A New Sports Star Is a Huge Tailwind for This 'Trophy Asset'
They're one-of-a-kind, coveted jewels...
Longtime readers know we love the power of investing in companies that own "trophy assets." These assets are beyond special... And they're impossible to replicate.
For example, there's only one Empire State Building. The iconic Art Deco structure, which is owned by Empire State Realty Trust (ESRT), sits atop some of the most desirable real estate in the world, in Midtown Manhattan.
In normal times, the building's 86th and 102nd floor observatories see around 4 million visitors per year. You couldn't build another Empire State Building if you tried.
Top sports franchises are another example. And that's what we're diving into today...
Manchester United (NYSE: MANU), an English "football" (or as we call it in the U.S. – soccer) team, is one of the most well-known sports franchises across the globe. According to Forbes, Manchester United is the 11th most valuable sports franchise in the world, with a value of $4.2 billion (up 27% in the past five years).
Manchester United has four impressive revenue streams:
1. Matchday Revenues
Manchester United's "matchday" revenues include ticket sales and other activities linked to men's and women's home matches... like hospitality packages, food and drink sales, and event parking. They also include fees for other stadium events, such as rugby matches and concerts.
Matchday revenues accounted for around 18% of Manchester United's total revenues during the last pre-COVID fiscal year (2019).
2. Broadcasting
Manchester United derived around 38% of its revenues from broadcast rights in 2019. Broadcasting is its largest and fastest-growing revenue category. It has increased by 22% annually since 2015.
3. Sponsorships
If you've watched any European soccer match, then you've probably noticed the corporate logos emblazoned on players' jerseys. This differs from the major U.S. sports leagues, which mostly don't allow sponsorship logos on uniforms. (However, they are changing their tune more and more each year.)
4. Merchandising
Unlike teams in the NFL, MLB, and NHL, Manchester United retains full control of its intellectual property rights. This includes the use and monetization of the team brand and logo for retailing and merchandising.
Manchester United has a 10-year uniform and dual-branded licensing partnership with sportswear and shoe giant Adidas. The minimum payable by Adidas over the term of the deal is nearly $1 billion.
Given Manchester United's status as one of the most well-known and well-liked sports franchises in the world, there's high demand for all of these business lines. That's what makes Manchester United a trophy asset.
And since Manchester United is a sports franchise, its stock doesn't move on the same headlines that many others do, like Wall Street analyst upgrades and downgrades. In many cases, the decisions that impact Manchester United's on-field performance and sponsorships, such as player trades, are the closely watched indicators for this stock.
Take August 27 as an example...
That day, Manchester United shares surged more than 5% on reports that it was going to sign Cristiano Ronaldo to its club. Given Ronaldo's popularity across the globe, this will serve as a huge boost to Manchester United's business. He is an incredibly influential athlete, and his popularity will drive immense interest from potential sponsors. Just take a look at what he did at his current club...
During his time at the Italian club Juventus, two of its main sponsors – Adidas and Jeep – renegotiated their sponsorship agreements and more than doubled their annual payments to the club.
Earlier this year, Ronaldo was blamed for knocking $4 billion off Coca-Cola's (KO) market cap because he removed a Coca-Cola bottle from his press conference and insisted that people drink water instead. Granted, the blame may have been misplaced, as the entire market was pulling back at that time.
But it still shows just how influential a player like this can be. Ultimately, Ronaldo's signing will bring in hundreds of millions of dollars in merchandise sales.
You can see it in a recent example... Lionel Messi – often regarded as one of the two best players ever – signed a deal with the French club Paris Saint-Germain last month. In the first weekend after that announcement, the club brought in more than $100 million in jersey sales. Manchester United could expect something similar now that it has signed Ronaldo.
Ronaldo's presence will serve as a huge tailwind for all of Manchester United's business lines. Tickets are going to be in higher demand. Merchandise will fly off the shelves. Businesses will line up to partner with the club. And more people will tune in to its matches.
Manchester United is already a trophy asset. As one of the most valuable sports clubs in the world, it pulls in substantial revenues and intense demand for company partnerships. And it will continue doing that.
By adding one of the most marketable people (not just athletes) in the world to its organization, Manchester United could further bolster its trophy-asset standing.
Sometimes investing is simple.