It’s been quite a crazy month for football. Twelve major European clubs stepped forward and announced their intention to create an all-new European Super League (ESL) competition. The plan was short-lived, however, as just a few days later, most of the teams backed out of the agreement. Nevertheless, the whole saga was enough to cause significant share price movement for some of the football clubs involved.
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What was the impact of the ESL on football club shares?
The news that 12 football clubs, including six from the Premier League in England, were forming the ESL resulted in significant movements in the shares of some of these clubs.
According to fintech retail broker Eurotrader, the share prices of Manchester United and Juventus increased by 11% and 19%, respectively, shortly after the announcement.
However, after both clubs withdrew from the proposed competition, their share prices fell 10% and 17%, respectively.
These share price movements are not actually surprising. Major events tend to have an immediate impact on football club share prices even in the short term. This is especially true when there is a potentially huge amount of money involved.
That was exactly the case with the announcement of the ESL. Clubs were apparently promised £400 million just for joining the league.
This dwarfs the amount that any club received during the 2019/2020 Champions League campaign. All of the 32 participating clubs had to share a total of £354 million between them.
The withdrawal of clubs from the European Super League resulted in their share prices dropping. This was most likely due to investors’ fear of the potential fallout from the decision to form the ESL in the first place.
After all, the Super League idea is one that elicited an overwhelmingly negative response and criticism from fans, football authorities and even players.
What other factors affect football club shares?
According to Eurotrader, there are other events that can impact the share price of a football club.
One is success in the Champions League, and a perfect example is Juventus. The club’s share price rose 45% between February and June 2017 as the club reached the Champions League final.
However, the team’s form appears to have the biggest short-term impact on the share price of a football club.
Eurotrader says that a good or poor run of results on the football pitch is enough to cause a 26% swing, on average, in the share prices of a club.
Italian side Roma, who in 2013 had their best-ever start to a season, saw its share price rise 243%.
When Borussia Dortmund won the 2010/2011 German Bundesliga title, the club won 11 of its first 13 matches of the season. The result was a 180% increase in its share prices in late 2010.
Conversely, a poor run in form is likely to have the opposite effect on a club’s share price. For example, Manchester United’s poor run of form at the beginning of the 2018/2019 season resulted in a 30% fall in their share price between August and November 2018.
Had the Super League happened, Eurotrader says that these short-term price changes would have been insignificant.
The most likely determinant of share price changes for ESL clubs would have been their success in the league. Managerial changes, player arrivals, and other cup results would likely have had little or no impact.
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Why should investors focus on the long term?
The ESL is a perfect example of how there will never be a shortage of events and forces that cause short-term up and downswings in the stock market.
That’s why, for most investors, developing a personal investment strategy that’s based on their preferences, goals and capabilities and then sticking to it for the long term is a much better bet.
Taking the long-term approach is indeed how many investors have been able to build wealth without spending long hours sweating over short-term swings in the value of their portfolio due to trending headlines or events such as the current form of their favourite football club.
Remember, however, that investing in shares is inherently risky, so always do your homework beforehand.
If you are completely new to the world of investing, you should check out our comparison of a range of share dealing accounts to get started with.
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