Bizness Lounge

Five Reasons Manchester United Is Getting No Juice From Ballmer's $2 Billion Bid For Clippers

Shares of Madison Square Garden have been red hotsince former Microsoft MSFT -1.23% CEO Steve Ballmeroffered $2 billion for the NBA’s Los Angeles Clippers. That is what one would expect since the Clippers price tag is an unprecedented 15 times revenue for a sports team and MSG owns two teams: New York’s Knicks and Rangers.

So why hasn’t Manchester United, the publicly traded English soccer team, gotten any love from the record valuation (15 times revenue) placed on the Clippers? During the past week Manchester United stock hasbarely increased while MSG’s stock is up almost 6%. Given the fact that the late Malcolm Glazer’s children have been involved with running soccer team (as well as the NFL’s Tampa Bay Buccaneers) for a while, the death of the 85 year old Glazer should not be reason for the lack of investor interest.

Here are my five best guesses:

1. A report by J.P. Morgan analyst Mark O’Donnell on May 29 downgraded Manchester United to neutral from overweight, lowering its price target to $17.50 from $18.90 (the stock price was $16.30 at the time O’Donnell wrote the report. Main concerns: rising player costs and rich valuation based on future cash flow.

2. Most of the big sponsorship deals have already been signed, like the $559 shirt deal with Chevrolet that will see the GM brand on Manchester United jerseys.

3. A core group of Manchester United supporters will bash the Glazers for as long as the family owns the team, thereby hurting the brand. Manchester United Supporters Trust has almost 204,000 members and they have beenangry with the Glazers since the family bought the team for $1.47 billion in 2005 for having too much debt and not paying enough for players.

4. The soccer team is has hit a the ceiling on season ticket prices at  Old Trafford. Manchester United charges an average season ticket price of $1,600, behind only four other Premier League teams.

5. Bigger money coming into rival teams will hurt Manchester United’s Champions League success and the revenue that comes from performing well on the pitch in soccer’s richest annual tournament. Forget for a minute longtime powers Real Madrid, Barcelona and Bayern Munich. Qatar is pumping hundreds of millions of dollars into Paris Saint-Germain, Manchester City has been become an elite team since Sheikh Mansour bin Zayed al Nahyan bought them in 2oo8 and pumped $1 billion into the team, and who knows what oil moneywill buy Aston Villa from Randy Lerner.

All this said, Manchester United may be a buy to me. It’s enterprise value-to-sale multiple is 4.6, which is within the range of traditional team valuations. The new range on team revenue multiples likely start above six.