Who would spend billions to buy Manchester United and Arsenal?

Football is not a very good business. That's why the billionaire owners of Manchester United Plc. and Arsenal F.C. wanted to join the ill-fated European Super League. Now that those plans have combusted, the owners are left with teams whose value can only be realized by selling up. The problem is, there are no rational buyers for clubs with a sticker price in the billions of dollars.

United fans perennially complain about how much money the Florida-based Glazer family has taken out of the club since buying it in 2005. From a combination of dividends, consulting fees, proceeds from the 2012 initial public offering and a $96 million stake sale just last month, the Glazers have received, by my calculations, about $375 million in cash from Man Utd since 2005.

As a headline number, that's a lot of money. But it averages out to $25 million a year, or the same as the annual salary of David de Gea, the Spanish goalkeeper who's reportedly the team's highest-earning player. On that basis, they may not yet have even covered the cost of their initial investment.

In other terms, however, they have recorded massive gains on what they put in. The family's 790 million-pound ($1.1 billion) takeover was a leveraged buyout — it was funded by debt to be repaid from the company's future profits. That debt has already cost Manchester United almost 1.1 billion pounds in the form of both interest and debt repayments. That's money that could have been used on the playing squad but has instead repaid the family's takeover costs. That cash has translated into the Glazers' 75% stake in the club, which is now valued at $2.1 billion. Even the dividends are partly debt-funded.

Back of the Net
The Glazers have made some $376 million from Manchester United in cash, but most of the value is tied up in the football team's stock.

Through this lens, the six Glazer siblings have generated a return of about 500% on their initial outlay. But because it's mostly in the form of stock, the value is largely theoretical. They don't have $2.1 billion sitting in a bank account. As long as there's scope for the share price to improve, it makes sense for the family to hang onto it. The Super League provided such scope by promising not just to increase revenue but also to cap salary costs. Indeed Man Utd's stock jumped 10% after the competition was announced, before falling again after the tournament's rapid demise.

Since any imminent prospect of a Super League is dead, the club's financial prospects will remain closely tied to its on-field performance. That and the lack of salary caps makes profit hard to predict — that's unlike U.S. sports such as the NFL or NBA, where teams can't fall out of the top division based on their performance, and there are strict rules about wage spending. No matter how much lucrative broadcast deals boost soccer revenue, the clubs just end up spending more on player salaries. In 2011, Man Utd allocated 46% of its 331 million pounds in revenue on wages. Last year, revenue had jumped to 509 million pounds, but salaries gobbled up an even greater proportion of income, at 56%.

As such, now seems as good a time as any for the Glazers to crystallize the value of their holding by selling it, and reinvest the proceeds somewhere else with better financial prospects, like an index fund.

The same applies to Stan Kroenke, the American billionaire owner of Arsenal Holdings Plc. Even though the team has spent less on the playing squad and has lower financing costs — it's still repaying debt raised in 2006 to fund a new stadium — it's less profitable than Man Utd. Unlike the Glazers, Kroenke has never extracted a dividend and said on Tuesday that he has no plans to sell. However, Spotify Technologies SA co-founder Daniel Ek, a self-proclaimed lifelong Arsenal fan, has declared his interest in buying the London-based club.

Fans should be careful what they wish for. Although the Bloomberg Billionaires Index values Ek at $4.7 billion, 97% of that stems from his stake in Spotify. It's hard to imagine the Swede selling down his ownership of the music streaming platform to fund a deal for the club, which was valued at 1.8 billion pounds when Kroenke completed his takeover in 2018. So any deal would likely require a lot of leverage, creating a situation akin to what happened when Manchester Utd was bought. And fans don't like seeing profits go to pay off debt.

The problem for both teams is that without significant changes to the financial structure of professional soccer — at least to ensure sustainable profits — there aren't many serious businessman who would pony up the cash to acquire them. What's left are irrational buyers with agendas other than profit, such as sovereign wealth funds eager to burnish their nations' standing.

A Super League would have made their teams' profit machines. Its failure means the Glazers and Kroenke are now left holding assets that are extremely valuable in theory, but that generate little cash and whose value is all-but-impossible to realize in its entirety. 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement