Post by QPR Report on Jan 1, 2009 15:01:12 GMT
Old article from 2001, I found
BBC Wednesday, 15 August, 2001, Investing in soccer: A mug's game?
By BBC News Online's Mike Verdin
It's a funny old game, investing in football clubs.
Your club wins the English premiership for the seventh time in nine years, yet its share price ends the season at about half the price it was when it contested the Charity Shield.
Then shares in Watford Leisure, the holding company of a club relegated from the premier league, rise by 25% on their first day of trading.
Certainly, you may appreciate that a club's share price relates more to its coffers than its trophy cabinet and on-the-pitch performance.
But to open the pages of clubs' annual reports is to be confronted by a world rich in financial paradox.
Bizarre finances
It is a realm where, despite a 313% surge in income in a decade, just 18 English clubs remained in the black in the 1999/2000 season.
Chris Wright: Cut QPR's purse strings
Where teams bolstered by a 60% rise in salary costs have failed to avoid relegation, and where loss-making enterprises have continued to sack managers rather than directors.
Despite a halving in club share prices since March last year, the sector has, to bargain-hunting corporate raiders, retained the appeal of shorts in a snowstorm.
The price offered in recent weeks for the brewer of Marstons Pedigree, or the firm which runs Luton airport, would buy some 100 Sheffield Uniteds, or 25 Aston Villas.
The club-buying market is almost exclusively the preserve of fans, typically entrepreneurs with pockets as deep as their loyalty.
"We always say that investing in football clubs comes with a high degree of risk," Nigel Hawkins, analyst at Williams de Broe said.
Consider Queens Park Rangers, which is entering the new season in administration after chairman Chris Wright cut the purse strings to its holding company, Loftus Road.
'Emotional investment'
In fact, QPR may be bought by a band of supporters, illustrating one reason for buying into a club - non-commercial passion.
It is an "emotional as well as financial investment", as one Celtic supporter put it two weeks ago, holding shares worth 40% what they were when purchased, yet underlining his determination to keep them.
Rarer is the investor who considers a football club an opportunity to earn merely cash rewards.
And those who do, have tended to focus on the top club, premiership winners Manchester United, the Reds, which have one of the better records of trading in the black.
Number one
The club's operating profit in the 1999/2000 season was, at £29m, three times that of its nearest rival, Arsenal, consultancy Deloitte & Touche Sport said on Tuesday.
And Manchester United has, for three years running, headed Deloitte's list of the world's richest clubs.
Certainly the club's stock price on Tuesday was less than half what it was in March 2000, at the height of the dot.com boom, when the firm's potential to exploit e-commerce swelled expectations.
But the shares are at least trading near their levels of June 1999, since when the FTSE 100 index has fallen by 1,000 points, or 15%.
Internet strategy
The club has gained advantages in exploiting football's two main sources of income - fans and broadcasting rights.
Besides winning ownership over TV rights, the club boasts by far the world's largest, and most geographically spread, fan base - which is where the e-commerce strategy comes in.
"We have opportunities through broadband for allowing fans in Saudi Arabia to get access to content - goal clips, match feeds - which they might otherwise have difficulty getting," a club source told BBC News Online.
The club has indeed entered a virtuous circle, where success has attracted fans, which means extra revenue, which allows the club to buy better players, which brings more success.
Wage costs
Crucially, Manchester United has also signed three-to-five year deals with all but David Beckham among its star players, leaving it able to forecast salary bills up to half a decade ahead.
It is, as observers have long pointed out, rocketing wage costs rather than a lack of income which threatens the financial welfare of English clubs.
The rise in salary bills in 1999/2000 almost exactly equalled the increase in takings - leaving a £61m rise in other costs unmatched.
"Any club hoping to secure its finances has got to get a grip on its players' salaries," the Manchester United source said. "They have to live within their means."
Nigel Hawkins views Sunderland as another club which has gained a hold on costs.
The reward? Sunderland shares have risen 5% this year.
Growing divide
But whereas Manchester United can call on its reputation as Britain's best club to help secure player loyalty, other clubs have been forced to rely merely on financial firepower.
Sol Campbell: Earning £100,000 a week in Arsenal colours
Even Arsenal, England's second ranking team, is reportedly paying Sol Campbell £100,000 a week, making him the country's best paid player.
To talk of lower Premiership clubs is to talk, in essence, of a different league.
