Talk about a hard act to follow. Shares of Manchester United (NYSE: MANU, Stock Forum) wobbled Wednesday after the English Premier League soccer club announced that its legendary manager Sir Alex Ferguson is retiring at the end of the season.
His pending departure closes the curtain on a 26-year reign during which United won 13 league titles, two Champions League crowns, five FA Cups and four League Cups, a haul that makes the gruff Glaswegian the most successful manager in British history.
Before joining United in 1986, he famously won the European Cup Winners Cup while managing Aberdeen, an unfashionable Scottish team with a fraction of the resources available to rivals Celtic and Rangers.
In a recent biography, one of his Scottish players described him as a “frightening bastard.” Others say he is a managerial genius who famously gave the “hair dryer treatment” to anyone who put a foot wrong out on the soccer pitch. (This involved standing nose to nose with the offender who received a verbal blasting).
By comparison, David Moyes, the coach who is widely tipped to succeed him, won nothing during an 11-year spell in charge of United’s Premier League rivals Everton.
So it’s not surprising to see some investors react to news of Ferguson’s resignation by bailing out of the stock, which fell 1.7% on Wednesday to $18.44, leaving the soccer club with a market cap of just over $3 billion, based on 163.8 million shares outstanding.
Since MANU raised US$110.2 million from an IPO of 8.3 million shares priced at $14 a share in August 2012, the stock has traded in a range of between $19.34 and $12.
Given Sir Alex’s track record of unparalleled success, it’s hard to see much stock market upside now that he is finally stepping down at the age of 71.
“For the club’s owners, the US-based Glazer family, the transition to a new coaching set-up represents one of their most difficult challenges since they bought the club in a highly leveraged buyout in 2005,’’ said the Financial Times in a report.
The Financial Times went on to note that the Glazers have been hugely unpopular owner among many United fans because of the amount of debt their takeover racked up on the club.
Proceeds of the recent IPO were used to pay down debt.
But they have offered steadfast support to Sir Alex, particularly in the transfer market, and he has been loyal in return.
Readers should note, however, that after another iconic United manager (Matt Busby) retired in 1969, six managers (Wilf McGuinness, Frank O'Farrel, Tommy Doherty, Dave Sexton, Ron Atkinson, Alex Ferguson) came through the door before the club was able to recapture the English league title in 1993.
Another key challenge is the ever increasing cost of paying star players like Wayne Rooney, and Robin van Persie.
Even though United more than trebled its profit in the third quarter ended March 31, 2013, staff costs in the period jumped 25% from a year ago to 44.9 million English pounds ($72 million), an increase that was primarily due to new player signings, existing player wage increases and growth in commercial headcount.
That brought staffing costs in the first nine months of the year to 129.4 million pounds ($207 million), an increase of 15.1% from a year ago.
It means that United is locked in a vicious cycle that requires qualification in the lucrative European Champions League competition so that it can earn the television revenue that is needed to fund the wages of the world’s top players.
In order to qualify, the club must always finish in the English Premier League top four.
Under Sir Alex, Champions League qualification remained almost a foregone conclusion, even though the club has been facing rising competition from the likes of Manchester City and Chelsea, clubs with wealthier owners and more to spend on player wages.
For the umpteenth time, United ensured qualification for next year’s Champions League by winning the Premier League title this season.
But who knows how the club will do with a new manager in charge. It is why former United manager Tommy Docherty said he feels sorry for David Moyes, or anyone else who is handed the task of trying to match the accomplishments of the club’s greatest ever manager.
As the wobbling share price suggests, it looks like mission impossible, even for the most committed successor.