Manchester United's (MANU) stock has gone nowhere for the decade since its $14 initial public offering in 2012 -- even as sports franchises have skyrocketed in value.
The reason is simple: There's no real economic value for shareholders. There's no cash flow, no dividends, and no earnings. Sports franchises are trophy properties for owners -- and value for shareholders can often only be garnered upon a sale. The Glazer family, who purchased Manchester United in 2005, have shown no interest in selling the club during their 17 years of ownership.
Until now, that is.
This week when the Glazer family announced their intention to explore strategic alternatives, that included a possible sale. There is no doubt that if the Glazers are serious about selling the club, shareholders will be well rewarded. The stock trades at a steep discount to its trophy value sale price. The 25% stock rise on Wednesday, which brought the enterprise value to around $3.5 billion, partly reflects this potential.
Sir Jim Ratcliffe, a life-life Manchester United fan, was reportedly interested in bidding no greater than $5 billion. His bid would equate to around $30 per share. The scarcity value and the notoriety of owning such a storied club could potentially drive the bidding much higher.
The sale of English soccer club Chelsea for $3.2 billion earlier in the year set a high mark for the valuation potential for the far more popular Manchester United.
Make no mistake, the Glazer family has voting control and is holding all the cards. Shareholders can't force a sale, so no activist investor is coming in to stir the pot if the Glazers don't get their price -- reportedly at $7.25 billion to $9.67 billion. In some respects, there's a Liar's Poker aspect to buying Manchester United's stock -- your hand may look good, but there's a skilled bluffer on the other side who has only their interest at heart. So, no tears are allowed if the board passes on an attractive shareholder offer in the end.
In general, this underscores the problem with owning shares in a sports franchise like Manchester United: Shareholders take on risk and opportunity costs without a clear economic reward; and without the trappings of owning a trophy property. Yet, on the plus side, the shares have been massively discounted in the market to its takeover value; and if the Board pulls the trigger on a fair bid, shareholders can reap the benefits.
Bottom line, MANU offers a unique risk/reward after its owners indicated a willingness to sell the Premier League club. Shareholders and fans alike would be winners. Manchester United reported, "the Board will consider all strategic alternatives, including new investment in the club, a sale, or other transactions involving the company." Clearly, this doesn't ensure a sale, but given the proper investor risk tolerance, it's worth pulling the trigger to own shares with a full understanding of the caveats and perils of playing along the high-stakes game for this trophy property.