Often described as a funny old game, football is now a serious business. The
recent round of Premiership club takeovers (Manchester United and Liverpool,
with a bid for Aston Villa in progress) has not faltered, with reports of buyers
in pursuit of other clubs (Manchester City, Arsenal and Charlton). So why are
investors so interested in the football business all of a sudden? Where, to be
blunt, is the value?
The balance sheet is a poor starting point. Financial statements only give a
‘true and fair’ assessment of value relative to accounting rules. The traded
price of shares in football clubs is usually well in excess of the clubs’ net
asset values; one of the main reasons for this is the unrecorded asset value of
Accounting rules dictate that the cost of acquiring players’ registrations
can be recorded as intangible fixed assets (to be amortised over the length of
their contracts) but the internal value of home-grown players (think of
Liverpool and its Academy graduates, Michael Owen, Steven Gerrard and Jamie
Carragher) does not appear on the balance sheet.
That makes the balance sheet of passing interest only to investors. The value
of football as a business, as with any business, lies in the positive net
present value of future income streams. And football is currently awash with
such streams. A Premiership team can expect around £40m from the television
rights deal for next season. For promoted clubs, the financial bonanza is said
to be around £60m over three seasons, even if they are relegated straight back
to the Championship in their first season – that’s £30m in television payouts,
£10m in more lucrative sponsorship deals and bigger gate receipts, and parachute
payments worth £11m over the following two seasons.
This is why takeover activity is not confined to the Premiership. With these
glittering prizes in prospect, Championship clubs are also attractive. Microsoft
co-founder Paul Allen is said to be interested in Southampton – for £50m.
Promotion to the Premiership, although it won’t now happen this year, could
recoup the outlay and represent an investment for Allen. (Note to Paul: go west
and you’ll find my club, Plymouth Argyle, a good bet and with a chartered
accountant as chairman!)
The interest in English clubs has historically been driven by TV deals and
pay per view contracts. Clubs with small debt and guaranteed income streams are
also relatively low risk. Clubs tend to be controlled by one or two
shareholders, who are easy to tackle. Although TV income is important, there are
other income streams. For US investors (who have sniffed around the ball the
most), clubs present opportunities not apparent in American football’s NFL,
where a club is only allowed to undertake football business – it cannot, for
example, sell a branded credit card.
So what did the Glazers get for the £790m they paid for Manchester United?
The plan leaked to the press included an increase in the volume and prices of
tickets sold, a doubling of catering revenues (more prawn sandwiches?), a new
sponsorship package (the AIG deal brings in £14m a year, compared with £9m from
Vodafone), and planned sponsorship events such as an annual exhibition match in
Tampa, Florida, the home of the Glazers’ Buccaneers NFL team.
Most commentators thought the Glazers paid too high for United, but their
leaked plan is that of a sweat value strategist. What the pundits may have
missed is the potential for revenue expansion in the Far East, with China the
biggest trophy of all (see how much Real Madrid netted from David Beckham shirt
The security of the income stream for any business is key and for a football
club with a loyal fan base (and a healthy season ticket waiting list to boot)
plus a strong brand, such as United, the downside risk is minimal. Indeed,
unbroken success on the pitch is not even critical to the Glazers’ financial
vision – the business plan only relies on the club finishing third in the
But success on the pitch is still important, as the sad fate of a club like
Leeds demonstrates. Indeed, it is instructive to track the share price of quoted
clubs against their match day success or failure. What emerges is a weaker
correlation for the bigger clubs: win or lose, the value of the club’s brand
rides the result.
For investors, football is a game of two halves. There are those who buy into
the club they supported as a child (David Dein), and those who want an interest
in a viable business without the personal allegiance (Malcolm Glazer). Of
course, the former type should be subdivided into those who also view the club
as an investment vehicle and those for whom loyalty obfuscates normal investment
The latter is arguably the case with Chelsea owner Roman Abramovich. With
breakeven only planned or hoped for by 2009/10, the traditional match of value
and cashflow has yet to be played. It’s the financial equivalent of Chelsea
playing a long-ball game.
But football remains a funny old game and one not always known for its
rationality. At the end of the day, value is only what someone is prepared to
pay for something. Looking at the prospective income streams flowing into
football, investors are understandably queuing up to realise that value. And for
those US investors still looking for the ideal club, just remember that it was
from Plymouth that the Pilgrim Fathers sailed to America!
James Stanbury is a partner in RGL Forensic
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