"With Manchester United, I can see them eventually entering a European super league, and playing the likes of Bayern Munich and Barcelona every week," says Mr Hawkins.
"For your average Premiership team, the crucial thing is to come fourth from bottom, or better. Finishing third from bottom is a disaster."
Wage bills
Remaining in the Premiership boosts prestige, gates, takings from club shops, corporate hospitality revenues, and, this season, wins an average of £20m in broadcasting rights.
Top 10 salary payers
1: Chelsea, £47.0m
2: Manchester Utd, £44.8m
3: Liverpool, £40.1m
4: Arsenal, £34.0m
5: Newcastle Utd, £28.9m
6: Leeds, £27.8m
7: Tottenham Hotspur, £26.2m
8: West Ham, £25.1m
9: Middlesborough, £24.9m
10: Everton, £22.3m
Data: Deloitte & Touche, 1999/2000 season
Lower ranking clubs are still exposed to huge financial pressures - wage rises given to Division One players averaged 35% in 1999/2000 compared with 20% in the Premiership.
Yet they lack the same levels of support - Nottingham Forest's income slumped 44% when it was relegated to Division One.
The revenue gap is causing increasing financial hardships among smaller teams.
"Ten years ago the cost of keeping a third division club going was about £150,000-200,000 per annum - an acceptable price for many local businessmen," said Gerry Boon, head of Deloitte & Touche Sport.
"Today it is £500,000 in the third and £750,000 in the second division, every year - beyond many budgets."
Unequal contest
Even within the premiership, the rise between the haves and the have nots is only likely to grow, Mr Hawkins said.
"Even now Manchester United, where the average player is worth £10m, are playing clubs where the whole team is worth about £5m.
"If this goes on, you are going to get, in cricketing terms, the equivalent of Glen McGrath bowling at a village team."
Back to the future?
As for the lower clubs, the only way to avoid financial disaster may be to avoid costs - especially where players are concerned.
The way it was: Aston Villa, 1894-95
"I can see a number of teams sliding off the bottom and going amateur," Mr Hawkins said.
"How else will they be able to balance the books?"
Is football faced with a back-to-the-future scenario, of greased hair, gap-toothed grimaces and footballs sinking, in black-and-white, into December mud?
For those wary of investing in clubs, perhaps a better bet would be buy shares in any remaining manufacturers of flat caps, wooden rattles, and baggy cotton shorts.
There are charts, which can be seen at
news.bbc.co.uk/1/hi/business/1490693.stm
BBC Wednesday, 15 August, 2001, Investing in soccer: A mug's game?
By BBC News Online's Mike Verdin
It's a funny old game, investing in football clubs.
Your club wins the English premiership for the seventh time in nine years, yet its share price ends the season at about half the price it was when it contested the Charity Shield.
Then shares in Watford Leisure, the holding company of a club relegated from the premier league, rise by 25% on their first day of trading.
Certainly, you may appreciate that a club's share price relates more to its coffers than its trophy cabinet and on-the-pitch performance.
But to open the pages of clubs' annual reports is to be confronted by a world rich in financial paradox.
Bizarre finances
It is a realm where, despite a 313% surge in income in a decade, just 18 English clubs remained in the black in the 1999/2000 season.
Chris Wright: Cut QPR's purse strings
Where teams bolstered by a 60% rise in salary costs have failed to avoid relegation, and where loss-making enterprises have continued to sack managers rather than directors.
Despite a halving in club share prices since March last year, the sector has, to bargain-hunting corporate raiders, retained the appeal of shorts in a snowstorm.
The price offered in recent weeks for the brewer of Marstons Pedigree, or the firm which runs Luton airport, would buy some 100 Sheffield Uniteds, or 25 Aston Villas.
The club-buying market is almost exclusively the preserve of fans, typically entrepreneurs with pockets as deep as their loyalty.
"We always say that investing in football clubs comes with a high degree of risk," Nigel Hawkins, analyst at Williams de Broe said.
Consider Queens Park Rangers, which is entering the new season in administration after chairman Chris Wright cut the purse strings to its holding company, Loftus Road.
'Emotional investment'
In fact, QPR may be bought by a band of supporters, illustrating one reason for buying into a club - non-commercial passion.
It is an "emotional as well as financial investment", as one Celtic supporter put it two weeks ago, holding shares worth 40% what they were when purchased, yet underlining his determination to keep them.
Rarer is the investor who considers a football club an opportunity to earn merely cash rewards.
