States.

Fund managers who have looked at its preliminary prospectus have been either negative or lukewarm on the prospect of buying shares in the club, which is controlled by the Florida-based Glazer family.

They say Manchester United faces significant financial risks given its £423mil (US$658mil) of debt, and the very structure of the business puts its customers, the fans, at odds with shareholders.

Some are concerned the US stock market hasn't had many sports team listings, let alone any European football clubs, so there isn't much to compare Manchester United against.

“With a sports franchise, it's a constant tug of war between player salaries cost and the rest of the operation,” said Wallace Weitz, president and portfolio manager at Weitz Funds in Omaha, Nebraska, which holds stakes in Liberty Media Corp, Walt Disney Corp and Comcast Corp.

Manchester United declined to comment and representatives for the Glazers could not be immediately reached.

Like many sports franchises, the team's success on the pitch is largely contingent on its ability to spend cash on players through both transfer fees and high salaries.

While there have been some signs in the past year that transfer spending by top English clubs is being reined in, the pressure on a leading club like Manchester United to spend heavily in an attempt to stay a top team remains. That spending can eat up profits rapidly and lead to volatile financial results.

At the same time, if a club like Manchester United cuts costs and doesn't go into the market for expensive new players, the value of its brand can be at risk. That may not happen to a top club overnight with just one weak season but over a few years the value of everything from TV rights to sales of club merchandise can be hit.

Manchester United had a weak season by its own standards in 201112, failing to win any silverware, though it missed out on the English title by a hair's breadth.

“The deal is a strong vanity play in terms of being part of a winning franchise but whether or not that mystique around the team translates to money for shareholders I doubt it,” said Jeff Sica, president and chief investment officer of Sica Wealth Management in Morristown, New Jersey, which manages over US$1bil in assets. “The chances of shareholders making money on this is very little.”

To be sure, many investors will not make a final decision until they know how many shares the company will sell and at what price. The timing of the IPO is also unclear.

But doing a valuation analysis will not be easy even when the price is known because of the lack of comparable public companies in the United States. - Reuters

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