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Why United is like a rare painting

Orthodox ways of valuing Manchester United (or any other leading football club) fail to come up with figures that reflect the distorted realities of the bidding process.  It's like looking in a hall of distorted mirrors which puff up your size.

The Financial Times admits as much in a 'Lex in Depth' look at the club's valuation.   Out come discounted cash flow and other tried and tested techniques to arrive at a figure of $1.6bn which the Pink 'Un admits is 'very low'.  What works in other economic sectors does not fit football.

The share price implies a valuation of $4.5bn, although that is hard to justify in terms of the underlying financials.     However, that does not account of the potential for growth through non fungible tokens and sports betting.   Even so, people may start to see through NFTs as a gimmick and sports betting faces some challenges.  

Chelsea's sale went through at five times its revenue, although in United's case that would produce a figure of just $4.3bn.

Whoever buys United will have to refurbish Old Trafford and the training ground, although Chelsea's owners face a bigger challenge at their more constrained site.  United does at least own a substantial amount of land around its stadium which could offer future development potential.

United's revenue streams from broadcast income - its biggest source of revenue - and commercial income from sponsorship deals have both plateaued.   Operating costs, primarily player wages, keep going up.

So are we at the top of the market for trophy assets?   I think the best analogy is a painting by a leading artist, still fashionable, whose work rarely comes on to the market.  The price obtained generally exceeds estimates by the auctioneer.   Opportunities to own truly global sporting franchises like United are rare.

So I think United is worth at least $5bn and perhaps $6bn.   The Glazers won't accept less and may end up with a minority investment deal with an activist hedge fund or specialist financier.

Kieran Maguire reports on Monday afternoon: 'Manchester United share price has fallen another 12.9% today as market gets jitters that Glazers will not sell. Market value of club has fallen by $1.2 billion in just over a week .'

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