DEAR MR. BERKO: I placed an order to buy 2,000 shares of Manchester United when it came public at $14. My broker and I had thought it would be very difficult to get because the demand was so strong. A day before it came public, my broker told me that he could get 2,000 shares but became concerned because it was too easily available and suggested I reduce my order to 500. I hoped to buy the stock and then flip it at a higher price and make a good short-term profit. Are there any big sports teams that went public and trade at a price higher than their offering price? Manchester is trading at $14.25, and I'd like your opinion about whether you think this would be a good long-term investment — whether I should add to my 500 shares or keep what I have.
HE, Wilmington, N.C.
DEAR HE: Manchester United (MANU-$14.25) is probably the most well-known soccer team east or west of the prime meridian and is owned by a Palm Beach, Fla., billionaire who is loved by his mother (I think), his children, his cousins, his aunts and sycophants and reviled by English sports fans. MANU, which has won a record 19 championships, was taken public by three members of the New York financial mafia (Merrill Lynch, Morgan Stanley and JPMorgan Chase) at a disappointing $14 a share after investors refused it at $22, laughed at $18 and spat on it at $16. The initial public offering raised only $233 million, far short of the $350 million promised to the team's owner, Malcolm Glazer, and minor shareholders by the banksters of the New York financial mafia. Initially, the demand was very strong, but the IPO was eerily reminiscent of the farcical Facebook offering a few months back and a textbook example of superbly inept management by the banksters at Goldman Sachs.
MANU's 2012 revenues of $495 million were down from last year's $505 million, and it is definitely not a “great, profitable growth company” as its gung-ho CEO, David Gill, claims. Certainly, the weak response to the MANU IPO is suggestive of its prospects for the coming couple of years. Seeing as MANU is already on top of its heap, I doubt there's enough revenue and profit growth to attract continuing interests. So considering annual salaries averaging $4.3 million per player, MANU made about $20 million last year from continuing operations such as sponsorships, retail sales, merchandising, media platforms, etc. Sports franchises don't make big profits. Rather, they usually make small profits or losses, and franchise values function like owning a piece of real estate. There are some good years, some bad years and some boring years.
The Boston Celtics came public in 1986 and almost immediately collapsed 40 percent from its IPO price. It was finally taken private a dozen years later at less than the original IPO price. The Cleveland Indians came public in 1998 at $15 and soon fell to $9 a share. Two years later, it was purchased for a tuneless song at $320 million, far less than its IPO value. In the past decade, several Premier League soccer clubs were publicly traded at one time or another and flopped. Madison Square Garden (MSG-$39) owns the New York Knicks and the New York Rangers, and Rogers Communications (RCI-$40) owns the Toronto Blue Jays, but neither MSG nor RCI is forthcoming about profits. Teams want to keep financial information as close to their vests as possible because this data can prove too helpful to players' agents when salaries are being negotiated. Can you imagine Kobe Bryant, who makes $52 million a year, or Alex Rodriguez, who makes $35 million a year, negotiating for a higher salary in 2013?
Sell your MANU. It won't pay a dividend, and the only way you'll make a profit on this thing is if Malcolm sells the team. And in the coming six months, I'll wager a sixpence to a six-pack that MANU will continue to trade lower than your basis.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.