For Manchester United (MANU, Financial) shareholders and fans, 2014 was a year to forget. Under the tenure of the then manager David Moyes, Manchester United underwent a catastrophic season, finishing 7th in the Barclays Premier League table for the first time since the tournament started. As a result, the stock price went south. However, the team has managed to turn its fortunes around under the management of Louis Van Gaal and looks set to finish in the top 3. This will guarantee Manchester United a spot in the UEFA Champions League and will vastly improve its revenue going forward. However, this is not the only positive for Manchester United as the team has many growth drivers. Let’s take a look at those one by one.
New sponsorship deal with Adidas
A record-breaking deal with Adidas, valued at £75M a year for 10 years, was signed in the first quarter of 2015, and will take effect next season. The agreement guarantees £75 million a year unless the club fails to qualify for the Champions League for more than 2 consecutive seasons, then the annual payment reduces by 30%.
The current deal with Nike (NKE, Financial) is worth a minimum of £24.8 million, plus a 50% share in profits on merchandise, which was £12.2 million last season. The new deal is worth almost double that of the previous deal, which will improve the already impressive 46.7% annual growth rate of sponsorship revenue achieved in 2012-2014.
Commercial and Broadcasting revenue likely to grow
Commercial revenue grew 24% during the 2013-2014 season to £189.3, making that segment 43.7% of total revenue. Commercial revenue share is expected to grow to over 50% this season as broadcasting revenue drops and Chevrolet takes over as kit sponsor for £44 ($70) million a year. This deal is fantastic for the club as it features no provisions for if the team's performance suffers. Commercial revenue will also certainly grow next season (2015/2016) as the Adidas deal to license and sell the club's retail goods worldwide starts at an enormous £75 million a year, up from the existing deal with Nike that has averaged £36 million annually the past three years.
Broadcasting revenue also has scope for growth. Broadcasting rights for the Premier League 3-year cycle ending 2015/16 is expected to be worth £5 billion, up from £3.5 billion in the previous 3-year cycle. Football clubs competing in the Premier League get a share of broadcasting rights, and this increases the higher up the table the club finishes. As English football is being watched much more in other countries, especially in the US, the broadcasting rights for live games is likely to rise, especially as competition for rights has built up recently in the UK, with BSkyB under increased competition from British Telecommunications. Manchester United's TV channel, MUTV, is also proving a great success. The TV channel delivers content to over 85 countries and territories around the world, and as the club rises in popularity, so will the Television channel.
Conclusion
Proving the doubters wrong has been a long-time trait of Manchester United and it seems like the team has done it once again. Landing a spot in UEFA Champions League will add to the team’s revenue and given that this was Louis Van Gaal’s first season in charge, he has done a tremendous job. The team will definitely sign more players in the summer transfer window and looks all set to take the next season by storm. This in turn will push the stock higher, which is why I think it’s the right time for investors to buy it.
