Alex Ferguson announced this week that he'll retire at the end of the season as manager of Manchester United (NYSE:MANU). While it's a major loss for the team, his leaving doesn't change whether you should invest in Manchester United stock.
Alex Ferguson is irreplaceable; many believe him to be the best coach in history, above other notables such as Phil Jackson and John Wooden. His successor will be David Moyes, who has successfully led Everton since 2002. Moyes was always challenged with a small transfer budget, but he has made it work. It will be interesting to see how he can perform with a much bigger budget, which he'll probably have to use quickly if the rumors are true that star player Wayne Rooney wants to leave.
Moyes will face a steep learning curve, but Ferguson's staff is there to help him. Moyes took Everton to the Champions League once, in 2005, but he'll now be expected to make it every year. Importantly, Manchester United has promised to stick behind Moyes with a six-year contract, which will give him time to grow into the role and develop the team as he sees fit.
What does this mean for Manchester United stock?
The value of Manchester United is in the brand, the team's continued winning, and its place in the world's most watched soccer league. With a manager transition, there's always a chance that things won't go well, and even if they do go well, there's only a small chance that Moyes will be able to keep Manchester United as consistently high in the table as Ferguson did. No matter how well Moyes does, the chances of his achieving the success that Ferguson did are slim, as Ferguson made the club a perennial success. Incredibly, the team hasn't finished below third since the 1991-1992 season. In Ferguson's full reign, he has won 13 Premier League titles, two Champions League titles, Five FA cups, and four league cups.
At the extreme, even if Moyes is able to achieve the same level of success, Manchester United stock is still a bad bet. European soccer is an extremely competitive market, in which most cash flows are reinvested into player contracts and buying new players. Players' wages are continuously inflated as new owners bid up the prices of the top players. Manchester United currently pays out roughly 50% of its revenue toward player wages. And these investments must be made, as teams can't have a bad season. Unlike in American sports, if a team finishes in the bottom three, they're relegated into a lower league, losing out on tens of millions of dollars of TV money.
Furthermore, while you should always treat a stock as if you're buying a stake in a part of a business, you aren't getting an equal share by buying Manchester United stock. Manchester United has a dual-share class structure, in which the owning Glazer family's shares get 10 votes and publicly traded shares only get one.
Find Dan Dzombak on Twitter, @DanDzombak, or on his Facebook page, DanDzombak. Dan is a Chelsea supporter. He congratulates Frank Lampard on breaking Bobby Tambling's goal scoring record and hopes Wigan crushes City in the FA Cup final tonight. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.