There are many methodologies that value football clubs, but in general they cost more to buy that one might expect even making allowance for scarcity.
There are many reports of exactly how much Sir Jim paid for his entry into Manchester United, but the understanding is that this was $1.350 bln for an initial 25%, followed by another $200m on deal completion to bring his stake up to 27.7%, which will be followed by a further $100m by the end of 2024, giving him 28.9% in total.
On that basis, he will have splashed out $1.65 bln in total
for 28.9%, giving an enterprise value for United of $5.7 bln or £4.5 bln
(converting USD to GBP at 1.27).
Chelsea
United achieved a higher price than Chelsea, which was to be
anticipated, given their advantages over the Blues in terms of history, brand
and financial position, partially offset by the attraction of London to
investors.
The amount received for Chelsea was actually above
expectations, as this was a forced sale to a strict deadline after the UK
government forced Roman Abramovich to relinquish control, so this has acted as
somewhat of a catalyst for other clubs to at least explore options.
Chelsea’s price of £2.5 bln (plus a £1.75 bln commitment to
invest in infrastructure, the academy and women’s football) implied a revenue
multiple of 5.2 (based on £481m revenue), so United’s 6.9 multiple was around a
third higher.
The revenue multiple for deals involving other Premier
League clubs is much lower at only 2.2, though there is a quite a big range
even within this cohort, e.g. Daniel Kretinsky bought into West Ham at a 3.7
revenue multiple, while Bill Foley only had to pay 1.2x for Bournemouth.
Of course, in many ways, football clubs are the ultimate
trophy assets. They have a scarcity value, as there are very few elite football
clubs in the world, and some are effectively unavailable, e.g. member owned
Barcelona and Real Madrid.
Not only that, but ownership of a football club will gives
investors maximum bragging rights, as this is more likely to bring admiration
and respect than owning, say, a luxury penthouse, a flashy yacht or a work of
art.
Although it’s slightly different, the attraction of
football, especially the Premier League, which is the most successful domestic
football league in the world’s favourite sport, also helps explain the
emergence of a new ownership group in the shape of sovereign wealth funds from
the Middle East.
The key point about trophy assets is that investors are
willing to pay premium prices, often far
removed from the underlying fundamental value.
Although football clubs can be valued like any other asset, the price
paid is usually higher than any valuation, though these will often “follow the
leader”, so they are increased in line with the last price paid.
Price of entry likely
to rise
Coming back to supply and demand, so long as there are more
billionaires than available elite football clubs, the price of entry is likely
to continue to rise. Despite investors
seemingly over-paying for football clubs, at least based on the fundamentals,
there are some good reasons to buy. Revenue continues to grow, especially for
the leading clubs, e.g. it has more than doubled for the Big Six in the last
ten years, rising by £2.0 bln from £1.5 bln to £3.5 bln.
There is also a belief that revenue growth will be driven by
stadium development, as has been seen at many clubs, e.g. the new stadium at
Tottenham is generating substantial amounts, both on match day and from various
events, while redeveloped stands at Anfield and the Etihad have boosted income
at Liverpool and Manchester City.
Others are of the opinion that even if growth prospects with
the traditional broadcasting model are limited, there could still be
spectacular gains if streaming were to take off with a “Premflix” strategy of
selling direct to football fans. A low price per game, but sold to a far larger
market, could generate much more revenue, especially for the leading clubs.
Even if clubs don’t tend to make big profits on an ongoing
basis, an investment can still generate a healthy return via capital
appreciation, as can be seen by the increase in valuations. For example, Forbes’ $5.4 bln valuation of
Liverpool is more than five times as much as the $982m in 2015, which is a
pretty healthy increase in just eight years, during which time the Reds have
also provided their owners with an emotional return on investment via victories
in the Champions League and Premier League.
Like so many other areas in football, the valuation of clubs
highlights the substantial disparity in the game, as the leading clubs continue
to widen the gap, thanks to a virtuous cycle where strong performances on the
pitch, allied with a storied history, lead to higher TV money and commercial
success.
As there are very few opportunities to buy an elite club,
there will be no shortage of potential buyers for such rare properties. Moreover, the level of competition can drive
up the price, even beyond a sensible valuation, especially as there are other
non-financial factors that will influence people’s behaviour.
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