Manchester United Bringing Its Brand To America
Soccer fans in this country were treated to 24 days of bliss in June as the Euro 2012 was contested in the Ukraine and Poland. By now we all know that Spain took the title with an impressive 4-0 win over Italy. Wanting to take advantage of soccer being in the news over here, the Glazer family filed its registration statement to go public with the Securities and Exchange Commission July 3. Hoping to raise $100 million from the offering, Manchester United's initial public offering (IPO) is doomed to fail. Here's why.
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The best reason to avoid this IPO, or any IPO for that matter, is that it tends to do poorly in the first 18 months as a public company. Stephen Jarislowsky, one of Canada's best money managers, believes most new issues can be bought for less than the IPO price within 12 to 24 months because the IPOs tend to hit the market at peak performance and any slip up tends to be magnified in the eyes of investors. Facebook (Nasdaq:FB) is the most recent example of what can happen when all your ducks aren't in a row.
If you want to own a piece of a pro sports team, there are better investments. The best example is The Madison Square Garden Company (Nasdaq:MSG), which was spun-off from Cablevision (NYSE:CVC) in February 2010. Cablevision shareholders received one share of MSG for every four shares in the parent. On MSGs first day of trading, it closed at $17.50 and hasn't looked back, up more than 100% in 29 months. Since the MSG spin-off, Cablevision has also spun-off AMC Networks (Nasdaq:AMCX) with shareholders receiving one new share in the cable network for every share in the parent. It, too, has had a good run since last June, but not nearly as successful as MSG. With MSG you get four sports teams, sports and music networks, Madison Square Garden and many other iconic venues. Manchester United might have a good brand but what's the growth potential? Compared to MSG, it's hardly in the Premier League.
The Bottom Line
Duncan Drasdo, CEO of the Manchester United Supporters' Trust is cautiously optimistic about the offering, suggesting that any effort to pay down the club's debt is welcomed by fans. While Drasdo's correct to point out that Manchester United has reduced its total liabilities by 40% in the last two years, it still sits at slightly less than $1 billion. Assuming the entire net proceeds go to debt repayment, it will have more than $500 million in long-term debt on the books. Madison Square Garden has none. At the end of the day, the Glazer family will still hold a majority of the voting power so nothing really changes. The Glazer's tried and failed to get an Asian IPO and now they're coming home with their tails between their legs - hat in hand.
I'll close with the words of Drasdo himself: "A minority shareholding with inferior voting rights and no dividends is going to severely impact on the attraction to both financial and supporter investors." It's so bad not even a fan can see the sense in this IPO. This one should be put out of its misery.
At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.