Football Club Valuations: The Very Expensive Game

Football Club Valuations: The Very Expensive Game
June 5, 2017 Stacey Corrin

Football Club Valuations: The Very Expensive Game

Football club valuations continue to increase as more and more foreign owners buy British teams. Should fans and local communities be worried?

Did you watch the Champions League final at the weekend? Real Madrid 4 Juventus 1. And the result should have come as no surprise to anyone who had read accountants KPMG’s ranking of Europe’s 32 most valuable clubs: Real Madrid €3.05bn Juventus €1.28bn.

But even these stellar football club valuations was not enough to put Real Madrid at the top of KPMG’s list: that honour went to Manchester United, valued at €3.18bn. There were seven other British teams in KPMG’s top 32 including – and this would have been an unlikely name 12 months ago – Leicester City.

The revenue league table

You could be forgiven for thinking that accountants spend all their time making lists of football clubs. Not to be outdone by KPMG, Deloittes came up with a list of the world’s richest clubs by revenue stream: again, Manchester United was at the top, followed Real Madrid and Barcelona, the usual suspects from the Premier League, and Leicester sneaking in at number 20.

United’s revenue – £515m for 2015/16 – will undoubtedly have been boosted this season by winning the Europa League, an especially lucrative triumph.

So it is small wonder that they are valued at more than €3bn – a fine return on the £800 million that the Glazers are reputed to have paid for the club.

Maybe we should just pause though and put the valuation into some sort of perspective. The latest round of funding for ride-sharing app Uber valued it at $66bn. Plenty of people are sceptical of that valuation – but if we take the lowest estimate of $28bn, that is still times very nearly eight times the value of arguably the most famous football club in the world.

How football club valuations compare with other sports

Surely, with valuations like that, Manchester United and Real Madrid must be the most valuable sports teams in the world – after all, football is a global game. Not according to a list of the world’s most valuable sports teams – compiled each year by Forbes. Top spot is held by US football team the Dallas Cowboys.

16 of the top 20 franchises are based in the States, with only Real Madrid, Barcelona, Manchester United and Bayern Munich breaking up the monopoly. Arsenal is on the list at no. 23, right behind basketball’s Boston Celtics.

How football club valuations compare with other sports

Interestingly, there are no Chinese clubs on the list: that surely cannot last, as football becomes ever more popular in the Far East, and an increasing number of players move to the Chinese Super League and a continent of four billion people.

Given the Chinese appetite for football, it is no wonder that Chinese companies are increasingly starting to invest in British and European teams. Chinese Premier Xi Jinping has not hidden his love for football – and investing in the game appears to be almost official government policy.

Foreign investment in the UK

When Wolverhampton Wanderers were bought by Chinese conglomerate Fosun International at the start of the 2016/17 season, it took the number of foreign-owned teams in England’s top two divisions to 25. At the time the Daily Mail reported that ‘14 of the teams in the Premiership are in foreign ownership, with only Burnley, Spurs, Stoke, Middlesbrough, West Ham and West Brom bucking the trend.’ Well, since they wrote that Sunderland, Hull and Middlesbrough have slid out of the Premiership to be replaced by Newcastle, Brighton and Huddersfield – all with local owners.

But a few days after the Mail’s article, the sale of West Brom to a Chinese investment group was confirmed.

This raises two pertinent questions: could the whole of the Premiership – supposedly the ‘best league in the world’ ultimately be under foreign ownership? Well, yes it could is the simple answer. Burnley and Middlesbrough may not be the most glamorous towns in the world, but – with due respect – Wolverhampton is not exactly Shanghai…

The other question is ‘what does this do to the character of a region?’ Football clubs are not like other businesses: they are inextricably bound to their local area. But if you take the West Midlands as an example, West Brom, Aston Villa and Wolves are now all owned by Chinese companies. Birmingham City is controlled by Trillion Trophy Asia, based in Hong Kong.

Could a slowdown in the Chinese economy ultimately impact UK soccer? Supposing the fabled Chinese debt mountain comes crashing down one day? Could a host of top clubs find themselves with an owner whose focus – and cash flow – is suddenly on events back at home?

The German example

It is no wonder that so many British fans look enviously at German football. Not only are ticket prices significantly lower, German teams are – in the vast majority of cases – owned by their local communities, with safeguards in place to keep it that way.

The rule in question is the so-called ’50 plus 1’ rule, a clause in the regulations of the Deutsche Fußball-Liga which states that in order to compete in the Bundesliga, a club must hold a majority of its own voting rights. The rule is designed to ensure that a club’s members retain overall control, protecting clubs from the influence of external investors.

There are a couple of exceptions to the rule – VfL Wolfsburg is owned by Volkswagen, for example – but to date ’50 +1’ has been effective. German football also offers the fans significantly lower ticket prices. Last season it cost between £12 and £58 to watch Bayern Munich play at home, a fraction of the cost of watching top-flight football in the UK.

Could a similar model be effective in this country?

The German model also works Real Madrid and Barcelona: Madrid has been owned by its socios (members/supporters) throughout its history. So why not here – and there are now plenty of supporter-owned clubs in the UK. But all those clubs are operating in the lower reaches of the football pyramid. There are ‘phoenix’ clubs like Chester, Darlington and Scarborough – all formed after the original clubs fell victim less than perfect financial management and went into liquidation. There are also ‘protest’ clubs like FC United of Manchester, formed in protest at the Glazers’ takeover of Manchester United.

But it seems highly unlikely that these clubs will ever have the fan base or the financial muscle to compete at any serious level. Even the ‘local boy made good’ is no longer enough: if you want your team to be competing with Real Madrid and Juventus this time next year then, sadly, you will need a billionaire owner and or the latest Chinese conglomerate to decide it makes political sense to invest in the beautiful game.

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