Investment Memo: Manchester United PLC

Esports, VR and NFTs mean profound changes are on the way for Europe’s largest football clubs

Stock Symbol: NYSE:MANU
Market Cap: $2.5B
Current Stock Price: $15.4
52-Week Range: $13.3 — $20.2
Anthony’s Price Target: $23.9 (55% growth)
Hold Period: 12-24 months

I’ve been a fan of Manchester United since childhood and joining the club as a member of their Board of Directors has been a longstanding ambition of mine. In spite of this, I’ve always classified football clubs as poor financial investments - and I’m justified by the fact they rarely outperform markets. 🛑

But I recently changed my mind and bought shares in Manchester United. 🚀

My mindset began to change back in 2018 when Juventus’ share price doubled in only a few days after they acquired Cristiano Ronaldo. At the time, Cristiano was a 33-year-old striker playing in his twilight years. It got me thinking… how do football clubs balance the impact a new player will have on the pitch vs off the pitch? What portion of Ronaldo’s valuation was attributed to his 264M Instagram followers? And could publicly traded football clubs finally become exciting investment opportunities? 🤔

Cristiano Ronaldo Sport GIF by Nike Football

Business Description

Manchester United is one of the most popular sports teams in the world, playing one of the most popular spectator sports on Earth. Through its 142-year heritage, the club has won 66 trophies, including a record 20 English league titles, developed one of the world’s leading sports brands, and built a global community of 1.1B fans and followers. 🌍

Manchester United have 164M social media connections and is the most followed Facebook page in the United Kingdom, with more followers than the official pages of the NBA, NFL, NHL and MLB combined.

Manchester United operates as an entertainment and community service. Its large, passionate community provides it with a worldwide platform to generate significant revenue from multiple sources. This includes sponsorship, merchandising, product licensing, broadcasting, match-day revenue, transfers and prize money. 🤑

Why now?

Football clubs are no longer just sports franchises; they are media and entertainment outlets. If we think of their fans as customers, Manchester United seems dramatically undervalued vs companies with similar size followings. While Pinterest have 460M users ($40B market cap) and TikTok have 700M users ($450B market cap), Manchester United has 1.1B followers (only $2.5B market cap).

This valuation gap has historically been justified by football clubs’ inability to capture data and monetise their fan bases. But things might be about to change…

Investment Thesis

Empowered by the digitalisation of content, emerging technologies, and new data regulations, football clubs are increasingly capable of building direct customer relationships with their fans and growing Average Revenue Per User (ARPU). 📈

Clubs that transition to a digital future and monetise fan data will unlock vast new revenue sources. Esports, for example, presents football clubs the opportunity to duplicate all of their real world revenue in the e-world; sponsorship deals, advertising, publishing fees, ticket sales for live events, and more. 🔮

Crypto also offers endless new opportunities. One proven example of this is in NFTs - the NBA has already auctioned off $230M of basketball action to digital collectors. What would an NFT collection of Manchester United’s televised goal highlights (over the last 50 years) be worth, in a global market, to collectors of live goals? $2B? $3B? Copyright law will be complex and we need to work out whether these pieces of content are owned by the league, club, player, or broadcaster as to how the cash is divided, but it seems probable that clubs will benefit.

COVID-19 has already catalysed this digital transition. Declining match-day revenues and broadcasting rights have forced football clubs to explore alternative revenue streams and reinvent themselves. Radical changes may come sooner than the market expects.

There’s also a whole new world in the women’s game, which has been growing steadily in past decades, enjoying greater commercial interest, rising attendance and broadcaster viewership in league and national team competitions and many new, high-profile sponsors. 🤵‍♀️

The democratisation and gamification of the stock market increases the probability of fans buying shares in their own clubs causing rising valuations. The Robinhood-Gamestop saga demonstrates that publicly traded football clubs may have a very unique advantage if they receive a hard valuation from retail investors and their own fans. 🎮

It reasons that football will become a winners-take-all industry. Overseas broadcasting revenues, for example, are currently split equally in the Premier League. Long term, however, it seems inevitable that Manchester United will capture a revenue share closer to their % of attention (i.e. higher than 5%). Whether in a super-league or otherwise, the top clubs will leave the rest behind. 💨

Wall Street is beginning to take football more seriously. The owners of Liverpool Football Club sold 10% of their business at a $7.4B valuation in March 2021, and US private equity giant Silver Lake invested $500M in Manchester City Football Group at a $5B valuation last year. 💸

Key Themes At Play

Data Capture

The ability of clubs to mine their own fan base and garner data on their supporters will create great value.

Commercialisation

The ability to sell a broader range of products both physical (e.g. apparel, nutrition, work out videos) and digital (e.g. NFTs and Esports) has great potential value.

Fan Inclusion

The gamification and socialisation of the stock market lends itself to broader based share ownership medium-term giving public clubs a hard currency.

Value Drivers

  • The digitisation of content empowers the fan-club relationship.

  • Digital interactions create vast data trails for clubs to leverage.

  • Regulators are keen to break Facebook and Google’s data duopoly, thereby enabling clubs direct access to fan data.

  • Decline of broadcasting rights is forcing clubs to seek new revenue streams.

  • Football will increasingly become a winner-takes-all industry and value will accrue to Europe’s elite teams.

  • The rapid growth of Esports presents clubs with the opportunity to double-down on marketing, merchandising and advertising strategies.

  • Emerging technology will provide clubs with other paths to monetisation such as fan wearables and VR.

  • Socialisation of football through platforms like Reddit will inevitably lead to fans wanting to participate in their team’s economic upside.

  • By giving owners a financial return, fans are more likely to take back control of their club.

Key Risks

  • Publicly traded football clubs rarely outperform the market.

  • Fans are constantly calling for more emphasis on what is happening on the pitch than off it.

  • The Glazers, Manchester United’s powerful owners, mean there is not much protection for independent shareholders.

  • Dispute over TV rights at the domestic and European level could fragment the games of major leagues.

  • European competitions cannot be relied upon as a source of income.

  • Manchester United’s digital media strategy is unproven and may not generate anticipated revenues.

  • The rise of Fortnite and other Esports may lead to a relative decline in the popularity of football.

  • Copyright laws and privacy concerns around NFTs and VR will be complex and may diminish upside potential.

Conclusion

With billions of Esport gamers worldwide, emerging VR technologies, and a rapidly evolving NFT market, there are some really profound changes on the way for Europe’s largest football clubs. As Manchester United continue gathering fan data and begin to explore avenues such as NFT’s and VR, these opportunities should no doubt manifest themselves in the value of the Club. 💫

While the stock market remains ignorant, US Private Equity has already taken notice. RedBird Capital’s investment in Liverpool and Silver Lake’s investment in Manchester City evidence to me that Manchester United’s stock could see a sizeable value uplift over the next 12-24 months. 🚀

I’d Love To Hear From You

What do you think about the growth story behind sports franchises and football clubs? Would you consider investing in your favourite team or club? You can reach me on Twitter or email: anthony@djangodigital.co.uk.

Key Resources

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Thank you so much for reading this article. If you enjoyed it, be sure to share it with your friends and spread the word.

I want to be able to deliver the best content I can to all of you. To that end, I’d love to hear your thoughts on what’s working, what isn’t, and what you’d like more of. You can reach me on Twitter or email: anthony@djangodigital.co.uk.

Cheers,
Anthony

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