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iamamuttonhead t1_iun6s2e wrote

Reply to comment by Svitii in [OC] How does Man United ⚽️ make money? by giteam

That is what the Glazers would have you believe. The fact is that they are accruing huge future profits in increased franchise value. They "bought" the club in 2005 for about $1.5B. It's current value is about $4.6B. So they are getting a 7% annual rate of return in franchise value. They are now earning more than $300K annually in franchise value.

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gladiwokeupthismorn t1_iunknb4 wrote

How could the franchise possibly be worth 4.6 billion when they lose 100 million every year? It’s not like they’re some sort of tech company that’s gonna have a breakthrough and start making money.

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FairShake t1_iunts3s wrote

Beacuse brand recognition is valueable and theoretically they should be able to start winning throphies again, and such, earn a lot of money.

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boethius70 t1_iunvyrw wrote

It seems to me most professional sports franchises increase significantly in value over time. Pretty rare they're not worth considerably more in say 10 or 15 years after a purchase. Football, baseball, American football, basketball, etc.... they all tend to appreciate considerably in value over time.

The increase in value is probably more a product of the value of the franchise name and its relative success vs individual players though obviously if they can recruit and build up a lot of successful teams and players that will add even more to the value of the franchise.

The financial performance of the team I am sure plays into valuation but even if they're an eternal money-loser if they have strong revenue overall and continue growth in recognition, product / merch revenue, stadium / venue revenue, etc. etc. it has value to owners.

Nearly all pro sports franchises are hugely coveted by billionaire types, cities, States/countries, and investment groups. Maybe the very worst teams that can't seem to pull together winning teams for decades might eventually not have much value but it seems to me like even the worst teams draw fans and fill seats. The Clippers have sucked for decades but have stayed around forever and have a significant fan base.

I don't necessarily think the economics and math make any sense but it's maybe like the rarefied ownership aspect and prestige that draws investment. Private jets, multiple huge sprawling mansions that the super-rich maintain around the world, super yachts whose value could feed a small country and get used 2 weeks of the year.. I mean the math makes no sense but there's a certain prestige factor that belies that stupidity.

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[deleted] t1_iupkgxn wrote

United make 700m per year pre COVID. Things are going back that way slowly.

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przhelp t1_iuoe8ju wrote

The money they're losing is just debt service on the privilege of owning an appreciating asset.

It's like if I buy a house to rent out. I take a mortgage for 300k, I pay whatever that is, like 2k/month on the mortgage. Let's say I rent it for 1.8k, I can say I'm "losing" 200 dollars a month.

But I know people are going to want homes so I'm willing to take that loss because in the future I can sell it for more.

There are only so many Premier League clubs, so it's always going to have value and that value is always going to go up so long as there are billionaires that need places to put their money and egos to stoke.

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mnelso1989 t1_iuoyifv wrote

Concept is similar, except most people are renting for more than their mortgage is, at least in US.

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przhelp t1_iup7mbd wrote

Yeah but not always, throw in maintenance and management fees and all that and it gets a lot closer to break even.

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Dragon_Five_ t1_iuowhlb wrote

7% is pretty bad in the investment world. Statistically, you're better off placing your money in the S&P 500 or most other major index funds

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iamamuttonhead t1_iuoye1q wrote

Except that's not what's happening. The Glazers purchase was HIGHLY leveraged (the debt was twice the cash invested). Their return on THEIR investment is far, far greater than 7% ARR. Their roughly $500M investment has an ARR much closer to 15% - far better than any stock index. I'd also add, as a marque EPL team, there was essentially zero downside risk, I defy you to find a better investment.

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