Manchester United IPO a Risky Game

With millions of fans worldwide, English soccer club Manchester United is perhaps the most popular professional sports team in the world. The question facing investors is whether that global popularity makes it a good investment.

The 134-year-old soccer team plans to leverage that popularity in an initial public offering on Friday.

In a sign that demand among institutional investors was weaker than expected, the team priced 16.7 million shares at $14, below the anticipated range of $16 to $20.

Given the company’s unique stature and business model, it’s not likely that Facebook’s (NASDAQ:FB) botched deal in May, which shut down the IPO market for about a month, will have any impact on potential investors. The shares will trade on the New York Stock Exchange under the symbol MANU.

With a stock valuation of $2.3 billion, Manchester United is the largest-ever IPO among professional sports teams, topping the $2 billion paid earlier this year for the Los Angeles Dodgers of Major League Baseball. The team is worth 56% more than the $1.47 billion Manchester United owner Malcolm Glazer and his family paid for it in 2005.

The team’s IPO paperwork filed with the Securities and Exchange Commission makes a very simple case for the team’s continued financial success. Basically, the team makes the argument that soccer is one of the most popular sports in the world and Manchester United is the most popular soccer team.

The formula for growth involves reaching into as-yet untapped global markets and taking advantage of new media delivery technologies -- primarily on smartphones -- that allow fans far more access to their favorite teams than in the past. At a price, of course.

The team estimates that the global sports industry will grow from $119 billion in 2011 to $145 billion by 2015 and Manchester United plans on participating in that growth.

“Manchester United is at the forefront of live (soccer), which is a key component of this market,” the team said in its IPO filing.

Sports IPOs Have Been Losers 

But regardless of win/loss records on the field, sports franchises have historically been losers as publicly traded companies in U.S. stock markets. The last professional sports team to go public in the U.S. was  MLB’s Cleveland Indians in 1998 and response was tepid at best. The team was ultimately brought private again under  new ownership a few years later. Similar fates befell stocks issued earlier in the 1990s by the Boston Celtics of the National Basketball Association and the Florida Panthers of the National Hockey League.

No major professional sports team has sold shares in an IPO in over a decade.

“If past is prologue on team sport IPOs then this is not going to be a great financial investment,” said Scott Rosner, sports business professor at the Wharton School, University of Pennsylvania.

Rosner said the team’s massive existing popularity worldwide will likely translate into a successful IPO. The deal might even be oversubscribed, he said. How the stock will fare down the road is anyone’s guess, however.

For Manchester United’s owners, the Glazer family, it’s a great deal, Rosner said. The owners are only selling a 10% stake in the team and will retain virtually all voting rights. The deal is also great for fans of the team who want to purchase a piece of the action and get a stock certificate to hang on their walls. “When fans say 'we' they can really mean 'we,'” he said.

But institutional investors charged with making money for their clients will likely balk, he said. “The returns just aren’t going to be there in all likelihood," Rosner warned.

For instance, much of the team’s revenues are generated on match day and all the games are already sold out and the ticket prices are already high. So where’s the growth potential? Betting that the team can increase its popularity in untapped markets and therefore sell more products and generate higher viewer fees is a big risk.

Other analysts have been frightened by a potential price-to-earnings ratio of between 75 to 94 if the stock prices at its current range, an extremely high P/E for a mature company and hardly justified by the team’s recent record of revenue and profit growth.

To diehard fans of the team none of these numbers will matter, however. The stock is expected to price later Thursday. Jefferies (NYSE:JEF) is lead underwriter of the deal.