Giving Our Teams the Shirts Off Our Backs
Sunday Mercury, 26 March 2000
Many of us love our football teams so deeply that we bought the shirt, then bought the redesigned strip, and did it all over again the next season. Some of us also bought shares in the team. The money to buy next year’s strip will almost certainly not come out of the profits in the football shares.
A decade ago, only Manchester United, Millwall, and Tottenham Hotspur were publicly owned. Now that number has increased sevenfold in response to severe financial pressure.
“With the Taylor Report in the mid-1990s Premiership clubs had to convert to all seater,” explains Richard Hunter, Head of Dealing Services at NatWest Stockbrokers. “There was also pressure to buy in top players. The clubs had big capital requirements and the easy way to raise money was to float.”
According to Hunter, “the future looked rosy, especially with pay per view television being a money spinner, but a single report came out stating that television revenues were overstated, and it knocked the stuffing out of the entire sector, wiping off about a third of the value overnight.”
Today, football clubs are enjoying links with media companies and other corporate tie-ups, and television revenues are still significant. “But football shares remain volatile investments, not widow and orphan shares, and the price is largely dictated by what is going on in the field,” Hunter cautions. “The real exception is Manchester United. They have a strong international brand, fabulous merchandising, and gate receipts representing only 30 per cent of their income. Chelsea is perhaps the Man United of the south.”
Are football shares good investments? “Financially, probably not. If you do invest, the kind way of putting it is that you can see some potential, especially with tie-ups with leisure companies. But historically, it is really an act of blind faith.”
Steve Kind, financial director of Leicester City, does not sound like a charity case when he says that “the future is very promising. We already qualified for Europe - the first British team to do so – and we won the league cup at Wembley, which will guarantee additional revenue next season. We also have media tie-up possibilities.”
But Leicester City’s seating capacity is woefully low and financial markets seem to have a logic of their own. “We recently sold a player to Liverpool for £11m, a sum that was similar to our entire market capitalisation at the time, but it had a minimal impact on our share price. We believe we are significantly undervalued.”
Kind admits that “over the last 12-18 months, the entire sector has been hit by a malaise, except Manchester United. The others are treading water. Three years ago football shares were a sexy sector. Now, players are averaging wage inflation of 35 per cent per year, and being tarnished as small sector market, we don’t attract the attention of the institutions. Our institutional holdings have halved since we floated in October 1997. Our share base has jumped from 1,700 to 5,000 but it has been diluted among fans with small shareholdings. We also have problems with liquidity and we have not been helped by adverse publicity regarding boardroom disputes and stadium problems.
One lifelong Aston Villa supporter whom we will call Ned has done well by his shares, but the passage of time means that no one else can follow his pattern.
“I never lived in Birmingham but as a little boy I saw them play Chelsea, and I became a Villa supporter from that time. I’ve been a season-ticket holder for nearly 30 years, and now I go with my two daughters and nephew. Once you start with a team, you can’t change,” he says.
“I got my shares about 25 years ago. The team was in financial trouble, they asked their supporters for help, and I bought five shares for £5 each. Then I bought another five shares for £6.” Ned’s ten shares suddenly became 1000 when the stock split, and “they floated at £11 pounds, although they are half that price now.”
Ned’s initial stake of £55 is now worth approximately £5,250, which represents excellent returns even allowing for inflation. He has no immediate plans to liquidate his holding, nor has he bought any other football shares. If he were to do so, the only candidate would be Manchester United, and purely for financial, not sentimental, reasons.
“When I bought the Villa shares, football was a club game and it was run like a club. Now it is big business. In those days I would not have sold them for anything, but today I would sell instantly if it were profitable,” says Ned.
A few weeks ago, Manchester United became the first football club to be valued over £1bn, which is greater than the market valuations of all of the other teams combined.
But manager Sir Alex Ferguson is headed for retirement and the club may be headed for some boardroom disputes. Teams don’t always get the managerial succession right, and often it can be years before stability and success return.
Matt Busby was a hard act to follow for Man United a while back, and Liverpool and Tottenham Hotspur wobbled after the departures of Kenny Dalglish and Bill Nicholson.
The most financially successful football clubs are those which are more than mere football teams. They are leisure companies - Chelsea is Chelsea Village, not Chelsea FC, for example - and even the safest bet among them is not the wisest home for our financial investments.
Football plc is big business. Ned was lucky to get in when he did. For most football investors today, the financial reality is much as it was in his day: we are helping the team more than we are helping ourselves.
www.robertliebman.com