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European Super League hurts competition but could boost the Manchester United share price

European Super League proposals risk hurting football as we know it, but for shareholders it may provide a bounty in stocks like Manchester United PLC.

Football world shocked as proposals gather pace

The past 24-hours have seen long-mooted proposals for a European Super League gather pace, with 12 of the largest clubs in the region opting to back plans to form a new continental competition which concentrates money into the hands of the traditional big clubs.

Under the proposals, the 15 founding clubs would be guaranteed entry into the competition, with five additional clubs entering based on merit. Needless to say, this proposition has been greeted with disdain by most football supporters, with the interest attached to much of the league spots outside of first place effectively removed as Champions League spots are done away with. Meanwhile, this two-tier system creates an almost impenetrable structure of haves and have nots.

The haves will gain guaranteed financial superiority, while clubs outside the competition would receive a fraction of that money from their participation in their domestic competitions. The current progressive structure allows for greater competition, whereas the new structure enforces huge divides which will also ensure that leagues are in turn less competitive.

For many European leagues, this is less of a problem given that their top teams win the competition almost every year. However, for the Premier League, the success of the competition has been built around the fact that one of many teams can win in any given year.

The table below highlights exactly that, with these proposals seeking to damage Premier league competition to the benefit of the few.

League Different winners over past decade
Premier League (England) 5
La Liga (Spain) 3
Bundesliga (Germany) 2
Ligue 1 (France) 4
Serie A (Italy) 3

Competition would dramatically boost revenues

Money is rather predictably the primary driving force behind these proposals. Owners with major investments want to guarantee high revenues going forward, and the funding of JP Morgan highlights the growing influence of US business in this global sport.

While many invested in the Premier League due to the huge following it has garnered thanks to its competitive nature, those same owners are leading a push that will ultimately demolish that same spirit of fair competition.

Clubs would receive a share of a €3.5 billion pot for their entry into the competition, which undoubtably provides a significant incentive given that the 12 teams currently involved have £7.4 billion in debt.

The ability to pay off debt and enhance revenues will simply provide greater transfer fee inflation which further drives a wedge between participants and everyone else. The table below (from the brilliant @swissramble) highlights the level of debts experienced by each club. One club of particular interest is Manchester United, which has the second highest financial debt of these top clubs.

Bought by the Glazer family utilizing debt, they have largely ramped up their borrowing which has invariably meant huge interest repayments each year. However, entry into this competition would finally see the club back in a stable financial footing.

Manchester United shares could bounce back on proposals

Whatever the merit of the competition, Manchester United could be a major benefactor if it goes ahead as planned. The prospect of higher guaranteed revenues brings a revaluation for investors, while the reduction of debt also provides another reason for investment.

The chart below highlights how the recent decline has taken the stock into a confluence of the 76.4% Fibonacci retracement and 200-day simple moving average (SMA) last month.

With that uptrend in mind, there is a good chance we see the bulls come back into play here. Whether the competition goes ahead or not remains to be seen, but there is a strong chance that higher, more centralized revenues come out of this furore.

Risks remain given the threats made from all directions, yet this current whirlwind could ultimately result in a major financial upgrade to the likes of Manchester United.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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