Is the Manchester United IPO a good investment?

Ever wish you could own a piece of the one of the world's most popular sports franchises? Dreams do come true: Manchester United, the most decorated soccer team in England, is trying to release an IPO sometime in the near future. But is it worth your investment?

Background
The club is owned by the Glazer family, who also owns the US gridiron team, the Tampa Bay Buccaneers. The Glazers stand to make US$167 million from taking the company public, floating about 9% of the shares. The overall valuation could make the company worth as much as US$3.3 billion if the stock trades at US$20. The expected range is between US$16-$20 a share.

Fan reaction
The supporters of Manchester United have despised the Glazers for some time now, but this was the final straw for them. From where they stand, the Glazers are being greedy and will use this offering to put more cash in their pockets instead of paying back massive debts the club has incurred since the family bought the club in 2008.

Before the club was sold to the American family, there was no outstanding debt. Presently, United is almost US$700 million in debt. The Manchester United Supporters' Trust has been campaigning to U.S. banks not to underwrite the deal, claiming it is unpopular among fans. Morgan Stanley recently dropped out of the deal.

To add to the dismay of the supporters, the club also did not hoist a major trophy this year, for the first time since 2005. This along with the increasing debt has fans questioning the club's ability to compete in major competitions as the cry for the sale of the team grows louder and louder.

Tricky business
The issue with sports teams is that their value is based on how much they win. (We call these "flavour-of-the-week" investments.) For example, the club cannot collect revenue from ads, sponsors, or broadcasting rights if they aren't in the game. This puts extra value on performing well in high-stakes games like tournament finals.

This is where trouble could lie for the club. This past season, they did not perform well in the Champions League, where the best clubs across Europe play in a season-long tournament each year to see which club and country is the best on the continent. The league is a big time moneymaker for clubs and Manchester's lack of attendance in the later rounds following their early exit represents a significant loss of revenue.

Business section: Investing ideas
Although the Main Street investor may be excited about the opportunity to own one of the most famous sports franchises in the world, that investor may want to think twice. The last time a highly popular company went public, it didn't do so well (ahem, Facebook). The same could be true for United because some think the price they are asking is too high, and the club is not actually worth US$3.3 billion.

Last season revenues decreased nearly 5%, and operating costs rose nearly 5%, not exactly a great combination of numbers. Nonetheless, this is an IPO that will have soccer fans excited, although it would be wise to seriously consider the implications of the asking price, and hopefully investors have not forgotten the last time such a popular name went public.

Overwhelmingly, the outlook is dim for Manchester's IPO, but we would be remiss not to consider the flipside: Manchester United is a global brand, and popularity continues to grow in the U.S. and Asia, and soccer fans of all ages proudly wear Wayne Rooney Jerseys worldwide. So with the backing of a diverse and die-hard fanbase, this offering could generate enough buzz to justify the asking price.

Keep a lookout for MANU.

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