By David Leja
By now, most competitive soccer leagues (i.e., the European ones) have concluded their seasons. Traditionally, these clubs were the preserve of well-heeled elite families. Now, however, they are a hot commodity among foreign investors who realize soccer’s potential to create tremendous returns.
What’s drawing foreign investors?
Football is the most widely followed game in the world. Last year’s World Cup yielded an estimated 5.9 billion viewers in 54 countries; 41% percent of the audience was women. The sport’s main event during the year is the English Premier. Every week from August through May, the league holds a captive audience of at least 76 million people in 190 countries, making the Premier the most popular league in the world.
Deloitte’s Annual Review of Football Finance, released last week, supports the English Premier’s supremacy. It generated the highest revenue (1.4 billion pounds) and operating profitability (138 million pounds) for 2006, much of it in broadcasting. The future looks brighter still. According to Deloitte’s Dan Jones, “We believe the relatively small changes in Premier League clubs’ financial results over the past three seasons represent the calm before the storm.” In coming seasons, the league is forecasted to widen the lead substantially over its closest competitor, the Italian Serie A. Revenue increases from higher broadcasting contracts and reasonable wage cost controls will result in an estimated 260 million pounds’ operating profits for the 2007/08 season for the EPL.
Large-scale investors who have seized this opportunity are achieving results. One of the more noteworthy acquisitions in the past 5 years was that of exiled Russian oil oligarch Roman Abramovitch, who purchased Chelsea FC in 2003 for nearly 60 million pounds. To date, he has poured 485 million pounds of additional financing into Chelsea, to acquire the world’s best players. His financial commitment has been crucial to Chelsea’s 2 Premiership titles in the past three seasons.
American money was not far behind Abramovitch. In 2005, Malcolm Glazer decided to diversify his assets into the “other football.” The owner of the NFL’s Tampa Bay Buccaneers purchased the most popular sports team in the world when he paid 809 million pounds for Manchester United. Like Abramovich, Glazer’s investment has yielded handsome dividends as Manchester won the most recent Premiership.
Besides the greater ticket sales, endorsements, and contracts associated with title victories, these foreign owners are adding value to their soccer clubs. The enhanced reputations allow the clubs to be bought out at a premium.
Other American sports franchise owners have jumped into the English soccer scene. They include Cleveland Browns owner Randy Lerner and Texas Rangers/ Dallas Stars owner Tom Hicks. Those only recently aware of soccer’s potential are getting in on the prospect. Right now, Abramovitch’s fellow exiled billionaire (and former Prime Minister of Thailand) Thaksin Shinawatra, Microsoft co-founder Paul Allen, and the sheikh of Dubai are all negotiating acquisitions with English Premier clubs.
Besides financial opportunity, what has opened the floodgates of foreign investment into football clubs? Owners’ interests are mixed. According to Michael Stirling, a commercial director at Global Sponsors, “Some have a genuine interest; others just have excess money. The super-rich used to buy yachts; now it's football clubs.'' The rich have found another status symbol to separate themselves. It’s an ultra-exclusive club of 20. Since the EPL has a fixed number of teams in their league, the clubs are a non-renewable commodity – and nothing appreciates like a commodity of capped supply with skyrocketing demand.
Not Just for the Rich and Famous
Amidst the centamillion-GBP acquisitions, there also exists opportunity for the smaller investor. Four of the twenty English Premier teams are listed on the London Stock Exchange, the others not far behind. One of these publicly-traded teams, Tottenham, experienced more than a 70% gain in its stock price this year by finishing 5th in the League table. Large appreciation in stock price has been the trend for the teams on the LSE with the EPL ’s growing popularity and profit.
There can be one major drawback to investing in the football club of your choice: volatility. Success in the market is closely related to a team’s performance, which is subject to myriad injury risks. The worst performer of the year, Sheffield United, was down 34% in April, year over year, after its finish at the bottom of the league sent them to a lower division for the 2007-08 season. Sheffield’s revenues will plummet from losses in popularity, endorsements, and broadcasting contracts associated with the gold-plated English Premier.
Besides exiled oligarchs, investing in English football clubs has found another niche in the avid fan, adding to the volatile, speculative investing atmosphere. Analyst Hargreaves Lansdown said, "The success of any club depends on on-field performance, meaning the shares remain highly speculative and rather for die-hard supporters." These “investors” pass on an image of sophistication to their families and friends because they are involved in the markets.
There is also a smaller institutional presence. Unlike fixed income and standard equity, prices aren’t heavily determined by large market movers. Detailed fundamental analysis of the company’s financials plays much less of a role compared to performance on the field. And these common investors feel they can gauge financial performance by watching games, becoming analysts in their own right.
In response to the speculative nature of individual team investment, indexes have been created to distribute the risk. Some have experience tremendous gains in the past few years. In fact, Bloomberg's index of 12 British football clubs was up 171% from April 5th, 2002 through March 20th, 2007. The FTSE 100 index, a widely quoted measure of return on the LSE, only experience a 20.53% change in value during that period.
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