Is Manchester United Undervalued?

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Hey Friends,

Manchester United has been busy the last few months. Old Trafford returned to full capacity at the beginning of the 2021/22 season, the club recently welcomed back Cristiano Ronaldo, and they even debuted their new $275 million shirt deal with TeamViewer — bringing in $55 million annually.

Still, Manchester United posted a loss of roughly $125 million for the fiscal year ending June 30, with a shocking $150 million hit coming in Q4 alone — despite posting positive results in each of the previous three quarters.

As you can imagine, COVID-19 is still playing an insurmountable role.

Manchester United has three main revenue streams — commercial revenue, broadcasting revenue, and matchday revenue — with broadcasting revenue the only line item that is up year-over-year due to participation in the UEFA Champions League, plus the impact of playing twenty additional home and away games that were rolled over from last fiscal year.

Here’s a good overview of the finances:

We could knit pick the details of every line in the financials for hours — this thread breaks it down well — but almost two years later, the majority of this can still be blamed on COVID-19.

Sure, the stadium is full of people buying merchandise, concessions, and more, but most of that won’t be felt until the following earnings report. Manchester United couldn’t complete their standard pre-season tour because of COVID-19, and the Old Trafford Stadium, Museum, and Stadium Tour operations remained closed to visitors throughout the financial year until partway into the fourth fiscal quarter.

Hell, Man U even saw its corporate tax rate move from 19% to 25%, causing its net loss after tax to rise by over $75 million. But I’m more interested in watching how this plays out over the next 12-24 months.

Ariel Investments, a firm with $17 billion in assets out of Chicago, recently increased its equity stake in Manchester United from 5% to nearly 14%, doubling down on their previous bet and signifying a willingness to play the “re-opening trade.”

Here’s what I mean: As one of the few publicly traded stocks in the world of professional sports, Manchester United offers us real-time access to the valuation and liquidity of the business.

$MANU is trading at less than a $3 billion market cap right now, down about 12% from its pre-pandemic price, despite nearly every valuation service placing a $4.5 billion-plus equity valuation on the club.

Of course, there is some debt to deal with and a few other things, but it appears that Ariel Investments believes the club is still significantly undervalued coming out of the pandemic.

The public market will eventually decide if they are right or not. Still, if we know one thing for sure, it’s that professional sports teams and leagues are premium, scarce assets that have a strong record of value appreciation.

Have a great day, and I’ll talk to everyone tomorrow.

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