Manchester United Is the General Electric of Football

Alex Webb

(Bloomberg Opinion) -- Manchester United Plc is the General Electric Co. of soccer.

Both are storied giants used to dominating their respective fields, who enjoyed their heyday in the 1990s. In Alex Ferguson and Jack Welch respectively, they had dominant leaders who set an all-but-impossible standard to follow (even if there are questions about what they left to their unfortunate successors). And in recent years, both have a track record of poor capital allocation that has seen them underperform their rivals.

Where Man Utd has spent hundreds of millions of pounds over the past eight years buying players such as French midfielder Paul Pogba and Belgian attacker Romelu Lukaku, GE went on a spending spree that included the 12.4 billion-euro ($13.8 billion) acquisition of Alstom SA’s power generation business. That deal’s entire value was ultimately written down.

When Jeff Immelt took over as GE’s chief executive officer in 2001, it was the biggest company in the S&P 500. Over his 16-year tenure, he spent some $200 billion buying companies, yet shareholders enjoyed annual returns of just 0.5%. In the same period, the S&P 500 was averaging returns of 7.4% a year.

Man Utd is much the same. After winning 12 English Premier League titles in 20 years, the club has won just one championship since its 2012 initial public offering. That’s even as it spent a net 740 million pounds ($965 million) through June 2019 buying new players. In the same period, its bitter rival Liverpool FC spent spent less than half that amount, yet was crowned European champion last year and is running away with the Premier League this season.

Soccer fans will argue all day that their club owners under-invest in the playing squad to milk the club for cash. Man Utd is owned by the American Glazer family and chants of “Glazers Out” are regularly heard at the team’s Old Trafford stadium. Fans accuse them of leveraging up the club and keeping the IPO proceeds for themselves.

The story for investors is just as grim. Since the IPO, Man Utd has returned 5.8% a year. Italy’s Juventus Football Club SpA, Germany’s Borussia Dortmund GmbH and AFC Ajax NV in the Netherlands, all publicly traded, have averaged returns of 22% in the same period.

Adding to the ignominy, the consulting firm Deloitte expects revenue at Man Utd, which has long challenged Spain’s Real Madrid and Barcelona for the title of the world’s most valuable soccer team, to fall as much as 11% this year, as failure to qualify for the European Champions League hurts sales. That could allow domestic rivals Manchester City FC and Liverpool to overtake it, knocking the Red Devils off the top spot in England for the first time since Deloitte began its Money League report on soccer 23 years ago.

The problem isn’t that Man Utd has skimped on player investment — the numbers show that it hasn’t, at least in recent years. But it has invested poorly. A useful point of comparison is Juventus, which occupies a similar status in Italy, having won more Italian championships, known as Scudettos, than any other team.

After the Turin-based club, run by the same Agnelli family that controls Fiat Chrysler Automotive NV, sold Pogba to Man Utd for 89 million pounds, it reinvested the proceeds in a string of players who subsequently led the team to the final of the Champions League, Europe’s top club competition. In the 12 months after Pogba’s departure, Juventus’s share price climbed 141%, although admittedly this was from a very low starting point.

Since the Italian team signed Cristiano Ronaldo, a five-time winner of the FIFA Ballon d’Or award for the world’s best player, for 100 million euros in 2018, stock increases have added almost 800 million euros to its market capitalization. That’s a very good return on investment, regardless of how Ronaldo plays.

The comforting news for Man Utd is that it differs from GE in one key respect: its problems are easier to solve. In aviation, power generation, and oil and gas equipment, GE makes products for markets that face an extremely uncertain future. The Manchester giant just needs to invest its capital more shrewdly. The best way to do that is to improve its long-term recruitment strategy, and for that it will need more effective management structures in place. Ed Woodward, the club’s executive vice-chairman, is the man in the firing line for increasingly angry fans. Immelt would no doubt commiserate.

--With assistance from Elaine He.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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