The third round of bids for Manchester United were expected to arrive before Friday’s deadline with Sir Jim Ratcliffe and Qatari Sheikh Jassim bin Hamad Al Thani the strongest candidates to take over the club after Finnish businessman Thomas Zilliacu withdrawing his bid and calling the process “a farce.”
Reports of bids around £5-6bn ($6-7.2bn) are floated around with Glazer trying to hold out for closer to £6bn. This is significantly higher than Man United’s actual worth as quoted by various business reports. But the price of an asset is not always going to be one which the market suggests.
‘Beauty lies in the eye of the beholder’ is an apt quote for this situation as what the asset acquisition will mean is different for bidders. For Qatar’s Sheikh Jassim bin Hamad Al Thani owning Manchester United could mean tourism in Qatar could jump exponentially and given people have had a taste of what Qatar is like during the World Cup, this could provide additional revenues for the middle eastern country.
So we are using four methods on how we can estimate the real value for Manchester United:
MARKET VALUE / CAPITALIZATION
Market Value or Market Capitalization refers to the total value of all a company’s shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares.
The current float of Manchester United is around 165 million shares and the current share price is around $21 so the market value is calculated to be around $3.465 billion. Exchange rate will have an effect on valuations and the final purchases are never done at market price with acquisition premium being paid to acquire but this method can help us get a rough estimate of the market value.
Also one applies the highest share price Manchester United have had which was $27.34 which gives it a market capitalization of about $4.5 billion (£3.58 billion) well below Glazer’s demand for $6-7.2bn.
TOTAL ENTERPRISE VALUE
This is a valuation measurement used to compare companies with varying levels of debt. It includes not only a company’s equity value but also the market value of its debt while subtracting out cash and cash equivalents.
According to the latest quarterly released by Manchester United, the gross financial debt of £680 million and a cash balance of £24 million which gives us a net debt value of £656 million. So the enterprise value of United is £3.66 billion. This method is used as whoever is the buying entity has to buy off the debt as a part of the purchase.
Instead of using profit multiples which are a bit tough to use on football clubs as they are loss-making entities we are going to use revenue multiples. Also, profit multiples are volatile in nature and are easily manipulated through clever accounting using ways such as player amortization.
But on the other hand revenue multiples are less volatile in nature and are less distorted. Also, they can never be negative. We will take the latest of Chelsea by American billionaire Todd Boehly along with Clearlake Capital, Hansjörg Wyss & Mark Walter last season at £2.5 billion. The revenue of Chelsea was £480 million giving them a revenue multiple of 5.2x. Let’s keep this 5.2x as the base and with a revenue of £583 million, Manchester United could be roughly valued at £3 billion.
OTHER LEADING BUSINESS PUBLICATIONS
We can also look at what the leading business publications in sports have to say on this matter. For instance, someone like
a) Forbes magazine values the club at £3.7 billion or $4.6 billion. Forbes calculates this estimate by taking into account commercial, match day sales plus winnings and broadcasting revenues.
b) Financial Times on the other hand use cash flows and they estimate the club to be valued around $1.6 billion or £1.3 billion.
c) Football benchmark is another leading publication which also likes to take into account the amount of social media following of the clubs and they value the club £2.4 billion.
After looking at the data we can assume Manchester United are roughly valued to be in the region of £3.5 billion to £4 billion. But again as we mentioned earlier ‘Beauty lies in the eye of the beholder’ so the value to Manchester United for different people will always be different.