Why Glazer shouldn't put his shirt on Manchester United

Malcolm Glazer, billionaire owner of the Tampa Bay Buccaneers American Football team, raised his stake in Manchester United to 16.3 per cent last week and indicated he might bid for the club. His family partnership, he said, had bought the shares "because it has great admiration for Manchester United's rich history, loyal fans, great players, outstanding managers, winning tradition and for investment purposes".

Most of that sentence is accurate enough. Manchester United certainly has a fine history, lots of fans, great players, and the most successful coach of modern times, Sir Alex Ferguson.

But as an investment?

Glazer may think he's on the verge of a great deal. The Florida-based businessman bought the Tampa Bay Buccaneers for $192m (£102m) in 1995, and the value of that investment had risen to $671m last year, according to estimates by Forbes magazine. But Florida is different from Manchester, and not just because it has sunshine and palm trees.

In the US, the National Football League operates a revenue-sharing system and has a salary cap for players which last year was about $75m per club. Under those rules, Manchester United or Real Madrid would struggle to get 11 players on the field if their stars kept their current salaries.

Soccer generates a lot of money. But it is seldom profitable and in the past few years has been a disaster for investors. The idea that it can be a serious, stable business has been one of the great commercial fictions of the past decade.

Britain has several listed football clubs, including Tottenham Hotspur and the virtually insolvent Leeds United. So does Italy, with Juventus Football Club and SS Lazio. Yet, as in most sporting-business endeavours, failure is more common than success. Lazio reported a €121.9m (£82m) loss in the 2003 fiscal year and its shares have lost more than half their value in the past 12 months. Leeds United has accumulated about £90m in debts, and is looking for a buyer to rescue it from collapse. Its shares have fallen from 28.50p in March 2000 to 3.13p.

True, Manchester United has been a great business. The share price has more than doubled in the past year, closing yesterday at 270p. For the 2003 fiscal year, it reported a pre-tax profit of £39.3m on sales of £173m.

But Manchester United is the exception. And there are few guarantees its success can last.

Overall, the Bloomberg Football Index, covering companies which own or operate an English or Scottish soccer club, has more than halved in value since its peak in 2000. The Bloomberg European Football Club Index, which includes clubs throughout the Continent, is also down over 50 per cent on 2001

There are three reasons why soccer and many other professional sports are risky for investors.

First, as a rule, fun and money don't mix. In the cement business, for example, nobody is going to set up shop just because they think it might be a great adventure. But in football, some maverick tycoon will always be willing to blow tens of millions for the fun of the ride. Roman Abramovich, who has lavished more than £120m on players for Chelsea, is just the latest, although possibly the most extravagant, example.

In Britain, former steel magnate Jack Walker spent a fortune turning his hometown team, Blackburn Rovers, into a powerful side. Walker, who died in August 2000, was rewarded with the Premier League title in 1995.

In Spain, Real Madrid president Florentino Perez, who is also chairman of Europe's third-biggest construction and services company, Actividades de Construccion y Servicios, has been instrumental in turning his club into the biggest force in the European game.

But tycoons who are also fans suspend the normal laws of economics. And that makes it tough for anyone who has to live within those laws.

Second, there is a chronic oversupply of teams. Every European country has its own league, and every big city has its own team, or teams. As countries prosper, more clubs become competitive, driving up the cost of players and taking a chunk of television revenue. Booming Spain is one example. Soon, the eastern European and Russian leagues will join the race.

This leads to a third point: like owning a Hollywood studio, the power of the workers in football makes it hard to deliver steady profits. Make more money, and what happens? The stars take it all.

Manchester United knows all about that. The club has agreed to pay Dutch striker Ruud van Nistelrooy £90,000 a week, according to recent reports. That would be almost £5m annually, close to double the £2.9m that Lord Browne, the chief executive of oil giant BP, earned in 2002. Against those kinds of salaries, profits quickly slip away.

The Tampa Bay Buccaneers may have been a good investment, but Glazer shouldn't tempt fate too much. He should stick to cheering on men in tight pants in the Florida sunshine and stay away from men in shorts in the Manchester drizzle.

Matthew Lynn is a columnist for Bloomberg News. The opinions expressed are his own

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