Sheikh Jassim of Qatar and Sir Jim Ratcliffe are among the suitors for Manchester United,
and why wouldn’t they be? One of the world’s most popular football clubs is on the market
and should rightly attract interest. However, reports indicate bids upwards of five billion
pounds are also not meeting Glazer expectations (rumoured to be between 6 and 7 billion).
Are they right? Should they be holding out for more?
And how much is Manchester United really worth today?
It’s worth noting that ultimately an asset is worth a different amount to each buyer.
For Qatar for instance, the impact of owning a global mega-brand such
as Manchester United could be worth much more than the simple financial worth of the asset
itself – Qatar tourism could see a massive uplift as a consequence, for an example,
extracting a benefit that wouldn’t be available to any individual or consortium.
As such, we won’t be factoring this into our analysis as it
wouldn’t be possible to estimate accurately.
With that in mind, there are four approaches we’ll take to value Manchester United,
each of them typical of the methods used to value entities listed on the stock market.
A) Market Capitalization or Market Value B) Total Enterprise Value
C) Profit / revenue multiples D) Outside-in estimates by other reputed entities
We’ll start with Market Capitalization or Market Value.
This, simply put, is the aggregate value of Manchester United’s stock or shares. The current
(latest, at the time of writing this video) share price is about 22.5 dollars. There are about 165
million shares, valuing the club at roughly 3.7 billion dollars or about 3 billion pounds.
It’s important to remember that this method is sensitive to changes in the USD-GBP exchange
rate. And let’s also remember that market value doesn’t translate exactly to purchase price,
but it is a helpful indicator of what the public markets currently think the club is worth.
If we were to check the valuation at the highest share price in the last five years
for United (which is roughly 26 dollars), the valuation would be about 4.2 billion
dollars or 3.4 billion pounds, still well below the Glazers’ expectations.
The second method we’ll use is Total Enterprise Value, which adds on the net
debt (calculated as gross financial debt, less cash balance) to the Market Capitalization.
According to the latest (Q1 2023) financials, United’s gross financial debt is about 680
million pounds (578 million pounds of non-current or longer-term debt and 102 million pounds of
current borrowings or shorter-term debt) and the cash balance is about 24 million pounds.
This translates to a net debt of 656 million pounds.
And, therefore, an enterprise value of about 3.66 billion
pounds (3 billion market value and 656 million net debt). Enterprise value is
again commonly used as a method of valuation and the reason is the net debt is technically
something any new buyer is paying off or buying out as part of their bid.
We’ll now look at Multiples.
Profit multiples are inaccurate to use for football clubs as they are
loss-making entities in most cases. Profits for football clubs are also very volatile,
swinging dramatically year on year through unpredictable factors.
Profits can also be artificially inflated in any given year through clever accounting
(for instance, player amortization often makes in-year profit look much higher).
All of this makes the profit-multiple-approach less accurate, and we won’t use it.
We’ll focus on the revenue multiple. It’s less volatile than profit and also less distorted by
accounting idiosyncrasies or adjustments. It can also obviously never be negative.
The next question becomes ‘what is the correct revenue multiple’.
Let’s look at the recent sale of Chelsea as a guide. Chelsea were bought for 2.5 billion pounds
and according to recently released financials had a revenue of about 480 million pounds in
2021-22. This translates to a revenue multiple of about 5.2x (2.5 billion divided by 480 million).
This is a very healthy multiple and one that can be expected for a Premier League top 6 club.
Let’s also assume that since the Glazers know this, it would be the baseline for any revenue
multiple considered to value Manchester United (they would expect Manchester United to be worth
at least as much as Chelsea, especially given the resurgence under Erik ten Hag).
At a 5.2x multiple and a revenue of 583 million
pounds (Manchester United’s revenue in 2021-22), Manchester United’s valuation lands at about 3
billion pounds. If we use United’s revenue outlook for the next year (2022-23), which
is 610 million pounds, then it translates to a valuation of about 3.2 billion pounds.
The Glazers’ expectation of 6 billion pounds translates to a revenue multiple
of ~10x which is double the Chelsea multiple (and that is already considered a pricy sale).
Finally, let’s look at what some reputed entities are saying about Manchester United’s valuation.
Forbes in their annual valuation of soccer teams valued United at
4.6 billion dollars or 3.7 billion pounds in May 2022. Their approach
is proprietary of course but builds in forward-looking estimates on commercial,
matchday and broadcasting income and values all assets (including the stadium).
The Financial Times in a recent article valued Manchester United at around 1.6 billion dollars
or 1.3 billion pounds. They used a discounted cash flow method, in which they estimated United’s cash
flows for multiple years into the future and totalled the value of those cash flows today.
Football Benchmark, another reputed entity, also factors in things such as social media
followers (and the monetization potential there). Even they have United at 2.4 billion pounds.
However one cuts it, by whichever approach, Manchester United is worth probably at best
between 3 and 4 billion pounds. But we started with a big caveat, and we come back to that.
An asset is worth as much as its importance to a buyer, and the Glazer no doubt understand that.