Manchester United (NYSE:MANU), the world’s largest soccer club, had a price range of $16-$20 on its IPO — but apparently, that was too big for their britches.
Thursday night, MANU priced its offering at only $14 a share, and even after going lower, the stock hadn’t found its pop in Friday trading.
Even with the discount, Man U still is one of the most valuable sports franchises in the world, with a market value of $2.3 billion — that puts it above even Major League Baseball’s Los Angeles Dodgers, which fetched $2.15 billion earlier this year in a private transaction.
But Man U’s valuation — which currently is at a nose-bleed 20 times EBITDA – could be vulnerable. Keep in mind that Madison Square Garden’s (NASDAQ:MSG) multiple is 12, and that company has a more diverse assortment of assets, such as a regional cable operation and a world-renowned arena.
Man U also has $661 billion in debt because of a leveraged buyout that was struck in 2005. As a result, it has been more difficult for the company to pay higher salaries for top players.
That’s already having an impact — Manchester United has been slipping. This past season, it lost the Premier League title to crosstown foe Manchester City, and it also failed to reach the knockout rounds of the 2011-12 UEFA Champions League tournament.
Man U still is a great and storied franchise with more than 559 million fans across the world. The company also recently struck a $559 million sponsorship deal with General Motors (NYSE:GM), in which the Chevy logo will be promoted prominently on the front of the team’s jerseys.
But finding growth will be difficult (unless it can get its own version of Linsanity, which boosted MSG earlier this year), and Man U says its fiscal 2012 revenues will fall by 3% to 5%.
So, in light of the high valuation, hefty debt load and difficulty in finding growth, IPO investors should be cautious about MANU.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.