Moyes' pain is United shareholders' gain

AXED: Man United's share price is near its peak after the firing of Moyes, showing just how important a leader's personality can be to the value of a business.


    Apr 25, 2014

    Moyes' pain is United shareholders' gain

    MANCHESTER United aren't just a football club: They are the second most valuable sports team in the world and a rare sports franchise to have had the courage to list on a United States stock exchange.

    The club's share price is near its peak after the firing of manager David Moyes, showing just how important a leader's personality can be to the value of a business.

    There is reason to be grateful to the club's American owners - the Glazer family, who also control the National Football League's Tampa Bay Buccaneers - for bringing United to the stock market in 2012.

    The ups and downs of the share price reflect the mood of the team's fans in the most pure and naive ways: It rises when United win big, tanks when they lose, and is surging again on the hope that a new leader may perform better than the old one.

    With a price-to-earnings ratio of more than 60, the stock is a toy for fans, but then, many tech companies - at their current valuations - are similar cults.

    If there is a difference, it is that the performance of a football team is easier to gauge and more fun to watch. The football manager stands as the perfect metaphor of the rock-star chief executive, with all the perks and pitfalls that come with the role.

    At the time of United's listing on the New York Stock Exchange in August 2012, the club were in decent form, even if their pampered fans grumbled about a bad season - no European trophies and second place (on goal difference) in England's notoriously tough Premier League.

    The team were still coached by the legendary Alex Ferguson then, under whose leadership they had won every imaginable competition. Still, Manchester's initial public offering could hardly be called successful: It had to price its shares at US$14 (S$18), below the previously announced minimum of US$16, to attract interest.

    Near the end of the 2013-2014 season, United are in seventh place with no chance of competing in Europe's prestigious - and lucrative - Champions League. The team made their worst start to a season since 1989-1990 and never got their act together, suffering some of the club's most humiliating defeats in history.

    These included United's first loss to a Greek side, Olympiakos Piraeus, in European competition, a 0-2 debacle that came as the club's stock hit a 12-month low, close to the IPO price.

    With Monday's firing of Moyes (he wasn't officially informed until after he had read about it on the Web), Manchester United's stock price reached the US$19 high it achieved when Ferguson won his last league title with the club. Its immediate 6 per cent jump matched the one that Yahoo! gained when CEO Carol Bartz was fired over the phone in 2011, and was only slightly short of the increase that Groupon's share price recorded when the company fired CEO Andrew Mason last year.

    Getting rid of Moyes has ensured that shares in United now trade 25 per cent higher than the IPO price, despite the club's lacklustre performance on the pitch and the inevitable financial setbacks from dropping out of European competition for the next year.

    In English football, money talks louder and louder each season, and it has been suggested that the performance of a team is more closely correlated with the players' wage bills than the manager's talent. That isn't exactly true: a manager can still consistently outperform budget-related expectations, as Adrian Bell and his co-workers at Britain's University of Reading established in a 2011 paper.

    They named Ferguson as a top outperformer, winning an average of 0.72 point more per match than would have been expected, given the money he had available to spend. A win in English football is worth three points, so that is a formidable personality effect.

    To fans without a mathematical apparatus to assess managerial performance, it just showed.

    "Moyes' response to bad results was dreadful," Simon Kuper wrote in the Financial Times.

    "His long, baffled, unhappy face - caught by TV cameras whenever United conceded a goal - became the symbol of his team's malaise. Ferguson, the master of PR, tended to respond to defeats with anger."

    Unlike Moyes, Ferguson would have never called another team favourites to win. "One thing that really riled United fans is the fact that Moyes often viewed them as the underdog in his comments," Adam Shergold recalled in the Daily Mail.

    Moyes' defeatism, his slowness to make crucial transfer decisions and his inability to control a locker room of ageing stars who had worshipped Ferguson contributed to the team's awful performance.

    The next manager will have to confront the same problems, but in the view of the club's fans, almost anyone could do better. The stock market echoes that sentiment: Investors with the guts to get involved with sports stocks are, of course, fans too.