Editing Talk:Manchester United plc (section)

== Valuation ==
So far it’s been challenging working the DCF for ManU as they have negative cashflows from my calculations. What alternative valuation metrics would you suggest?

I already have the trading comps multiple (gave a good estimate), but I’m split between doing a DDM (since they pay dividends), or residual Income or even an LBO.  

Any suggestions please?

:Your exploration into alternative valuation metrics, considering your specific situation, seems a promising path.

:It's important to note that for entities like Manchester United, it's not uncommon to observe inconsistent or even negative cash flows due to the idiosyncrasies of their operations. These factors could indeed render traditional methods like DCF analysis less efficacious. From the investigations I've conducted, I've found no evidence of publicly-listed sports or football clubs consistently producing positive free cash flow. Given this, if one were to strictly rely on the DCF method, an investment in Manchester United may potentially be valued at zero. Put bluntly, be ready to shoulder the possibility of complete capital loss.

:Though multiples derived from trading comparables can serve as useful benchmarks, they alone cannot offer a comprehensive picture of a team's valuation.

:DDM could provide a feasible alternative, particularly since Manchester United issues dividends. However, the model's underlying assumptions - such as stable and predictable dividends - might not be applicable given the frequently volatile payout ratio of clubs like Manchester United, influenced by variables such as player transfers or infrastructural investments.

:Instead, the Residual Income model might present a more suitable option. This approach is less swayed by cash flow volatility and effectively captures the value from abnormal earnings. However, you would still need to make certain assumptions about future earnings and profitability, which might be tricky given the nature of the industry.

:In terms of the LBO model, unless you're envisioning a potential leveraged buyout or a private equity investment scenario, this technique might not be particularly relevant when valuing a publicly traded football club like Manchester United.

:Considering the unique characteristics of the football industry, I would suggest exploring sports-specific valuation metrics, including multiples of earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue multiples. Furthermore, you might find value in assessing non-financial parameters such as club performance, fanbase size, and brand value.

:Remember, utilising a mix of these methods can help cross-validate your results and offer a more comprehensive valuation perspective. I'm not certain if you caught it when I mentioned in the previous call, but football club investments tend to be more passion-driven, often attracting 'fans' rather than traditional investors seeking returns on their investments.

:The key to a compelling report lies in succinctly explicating your valuation logic, much like the structure I've outlined in this message.

:I hope this proves helpful and feel free to reach out if you require further insights or guidance!

:[[User:Manos|Manos]] ([[User talk:Manos|talk]]) 18:30, 11 July 2023 (BST)