August 27, 2014 – Last night, the once mighty Manchester United crashed out of the Capital One Cup, having been thrashed 4-0 by their League One opposition – MK Dons. This was the first time in nearly two decades in which United played in such an early round of the cup, due to their failure to qualify for European cup football last season. The sports pundits can debate and comment on the woes of how a great and mighty team has fallen – but at Leverate, our experts are focused squarely on the financial implications.

Manchester United is one of a group of only five European clubs floated on the Stock Exchange, and as such we can analyze the effects of their on-field performance on the share price performance. When the New York exchange opens later today, which position would you take?

Starting with a short history, we can map some of the team’s key historic events to see if there was any impact.

 

In May 2013, Sir Alex Ferguson retired as coach of Manchester United, holding a record as the most successful manager of all time in the English Premier League. This led to an immediate slump in prices, although there was a quick recovery. In August 2013, the season started optimistically with Sir Ferguson’s handpicked replacement, David Moyes, at the helm. However, as the season progressed, results on the pitch first put Manchester United out of contention for the Premier League, and even worse, was the realization that they would not even qualify for European Football for the first time in 19 years.

Based on this lackluster performance, in April 2014, Moyes was released from duties and Manchester United’s share price rallied. As rumors strengthened that Louis Van Gaal (“LVG”) was set to take over, the share price rocketed until he was publicly appointed coach in June. He officially took over the reins in July, following a moderately successful World Cup campaign with the national Dutch side. LVG has an impressive resume with successes at the highest levels of football across Europe, including the mighty Barcelona.

August 2014 saw a disappointing start of the new season with a shock defeat to Swansea – causing share price nosedives once more. The next game resulted in a toothless 1-1 draw against Sunderland. And last night’s third game, concluded with a heartbreaking loss which knocked Manchester United out of the Capital One Cup.

In 2012/13, United earned £31.3m in Champions League broadcasting revenue, which accounted for 8.6% of the club’s income. The teams poor performance means that revenues estimated at £35m will be missing this year. A further £10m is estimated to be lost on match-day earnings, as there will be fewer home games. Failure for another year will mean even more losses in revenue.

One of the forgotten costs of running a football team is in luring new players to the club. Based on their current performance, Manchester United may not qualify to compete in the elite Champions League for some time, which is the showcase for professional footballers. The only way to compensate new signings for this loss of opportunity is for the club to inflate player fees and wages. We can see this in the signing of Angel Di Maria for a reported fee of £59.7m (smashing the previous Premier League record of Torres to Chelsea for £50m) and wages of £130,000 per week.

Based on the information presented above, you may decide that the share price is likely to fall in the immediate aftermath of last night’s humiliating defeat. The question then becomes “what is next?”

If LVG can turn the team around, then now is the time to get in, while the price is as low as it is going to get. If you are pessimistic, you may want to either liquidate a current position to cut your losses or sell short. The most important thing to remember is that football generates passion, but business is business – so love them or loath them, base a decision on calculations rather than emotion. Leverate recommends conducting your own due diligence when choosing stocks, and we caution that past stock performance is no guarantee of future price appreciation.