An investment of two halves

Football team ownership is not just a passion play


James Powell, Head Of Sports Group, Cantor Fitzgerald

While the playgrounds of the super-rich are ever-changing, a new generation of young, extremely wealthy entrepreneurs and business people are looking for new ways to invest their money. One area to have seen a huge leap in interest from investors is sport, particularly football.

At the top end of the profile scale is the Russian billionaire Roman Abramovich, who became the owner of Chelsea FC in 2003.

Since then there has been a growing list of investors with an interest in football clubs, from Sheikh Mansour, the owner of Manchester City, to Les Scadding, a lottery winner and now the owner of Newport County AFC. What are these owners looking for?

Not everyone who buys a club is a fan nor do they own the club as a status symbol. They may not even be viewing ownership as an opportunity to increase the target audience for another of their businesses.

There is money to be made. According to Deloitte’s annual Review of Football Finances, English Premier League (EPL) revenues rose 29% last year from £2.5bn to £3.3bn. Wages have increased by just 6%, far less than anyone expected. In February 2015, the league sold television rights to its games for a record £5bn, 71% above the previous deal. It is projected that from the 2016-17 season, even the bottom club in the league can expect around £100m in central prize money each season (up from £62m now) and the highest earning club can expect around £156m (up from £97.5m).

Many assume that this growth cannot be sustained exponentially, but others believe that increased TV revenue is linked to the globalisation of football, and in that sense there is plenty more audience to capture and monetise.

In China and India, fewer than 10% of the population currently “really, really care about football”. The EPL earns just 2p in TV rights per Chinese person, compared with over £35 per Singaporean, according to the business website Sportingintelligence.com.

There are other key revenue streams, ticket sales, of course, being one. But you can buy a season ticket at Bayern Munich for the equivalent of £104 and Barcelona for £74, which is less than the cheapest available in the top four leagues in both England and Scotland.

So how have Barcelona and Bayern Munich become the second and fourth richest clubs in the world respectively, in spite of (relatively) cheap season tickets? There is another strand of revenue aside from broadcasting and match-day income: commercial revenue.

These activities include shirt deals, stadium rights and major sponsorship deals on a regional or global level. Bayern has the second largest kit deal in the world, a 15-year contract with Adidas worth £42.5m a year to the German club.

However, even this pales in comparison to Manchester United’s deal, also with Adidas, worth £75m per year. There are also other properties for sale: stadium naming rights, training kit deals, leisurewear partners; Manchester United even has an official Global Noodle Partner.

The list, the potential and therefore the income, is almost endless. An indication of fast rising income and huge financial rewards is demonstrable through the increased interest of US private equity firms in the EPL. PEAK6, a Chicago-based vehicle, owns 25% of Bournemouth, while Josh Harris, the private equity executive, has acquired a significant interest in Crystal Palace.

Manchester United’s NYSE shares have risen almost 20% this year, while the S&P500 has been flat. The public markets are giving private owners a very clear message

But if you are not a global brand like Manchester United, with companies queuing up to pay millions to partner with you, or an EPL club sharing the spoils of a new mega TV deal, how do you make money from owning a football club?

You go back to that most basic of economic credos: buy low and sell high. Over the last decade Porto, the Portuguese club, has made nearly €500m in player sales. They have also been champions in eight of the last 10 seasons and won the Champions League and Europa League.

Real Sociedad has generated €62m in transfer fees since July 2012, from sales of academy graduates while Lille, chaired by businessman Michel Seydoux, has generated €76m since July 2012.

But many investors coming into football do not have a ready-made scouting network, so is it possible to find the potential big-money sales of the future another way? One option is to crunch numbers – lots of them. Using thousands of data points it has been possible to create the Cantor Fitzgerald Player Valuation Model (in collaboration with Soccernomics) that shows a player’s ‘intrinsic’ value and even puts a figure on just how much his on-pitch decisions increase his team’s chances of scoring.

The model can also show if it is better to spend big and ride high in a top-flight league or target a lower division club and win promotion.

Football is often seen as a game full of surprises, but what seems certain is the enduring appeal to fans. As a result, its ability to generate money will not change.