Monday, 8 June 2015

Kicking goals with Manchester United

This past week English Premier League champions Chelsea played Sydney FC in front of a crowd of nearly 84,000 at ANZ stadium. It was a a big event the Premier league is the biggest football league in the world and its teams are global. It felt like more of a home ground for Chelsea than Sydney! Even though Chelsea are the current champions the most watched Premier league team is Manchester United (MANU) commanding 51% of the League's global TV audience.


Sport is the most valuable media content as we watch events live. There is no watching on demand afterwards you have to watch it live in case someone else spoils the result. Fans will pay nearly anything to watch their favourite team and advertisers love the fact that people will be watching it live and not skipping their ads.

Over 100+ years old
MANU estimate that they have 659 million followers worldwide. It is one of the most popular and recognisable teams in the world. As a company MANU has durability. It was founded in 1878 acquiring the name Manchester United in 1902. There won't be any university drop outs in a garage planning to disrupt and create a company to compete against MANU.

Always sold out
MANU has three businesses all high margin and highly visable. Their commercial division (branding), broadcasting (TV) and matchday. Matchday revenues have the lowest growth potential but they are highly predictable. Their 75,615 Old Trafford stadium has had 99% occupancy since 1998/1999. Another winning streak alongside its 62 trophies that most teams can't compete with.

For shareholders the big growth areas are broadcasting and commercial. On the broadcasting front the English Premier League signed a deal earlier this year with Sky and BT. Resulting in 5.1 billion pounds over 3 years a 70% increase from the previous deal (see below) and this was just a domestic deal. Football is also gaining popularity overseas particularly in Asia and the US. MANU opened an office in Hong Kong and is opening a New York office to pursue future brand deals. Globally they have an official airline, beer, noodle and even marine diesel engine partner. 


Its not just a sports team its a brand
On the commercial front MANU have signed a new kit deal with Adidas for a minimum 75 million pounds per year over 10 years. The previous relationship with Nike was for 23.5 million pounds a year. Adidas will provide training and playing kits and have the exclusive right to distribute dual branded merchandising. The deal is better than it sounds as MANU will also bring retail, e-commerce and mono brand products in house rather than share these revenues as they did with Nike. MANU sold approximately 5 million items of branded licensing including 2 million jerseys.


These increased revenues have allowed MANU to spend more on players creating a virtuous cycle of success. As a team MANU has performed poorly since the retirement of Alex Ferguson but their recent top four finish suggests they are back on track qualifying for the Champions League. The UEFA fair play regulations also reduce the risks of clubs overspending. While players need to take their fair share MANU does a good job of keeping expenses in check with a great training program and a club that everyone wants to play for. Approximately one third of their first team comes from their academy.

Manchester United jerseys are a global phenomenon
MANU broadcasts are must have content for fans. Unlike most teams they are global you see people wearing their jerseys all around the world. As a company MANU has high predictability of future revenues and a durability that most companies can't match making MANU a fan favourite on and off the pitch.


Decisive has a long position in Manchester United (MANU) stock. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.