Manchester City celebrates after scoring during the UEFA Champions League group C match between ... [+]
Abu Dhabi United Group is selling a stake of slightly more than 10% in City Football Group to the private equity firm Silver Lake Partners for $500 million, placing a $4.8 billion valuation on the soccer group.
City Football Group owns the English soccer team Manchester City FC, Major League Soccer’s New York City FC and Australia’s Melbourne City FC and has investments in other sports teams as well as a sports venture capital fund, Sapphire Sport.
Typically, there is a 20% or so discount for the sale of a noncontrolling stake in a sports team. But two sports bankers told me they did not believe there was a discount applied in this sale.
The valuation for City Football Group falls more than $1 billion short of the figure for publicly traded Madison Square Garden, whose most valuable assets are the NBA’s New York Knicks, the NHL’s New York Rangers and the arena they play in. MSG has an enterprise value of $5.9 billion.
The crown jewel of City Football is Manchester City FC, which Forbes valued at $2.69 billion in May. For the fiscal year ending June 2019, Manchester City reported revenue (before player transfers) of $595 million and operating profit of $124 million. City Football also owns 80% of New York City FC, which we recently valued at $385 million. In 2018, the MLS team posted revenue of about $45 million.
I estimate City Football’s total revenue at about $660 million, placing the revenue-to-enterprise-value multiple on the deal at seven—the high end of the valuation multiples being used for NBA teams. Both the Brooklyn Nets, sold to Joseph Tsai this year for $2.3 billion, and the Houston Rockets, purchased by Tilman Fertitta for $2.2 billion in 2017, went for more than seven times revenue.
In contrast, the revenue multiple for MSG is just 3.7. Part of this is due to the fact that MSG is given a 20% discount, or thereabouts, because of the Dolan family’s control of the voting shares and the poor performance of the basketball and hockey teams in recent years. Another reason for the low enterprise multiple is all the venues that are part of MSG, which explains why Dolan is considering separating the sports teams and venues into two publicly traded entities.
After the sale is complete, Abu Dhabi United Group will own about 77% of City Football Group, Silver Lake a little more than 10% and a consortium of Chinese institutional investors led by Chinese media and entertainment conglomerate China Media Capital 13%.
