Manchester United Is the General Electric of Football
This article draws an interest parallel between capital allocation in the corporate world and that in the world of football in the specific context of GE and Manchester United. The author contends that “Like GE, the club once dominated its field but has lately chucked away its cash on terrible acquisitions.”
So, how did these two institutions lose their way? At the heart of the problem seems the genius of their all-conquering leaders who – when they are replaced – cannot seem to be replaced with equally talented leaders: “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).”
The successors to Welch and Ferguson screwed up on capital allocations says the author: “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.”
Football fall and investors in listed companies often whine that their club/companies are NOT investing enough. In this simplistic view of the world, capex by itself is seen as a virtuous activity. The author argues that the quality of capex is more important than the quantity: “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%….”