(By Mani) Manchester United Plc
) shares are set to appreciate
given it is one of the most successful sports franchises and widely recognized
brands in the world. The company, which became public in August, has a
sales-driven culture that has demonstrated an ability to extract significant
brand value through partnerships and marketing innovation.
It also benefits from the secular growth of sports media and
global pay TV, which drive broadcasting rights growth.
"While these practices are driving value from the brand,
management believes the brand is still under-monetized and plans to unlock
further value in the coming years continuing these same techniques," Deutsche
Bank analyst Doug Mitchelson said in a client note.
Manchester United is an English, professional football club with
a globally recognized brand and a large, worldwide following. In addition to
the club, the company engages in monetizing its brand through marketing
agreements with partners across a variety of industries and geographies.
The company, which estimates its fan base to be roughly 659
million globally, sells branded products in over 130 countries including 2 million
jerseys per year. It draws a live television audience of 49 million viewers per
game on average, compared to 17.5 million for an average NFL game.
A key point of differentiation between the company and other
successful sports franchises is the sales culture instilled in its marketing
division. Over the past several years, Manchester United has become a leader in
the field of sports marketing and has developed best practices and marketing
innovations that other franchises are just beginning to emulate.
"We believe MANU is still in the relatively early stages of
reaching its full brand monetization potential, and the high incremental
margins (50-80%) of new sponsorship, licensing and other partner agreements is
behind our forecast for a 34% EBITDA CAGR through CY2016," Mitchelson noted.
In addition, broadcasting is expected to see material growth.
The remaining revenues are associated with monetization of the company's brand
and are characterized by contracts that range between 2-7 years, typically with
"In CY2013, we forecast strong revenue growth of 22% y/y,
driven by contracted increases, a renegotiation with Nike, improved team
performance and new business," the analyst said
Meanwhile, Manchester United plans to generate more revenue from
Nike (NYSE:NKE), with whom it partnered in 2001, to be its kit supplier and
manage all retail, e-commerce and licensing of United-branded merchandise in
what was an unprecedented deal at the time. This agreement brought in a minimum
annual revenue guarantee of 25 million pounds plus a profit share.
The company plans to renegotiate with Nike by the end of the
fiscal 2013 season, which would pull the new contract into fiscal 2014. The
current contract expires at the end of fiscal 2015 season.
"We expect a material revenue benefit from MANU sharing the
revenue of these retail businesses (vs. profit share prior) as well as
potential global growth of these businesses with no related expenses,"
Currently 63 percent of Manchester United's revenue is directly
driven by the team via ticket sales and TV broadcast rights, which vary
based on team performance, while remaining revenue relates to brand
monetization and represents the bulk of revenue and profit growth.Broadcasters pay fees to the Premier and
Champions Leagues for the right to televise matches. These pools of revenue are
then split between the teams in each league where a portion of the pool is
split equally and a portion is based on team performance (top performing teams
The crucial value of sports to networks and pay TV operators has
driven significant rights fees growth over the past several contract cycles.
"We forecast broadcasting revenue to grow at a 7.5% CAGR through
FY16, with the majority of this growth coming from a step up in the Premier
League rights in FY14," the analyst wrote.
Meanwhile, the company said its world-record $559 million shirt
sponsorship deal with Chevrolet and the Premier League's new 1 billion pounds a
year UK television rights deal highlight the outstanding growth prospects for
the future. It also expects a substantial increase in the value of the Premier
League's international television contracts scheduled to be announced later
With over half of the above growth drivers highly visible at
present, shares will appreciate as investors gain confidence in the drivers and
the company execution provides comfort around the uncertainties, which are
largely sustained team performance and control of player costs.
Looking ahead to fiscal 2013, Manchester United expects revenue
between 350 million pounds and 360 million pounds and adjusted EBITDA or
earnings before interest, taxes, depreciation and amortization of 107 million
to 110 million pounds.