This is the biggest drop in valuation since its initial listing on the New York Stock Exchange in 2012. While ‘noisy neighbour’ Manchester City celebrates the league title, Manchester United is in the middle of a backroom shake-up.

And after rival Chelsea’s £4.25bn takeover deal with Todd Boehly, analysts are predicting Manchester United owners, the Glazer family, could consider selling the club for over £4bn as well.

Is a market comeback possible? 

As far as ticket and merchandise sales go, Manchester United dominates the charts. In fact, the club had the highest average attendance of all top teams in Europe across all leagues in 2021. With an average attendance of 73,156 fans per game, 97.7% of total tickets were sold last year.

But the Manchester United share price is closely tied to how the team performs on the field. According to data from Saxo Markets, the last time the club finished first (in 2012) its share price grew 36%. Even in 2017-18, when it finished second, the shares jumped 20%. However, the club has failed to qualify for the Champions League five times in the last 10 seasons.

In response, the board sacked Ole Gunnar Solskjaer and appointed popular Dutch coach Erik ten Hag for the upcoming season. The club has been on the lookout for Sir Alex Ferguson’s long-term replacement for nearly a decade now. Four full-time managers and three interim managers have held the post in the last nine seasons, which tells me it’s still transitioning.

And if I had purchased Manchester United shares in 2012, my investment would be down nearly 10% today. Even the most passionate fans would agree that this is a disappointing return on investment.

Takeover target

But after the recent drop in the Manchester United share price, analysts think the business is an attractive takeover prospect. The brand is still a cash cow and a change in ownership and champions league qualification could send its shares skyrocketing.

In fact, fans have been calling for the Glazers to quit for over a decade. And there are rumours that Britain’s richest man, Sir Jim Ratcliffe, could place a bid.

Analysts say that the club is undervalued now but any takeover could take months, if not years. In the meantime, the business has debt of nearly £500m. And the new manager has demanded a transfer budget of £115m, which could make the summer a pricey affair. If results are not favourable next season, the Manchester United share price could tumble further. 

There’s a lot of uncertainty around the club, keeping me from investing right now. But, the brand remains very strong and things could turn around in a short time. I’ll be watching media reactions to transfers and early performances next season before considering an investment. 

The post The Manchester United share price is down 23%. Time to buy? appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Think long term and be patient

Ever heard the saying ‘Rome wasn’t built in a day’? People often forget that Sir Alex Ferguson, one of the most successful football managers of all time, took four long seasons to win his first trophy. Of course,he went on to win many Premier League titles and countless trophies, but it certainly didn’t happen overnight.

Building a winning portfolio can also take many years of patience and perseverance. Would Sir Alex have had such an illustrious managerial career in this modern age of short-termism? I very much doubt it.

Warren Buffett, hailed by many as the greatest investor of all time, didn’t make his first million until 1962 (aged 31), even though he had been investing since the age of 11. It would be another 28 years before he joined the ranks of the billionaires, and a further 18 years before he became the richest person in the world, in 2008. When it comes to investing, patience is definitely a virtue, and a profitable one at that.

A balanced portfolio

We all know that Sir Alex went on to build many successful Manchester United (NYSE: MANU) teams based around a core of young players. But most people forget that the likes of David Beckham and Ryan Giggs were also supported by more mature and experienced players, including my favourite player of all time, Eric Cantona. Here youthful exuberance was perfectly balanced by the more grounded and experienced Frenchman.

By the same token it would be foolish to build a portfolio solely comprising fledgling companies yet to prove their business model or profitability. I’ve always believed that a good mix of mature and stable blue-chips, along with a sprinkling of more exciting and speculative small-caps provides the best of both worlds. Remember, taking on too much risk can be hazardous to your wealth, and capital preservation is more important than making profits.

Diversification

That brings me nicely on to my last point, diversification. How many football teams can you name that comprise solely 11 strikers, 11 defenders, or even 11 goalkeepers? A solid portfolio needs a good mix of stable, less volatile defensive companies that won’t buckle in times of crisis, as well as perhaps more cyclical companies that perform well during boom times.

Defensive sectors like utilities and consumer goods consistently perform well during the bad times as well as the good, while more cyclical sectors such as housebuilders and retailers ebb and flow in tune with the economic cycle.

Finally, in the interest of fairness, I’d like to point out that other football teams are available to support – although they may not be as good!

The post How football can help you build a winning portfolio appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Manchester United  (NYSE: MANU.US)  has an open transfer window until 2 February. UEFA Financial Fair Play and FA rules will shape any decisions the club makes during this window — with both bodies requiring break-even tests, read on to learn how Manchester United fares with these rules.

Transfer spending and the break-even tests

In my previous article, I took an in-depth look at how the wage uplift rule will likely result in little action from the club during the current transfer window. The break-even rules will also play a role, but the club’s solid financial performance the past few years should minimize their effect.

