Manchester United are you a fan?

Manchester United (MANU) is the most famous sporting team in the world. According to the IPO documents MANU has 659 million followers worldwide with over 108m fans in China. Amazingly during the 2010/2011 season MANU 60 games attracted an average live cumulative audience of 49 million per game, based on Futures Data.

Not just a team

MANU is not only a team but a prestige brand. The advertisers seem to think so with record breaking deals with Chevrolet. The Jersey sponsorship with Chevrolet will bring in $559 million over seven years beginning in the 2014-2015 season. MANU has also increased its exposure to Asia by opening a marketing office in Hong Kong. This has lead to sponsorships with China Construction Bank for MANU branded credit cards and Wahaha their official soft drinks partner in China.

Are you a fan?

MANU had a rocky start to listed life completing its IPO at $14 down from the proposed range of $16-$20 given investors concerns over governance. The voting structure put in place by the Glazer family means the rest of the shareholders are subordinate to the families interests. However recent sponsorship deals including the purchase of 100% ownership of their content network has lead to re-rating. George Soros is officially a fan, his hedge fund bought into the stock after the IPO reporting a 7.85% stake in the company in a regulatory filing.

 What are the risks?

There are plenty if the team doesn't perform the value will go down, luckily MANU has a pretty consistent track record.

Unfortunately the man who should get most of the credit for MANU's trackrecord Sir Alex Ferguson is now aged 71. Sir Alex is the key, he was appointed manager in 1986 and according to public comments Sir Alex is 'hoping to stay on for a bit of time.' 27 years have passed so it is a big risk to the investment given players not only want to play with MANU but under Sir Alex as well.

Another risk are billionaires with way too much money investing in premier soccer teams without regard to financial returns. This is a big risk given football teams tend not to have salary caps. Hopefully for investors new fair play rules requiring teams to fund operations from cash flow and operate on the basis of their own revenue rather than debt will help mitigate some of this behaviour.

The customer base is concentrated. MANU's main customers are the Premier League, UEFA, Nike and Aon representing 51.5% of revenues in 2011. Though going forward this reliance will decline as more Asian based sponsors are brought on board.

Goal!!!
MANU's main opportunity is tapping into their overseas fanbase leveraging the smartphone. MANU now own 100% of their media network. MANU will increasingly offer video on demand providing subscribers with limited access to match highlights and news. In the UK coverage of MANU and the premier league is everywhere, in international markets there is less coverage and competition. MANU believe they can directly develop exclusive content to international fans in their language and local context. I think I will stay tuned.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in MANU

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.

I'll drink to that

It is still early but I think we might have already seen the deal of the year. No it’s not the ABI and Groupo Modelo takeover but a side deal between the two giants and Constellation brands (STZ) a wine company. The side deal involves STZ gaining ownership in the US of Corona. According to BrandZ below Corona is the 4th most valuable beer brand in the world. To appease concerns over market share concentration ABI has agreed to sell the US rights of the Corona brand to STZ. STZ will have the brand rights to Corona Extra, the best selling imported beer, Corona Light, the leading importing beer and Modelo Especial the third largest and one of the fastest growing major imported brands.
 

 

Concentrated beer

The US beer industry according to the DOJ complaint is highly concentrated with just two firms accounting for 65% of sales nationwide. With this deal STZ will become the 3rd largest beer company exposed to the fast growing Hispanic market in the US.

Source: DOJ, http://www.justice.gov/atr/cases/f292100/292100.pdf
 
A better balanced deal?

A Corona in both hands! The initial deal was not convincing and was blocked by regulators, this deal should ease their concerns. The initial deal involved STZ only having the right to import into the US for a 10 year period with ABI having an option to buy them out. STZ would not own the rights to the brand or production and would have been highly dependent on ABI. The DOJ believed that ABI's initial transaction to offload the remaining 50% of the Corona US import business was structured to "create a facade of competition" between ABI and STZ the importer.

The deal announced last night addressed all these concerns, now STZ will own the brands in the US and production facilities. STZ will become a stronger competitor over the longer term with perpetual ownership and ability to manufacture not just Coronas. STZ will be able to focus more on building volume and scale rather than just profit as a short term importer.

How do you know someone is planning for the future?

They buy two cases of Corona instead of one! The Piedras Negras brewery is key to the future of the deal. The brewery was completed in 2010 and utilizes state of the art technology which allows the brewery to be self-sufficient and able to be expanded in a modular fashion. The brewery is only 15km from the US border. According to STZ the brewery has capacity of around 120 million cases of beer which will cover 60% of STZ US import needs until they ramp up the plant further with ability to expand to approximately 360 million cases.

The beauty of the deal is that STZ has no restrictions on what beer they could produce at the facility, they can start producing their own craft beer. Importantly the deal helps to eliminate the uncertainty involved with the terminal value of the business with the ten year buyback eliminated. Out of nowhere STZ is now the 3rd largest beer company in the US with one of the world's newest production facilites. Will have to drink a few Coronas before I could imagine another deal that would beat this one.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive is long STZ

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.

 

Most popular apps

In the world of mobile applications Facebook and Google are vying for users attention. According to Comscore apps from these two companies accounted for 1 out of every 3 minutes spent on a mobile app. Recent Comscore data suggest Facebook app usage has pulled right ahead of Google in their race for mobile dominance.

 
The Facebook data is amazing considering they only became a 'mobile' first company this year. Though Facebook did benefit from Apple pulling Google maps from the app store (see chart below). Facebook is also the owner of Instagram, owning 2 of the most used apps. 

 

 

Source: http://www.comscore.com/Insights/Blog/Facebook_Vaults_Ahead_of_Google_Maps_to_Finish_2012_as_number_1_US_Mobile_App
 
History has shown that advertisers will go to where the audiences are, as mobile usage increases both Google and Facebook will benefit. While the smaller mobile screen is seen as a disadvantage for advertising this is more than offset by the ability of mobiles to detect location and proximity. We are now seeing early signs from Google taking advantage of a world in which we are constantly connected.

Google this week have announced changes to adwords their advertising auction system. Among the most interesting changes are the ability to target location and time of day. An example given by Google is a cafe. The cafe can now target higher bids for people searching for cafes close to their location and can adjust bids higher around certain times of day like lunch. This additional targeting capability will likely result in increases to Google's mobile revenues per ad which have struggled due to the small screen.

Jason
 

http://www.decisiveassetmanagement.com/

Disclosure: Decisive is long FB and GOOG

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.