Thursday, September 11, 2003

That's my horse you rode in on

A few weeks ago, the New York Times ran an article in its Sunday business section discussing whether buying shares in Manchester United (a company with publicly traded stock) was a good investment. ($$ req'd)The article was a sensible analysis of things one might want to look at buying shares in a normal company: revenues, expenditures, profits. But for us, any rational analysis is moot in the face of the question of why in God's name would anyone would want to put money into the relentless domestic trophy winning machine that they are. More seriously though, there is one thing that makes a sports team like MU a dubious investment for outside shareholders: the huge size of the egos involved relative to the size of the company. So one little spat within the company, which most likely goes public on the sports or social pages rather than the financial pages, can have big implications for the shares. It's a bit like the roller-coaster experience of shareholders in Martha Stewart's company.

It's already fairly well accepted that the supposed ingenious sale of an over-the-hill fashion-seeking David Beckham to some minor club in Madrid was in fact Becks fleeing the deranged megalomania of manager Alex Ferguson and landing in Europe's most famous football club. How is an outside shareholder supposed to evaluate what is going on? Especially when the inside shareholders are also getting involved in the spats. A few days ago, the club's chief executive, Peter Kenyon, quit for the same job at Chelsea. It first looked like another side-effect of Chelsea being awash in roubles these days, but now comes the news that Kenyon fled because he was sick of a row between Fergie and Irish shareholder John Magnier about a horse.

As we noted a while back, Ireland has spawned a particularly obnoxious breed of wealthy businessmen, who trade on their Irishness while dodging Irish taxes and being cronies of corrupt Irish Prime Ministers. Two of this group, Magnier and JP MacManus, own 10 percent of MU. Magnier owns and breeds horses, and he offered Fergie a 50 percent share in the horse Rock of Gibraltar at a knock-down price. The horse turns out to be extremely good and has netted millions in prize money. But Fergie now claims that his share in the horse extends to its breeding rights, which would be worth even more. This is not standard practice in the horse industry, where ownership rights to winnings and breeding are sold separately. The row has been running since the start of the year and Britain's Daily Mirror gets the leak:

[Daily Mirror source]: "Peter simply decided the grass was greener at [Chelsea], and that he could easily live without the tantrums of Sir Alex.
I think he became tired of the endless quarrels and disagreements.
Sir Alex getting involved in a scrap with a United shareholder was aggravation he certainly didn't need. Peter was always playing the peacemaker and I think he grew tired of all the hassle.

More dirt is sure to come out, including a rumour that Fergie was given his share in the horse for free. Remove the sports context, and these deals look very odd. Fergie and his Irish yuppie cronies are well-matched for each other. But it would be unwise to get caught in the cross-fire. We give this company a sell rating.