UEFA Financial Fair Play  

Manchester United is currently sitting third in the Premier League. Assuming the team does not implode, chances are they will qualify for the Champions League or Europa League next season, so UEFA FFP rules will apply.

UEFA FFP rules are based on a break-even test of the past three seasons, while also monitoring any overdue payables. Potential penalties for failing to abide by the guidelines include, in order: a warning, withholding of prize money, fines, prohibition on registering new players for UEFA competitions, and ultimately, exclusion from European competitions. Manchester United does not have any overdue payables, so that leaves the break-even test itself.

For next season, the break-even assessment is based on aggregate financial information for the seasons ending 2013, 2014, and 2015. Clubs can spend up to €5 million more than they earn per assessment period (three years). However, clubs can exceed this level to a certain limit — if it is entirely covered by a direct contribution from the club owner(s) or related party.

The loss limit allowed to be covered by club owners for 2015 to 2016 is €30 million. In the years following the 2017 to 2018 season, the limit will be lower, with the exact amount still to be decided. The fines for non-compliance can be hefty — crosstown rivals Manchester City were fined £49 million last year.

Also, it should be noted that in order to promote investment in stadiums, training facilities, community development, and youth development, all such costs are excluded from the break-even calculation. The break-even calculation is also pre-tax and does not include exceptional items. 

While the team does not release the FFP calculations, we can make some basic assumptions about youth development costs and training facilities to estimate the numbers. I have the combined youth development and training facility costs at about £12 million. The club was in good standing in 2013 and 2014, and I estimate it will be close to break-even in 2015.

Even if the combined youth development and training facility expenses were £0 a year, meaning £12 million would be added back to total relevant costs for each year below, the club would still be well above break-even for the three year period.

^{Source: Manchester United 2014 20-F and author estimates}

Based on my assumptions and projections for this year, Manchester United is approximately £85 million over the UEFA break-even threshold for the three-year period ending 2015.

Given the team’s big transfer signings last summer, the fact that Manchester United will be close to break-even this year is quite remarkable. Keep in mind the club missed out on £40 million to £50 million of revenue when it failed to qualify for the Champions League.

Manchester United has managed to grow revenue versus two years ago due to lucrative sponsorships — up from £152.4 million in the season ending 2013 to an expected £210 million this season. The most notable partnership this season is the Chevy kit sponsorship, which will bring in roughly $70 million a year for seven years. Also notable, Manchester United was able to keep its old kit sponsor, Aon, as the training kit, training facilities, and preseason sponsor for £15.5 million a year, down just £4.5 million a year from their previous arrangement.

Looking forward to next season, Adidas will be taking over the club’s retail sales from Nike for £75 million a year on a 10-year agreement. That’s more than double what Nike was paying Manchester United the past 13 years and will provide room for major signings starting this summer.

FA break-even test

The FA break-even test, under the FA’s “profitability and sustainability” rules, comes into effect next season and will be based on the past two seasons (or the current season and the past two seasons, if the first test results in a loss).

Like the UEFA version, the FA break-even test is pre-tax. The FA break-even test differs from the UEFA rules as follows:

1. There are no exclusions for investment, development, or exceptional items.
2. The allowed loss is up to £15 million over the current season and past two seasons combined.

If the break-even test results in losses above £15 million, then the club must provide secure funding. If the break-even test results in losses above £105 million, then fines, player transfer restrictions, and Premier League point deductions may be imposed.

Thankfully, the club was profitable in 2014, so there is room to maneuver for 2015.

While I estimate there will be a £25 million pre-tax loss, they will still be well over the break-even mark for the two-year period.

^{Source: Manchester United 2014 20-F and author estimates.}

Window of opportunity this summer

As we can see, it is not the break-even tests that are holding Manchester United back. The Premier Leagues wage uplift rule will put a hold on major purchases during this current window unless the club parts with a big player.

As the team writes in its annual report, “we already operate within the financial fair play regulations, and as a result we believe we are in a position to benefit from our strong revenue and cost control relative to other European clubs and continue to attract some of the best players in the coming years.”

Manchester United is in a great position to make large investments in players this summer, as the club’s off-field financial performance is as strong as the team’s current on-field performance.

The post Manchester United PLC Transfer Spending and Break-Even Tests appeared first on The Twelfth Magpie.

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Dan Dzombak has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Manchester United  (NYSE: MANU.US) spent £150 million last summer on transfers. With the transfer window back open until Feb. 2nd and the rumor mill in full swing, it’s a good time to look at how the various FA and UEFA rules on spending and costs could affect the club. Making some basic assumptions, my analysis shows Manchester United doesn’t have much room to maneuver in this transfer window.

