Don’t buy a football club

Richard Branson once quipped that if you want to become a millionaire, become a billionaire first and then start an airline. I guess he never thought about buying a football club.

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The World Cup has long enjoyed a reputation as a debutante’s ball for undiscovered footballing talent from around the globe.

One minute a should-be star is kicking about in a low-profile African or Asian league.

A few spectacular shifts at the World Cup later, and their agent is flying them to Barcelona for talks.

How much this actually still happens is debatable, when nowadays scouts are even scouring mobile phone footage of youth games on YouTube to uncover the next Lionel Messi on the cheap.

But one aspect of the beautiful game that seemingly did fire the imagination at the Qatar World Cup was the business of football itself. Because the subsequent weeks have seen countless rumours about British clubs changing hands.

All to play for

Liverpool’s owner Fenway Sports Club, for example, is reportedly fielding offers from as many as 13 interested parties – including the Qatar Investment Authority.

And the Qataris – who already own French side Paris Saint-German – are also said to have approached North London’s Tottenham Hotspur, although that club has denied it.

Merseyside was also buzzing before Christmas about interest from Saudi Arabia – a rumour stoked by none other than the Saudi sports minister on the BBC.

It’s a similar story down the M62 at Manchester United.

UK football’s most bankable brand has been put up for sale by the US Glazer family, who’ve owned it since 2005. Even F1 legend Lewis Hamilton is said to be involved in the jostling there.

Of course, speculation about football club bids is notoriously – well – speculative. It can make Twitter gossip about AIM stocks seem sober by comparison.

But the top-flight football teams do seem to be in play currently, off the field as much as on it.

Made in Chelsea

As I said, it’s appealing to chalk all this corporate activity up to holding the World Cup on the home turf of the wealthy Middle East.

But involvement in British football clubs by the Gulf States is nothing new. And US money is buzzing around the Premier League too.

No, I suspect it was the sale by Roman Abramovitch of Chelsea last May that put the sport back on every billionaire’s radar.

Not least because Abramovich at first appears to have done very well out of his investment.

The sanctioned Russian struck a £4.25bn deal to sell Chelsea to US businessman Todd Boehly – far in excess of both expectations and the £140m the oligarch himself paid for Chelsea in 2003.

On the surface, he multiplied his money by an incredible-seeming 30 times in 19 years.

But did Abramovich really achieve sky-high returns? I don’t think so.

For starters, do the sums and it ‘only’ works out as an annualised return of 20%.

Incredible for mere mortals like you and me. But Warren Buffett’s Berkshire Hathaway has done better with common stocks for many more decades.

Also, only £2.5bn of the £4.25bn specifically went on buying Abramovitch’s shares. The other £1.75bn was a commitment by Boehly to fund Chelsea’s stadium work and other programmes.

True, this may have partly been shenanigans due to the oligarch being on a financial blacklist. And indeed, Abramovich ultimately earned a return of zero – because he can’t access the proceeds.

Boehly did pay £4.25bn to get control of Chelsea, however the deal was structured.

But the reality is the US mogul would have spent billions on club infrastructure anyway, so I think the £2.5bn better reflects the actual transfer price of Chelsea.

Either way, the huge spending commitment highlights the final flaw in Abramovich’s superficially superb return on £140m.

You see, the oligarch lent well over a £1bn to Chelsea interest-free to fund his quest for silverware.

Abramovich succeeded and Chelsea was wildly successful. But its operating losses are said to have run into the hundreds of millions over the 19 years regardless!

In the relegation zone

We can better see how economically motivated investors judge football clubs by turning back to Manchester United, which has been listed on the New York Stock Exchange since 2012.

Prior to a big price pop when the Glazers announced they were selling, Manchester United’s shares were trading at about $13. That’s less than the $14 they floated for a decade previously.

Or consider the Scottish club Celtic, which did an IPO in London in the mid-1990s. Celtic’s shares have fallen 66% since those faraway Dotcom Boom days.

Another listed super-club is Italy’s Juventus. Its shares trade for 35 euro cents. They’re down 70% since 2001.

All of which makes you think only an idiot would buy football club shares. Yet interestingly, star UK stock-picker Nick Train – definitely no dummy – owns a stake in all three clubs in his various funds.

Train believes the clubs’ unique brands and long-run media potential are undervalued.

But I believe football clubs are things you should buy when you’ve already made your money elsewhere, and you’re ready to lose it – whether you’re a billionaire or an everyday investor. 

Adjusted earnings

I say that because the economics of sports teams have many special difficulties.

Clubs need to spend ever-larger sums on the best players in order to remain competitive.

Worse, these players are commercial enterprises in their own right. They can and do negotiate their own deals for everything from merchandise to sponsorship – and plenty of that money is never seen by the club that makes them famous.

The sums can be enormous. At the extreme, David Beckham is said to have made $500m as a result of his machinations in Major League Soccer in the US, for instance.

Compare this to Disney or Netflix. They create a character, they own it, and they can flog it forever.

Mickey Mouse still makes millions – and he never asks for a pay rise.

Some actors get a lot of clout, true. But they’re interchangeable in the long run. Recall everyone who has played Batman or Spider-man over the past 30 years.

In contrast, Ronaldo is Ronaldo – you can’t replace him with a cheaper Ronaldo. And football players shelf-lives aren’t long for that matter. Just a decade or so.

At least the top teams do garner a huge slice of media income. But the financial losses for Chelsea and the dire performance of Manchester United’s shares suggest it’s not huge enough.

The smaller teams get far less – and fewer bums on seats at home games. For them the dream is to find a young Ronaldo and sell him for millions, before he has even worked his magic.

Again, really peculiar.

Imagine if tech startups similarly sold their best new products to bigger rivals to keep the lights on. There’d be no zero-to-billion-dollar stories in the markets ever again.

At least actors Ryan Reynolds and Rob McElhenney paid only £2m for Welsh team Wrexham.

It seems modest enough that the income from their Netflix documentary Welcome to Wrexham might turn a profit. My guess, though, would be any spare money will still be gobbled up by the club.

Goal difference

Richard Branson once quipped that if you want to become a millionaire, become a billionaire first and then start an airline.

I guess he never thought about buying a football club.

Let the oligarchs throw money at their playthings, I say. And if you’re a fan of Manchester United, Juventus, or Celtic, by all means buy a few shares in support.

But if you want to make life-changing money investing, I’d suggest the sort of great companies we typically recommend at The Motley Fool will treat you better. Or even a global tracker fund. You can always chuck away your fortune owning a football team later – once you’ve made it!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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