With Victor Valdes recently signing on with a free transfer, the most popular rumors now revolve around:

• Ron Vlaar from Aston Villa
• Ilkay Gundogan and Mats Hummels from Borussia Dortmund
• Raphael Varane from Real Madrid
• Kevin Stootman from Roma
• Paul Pogba from Juventus

Besides a transfer of Ron Vlaar — which is possible, particularly if Aston Villa wants some money instead of letting him go on a free transfer at the end of the season — the rest of the players are surely needed by their respective clubs and would be too expensive for Manchester United to acquire.

Financially, there are four things for the club to consider when looking at transfer spending moving forward: UEFA’s Financial Fair Play (FFP) regulations and then Premier League’s home grown talent rule, wage uplift rule, and break-even rule.

Break-even tests

UEFA FFP and the Premier League break-even rules are similar. While UEFA FFP regulations don’t apply this season, assuming Manchester United qualifies for European play in 2015, this season’s decisions will matter.

Manchester United revenue is expected to drop £40 million to £50 million just from missing out on the Champions League this season. At the same time, expenses have risen after the club signed multiple players. However, the steady increase in revenue from sponsorships, which should rise nearly 25% this season to £170 million as a result of the notable $70 (£46) million a year Chevy kit sponsorship, means the club will be close to breakeven this season.

With both break-even rules measured over a three year period — Manchester United has been profitable the past two years — basically any spending during this transfer window won’t affect either break-even test for next year. You can read more about Manchester United transfers, financial fair play, and the break-even tests in my upcoming article.

Homegrown talent 

The next rule teams need to keep in mind for transfers and squad composition is the homegrown talent rule, which requires teams to have 8 “homegrown” players in order to have a full 25-man roster of players over the age of 21. Without getting into all the details, Manchester United is well above that threshold with 11 qualifying players, so the roster is unaffected.

Wage uplift

The Premier League’s wage uplift rule is the one area that may impact the team during this transfer window. While fans are hoping for a big money signing announcement, this seems unlikely under the wage uplift rule unless another player is transferred out at the same time.

The wage uplift rule was started as part of the Premier League’s “short term cost control” — it compares the total player wages ending in each season against the benchmark year. The 2012 to 2013 season currently serves as the benchmark, and the rule applies to the seasons ending in 2014, 2015, and 2016.

When you compare player wages to the benchmark year, they can either:

• Be £4 million per year higher than the benchmark year. So for the 2014 to 2015 season, that means they can only be £8 million above the wages in the 2012 to 2013 season,
• Or wages can be higher than the rule if the increase is funded by the club’s “own revenue,” which includes essentially all revenue besides Premier League TV money and includes profit from player sales.

For Manchester United, total “own revenue” was £301 million in the 2012 to 2013 season. With the team not making the Champions League, I expect “own revenue” including profit from player sales to be around £315 million to £325 million for this season. So Manchester United’s player wages are allowed to be £14 million to £24 million above the 2012 to 2013 level.

There are two things to note:

1. It is remarkable that Manchester United’s own revenue is up despite the approximate £50 million hit the club is taking from not making the Champions League. This shows how exceptional the organization is when it comes to generating commercial and sponsorship revenue.
2. The “wage uplift rule” applies only to player wages, not staff wages.

The mistake I’ve seen a few analysts make is to simply pull wages from the annual report, but that number includes all the wages and social security costs for the club’s 800-plus employees and 2,300 temporary staff, in addition to the 49 players on the first team squad.

So we have to make some adjustments to estimate the player wage uplift.

Club wages and salaries were £158 million in the 2012 to 2013 season. At the end of last season, Manchester United added 16 coaching, 13 commercial, 22 media, and 78 other staff for a total of 126 new employees compared to the 2012-2013 season. Using the club guidance for wages and assuming the employee numbers are unchanged, we can back out the social security costs and some other small costs, so my estimate of wages and salaries is £175 million to £182 million for the 2014 to 2015 season.

So the total wage uplift is £17 million to £24 million. However, we need to back out the added non-player employees’ wages. Assuming an average £60,000 salary across the 126 employees, we get £7.5 million.

That means player wages rose around £10 million to £17 million. To summarize:

^{Source: Manchester United 20-F, FQ4 2014 guidance, and author estimates.}

With the player wage increase estimated at £10 million to £17 million and “own revenue” up only £14 million to £24 million, that leaves little room for a major signing, unless there is also an accompanying sale or player loan.

Manchester United transfers going forward

While the January transfer window is limited, things look good for this summer, regardless of whether the club makes the Champions League or not. The £75 million a year Adidas deal will provide a big boost to revenue starting next season, and the club will surely add more sponsors to increase revenue between then and now. In the meantime, Ed Woodward and the Glazers have invested the club’s finances well over the past eight years, and they should continue to do so going forward.

The post Manchester United PLC Transfer News: Man Utd Wages Show Little Room to Manoeuver appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Dan Dzombak has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.