And those who do, have tended to focus on the top club, premiership winners Manchester United, the Reds, which have one of the better records of trading in the black.
Number one
The club's operating profit in the 1999/2000 season was, at £29m, three times that of its nearest rival, Arsenal, consultancy Deloitte & Touche Sport said on Tuesday.
And Manchester United has, for three years running, headed Deloitte's list of the world's richest clubs.
Certainly the club's stock price on Tuesday was less than half what it was in March 2000, at the height of the dot.com boom, when the firm's potential to exploit e-commerce swelled expectations.
But the shares are at least trading near their levels of June 1999, since when the FTSE 100 index has fallen by 1,000 points, or 15%.
Internet strategy
The club has gained advantages in exploiting football's two main sources of income - fans and broadcasting rights.
Besides winning ownership over TV rights, the club boasts by far the world's largest, and most geographically spread, fan base - which is where the e-commerce strategy comes in.
"We have opportunities through broadband for allowing fans in Saudi Arabia to get access to content - goal clips, match feeds - which they might otherwise have difficulty getting," a club source told BBC News Online.
The club has indeed entered a virtuous circle, where success has attracted fans, which means extra revenue, which allows the club to buy better players, which brings more success.
Wage costs
Crucially, Manchester United has also signed three-to-five year deals with all but David Beckham among its star players, leaving it able to forecast salary bills up to half a decade ahead.
It is, as observers have long pointed out, rocketing wage costs rather than a lack of income which threatens the financial welfare of English clubs.
The rise in salary bills in 1999/2000 almost exactly equalled the increase in takings - leaving a £61m rise in other costs unmatched.
"Any club hoping to secure its finances has got to get a grip on its players' salaries," the Manchester United source said. "They have to live within their means."
Nigel Hawkins views Sunderland as another club which has gained a hold on costs.
The reward? Sunderland shares have risen 5% this year.
Growing divide
But whereas Manchester United can call on its reputation as Britain's best club to help secure player loyalty, other clubs have been forced to rely merely on financial firepower.
Sol Campbell: Earning £100,000 a week in Arsenal colours
Even Arsenal, England's second ranking team, is reportedly paying Sol Campbell £100,000 a week, making him the country's best paid player.
To talk of lower Premiership clubs is to talk, in essence, of a different league.
"With Manchester United, I can see them eventually entering a European super league, and playing the likes of Bayern Munich and Barcelona every week," says Mr Hawkins.
"For your average Premiership team, the crucial thing is to come fourth from bottom, or better. Finishing third from bottom is a disaster."
Wage bills
Remaining in the Premiership boosts prestige, gates, takings from club shops, corporate hospitality revenues, and, this season, wins an average of £20m in broadcasting rights.
Top 10 salary payers
1: Chelsea, £47.0m
2: Manchester Utd, £44.8m
3: Liverpool, £40.1m
4: Arsenal, £34.0m
5: Newcastle Utd, £28.9m
6: Leeds, £27.8m
7: Tottenham Hotspur, £26.2m
8: West Ham, £25.1m
9: Middlesborough, £24.9m
10: Everton, £22.3m
Data: Deloitte & Touche, 1999/2000 season
Lower ranking clubs are still exposed to huge financial pressures - wage rises given to Division One players averaged 35% in 1999/2000 compared with 20% in the Premiership.
Yet they lack the same levels of support - Nottingham Forest's income slumped 44% when it was relegated to Division One.
The revenue gap is causing increasing financial hardships among smaller teams.
"Ten years ago the cost of keeping a third division club going was about £150,000-200,000 per annum - an acceptable price for many local businessmen," said Gerry Boon, head of Deloitte & Touche Sport.
"Today it is £500,000 in the third and £750,000 in the second division, every year - beyond many budgets."
Unequal contest
Even within the premiership, the rise between the haves and the have nots is only likely to grow, Mr Hawkins said.
"Even now Manchester United, where the average player is worth £10m, are playing clubs where the whole team is worth about £5m.
"If this goes on, you are going to get, in cricketing terms, the equivalent of Glen McGrath bowling at a village team."
Back to the future?
As for the lower clubs, the only way to avoid financial disaster may be to avoid costs - especially where players are concerned.
The way it was: Aston Villa, 1894-95
"I can see a number of teams sliding off the bottom and going amateur," Mr Hawkins said.
"How else will they be able to balance the books?"
Is football faced with a back-to-the-future scenario, of greased hair, gap-toothed grimaces and footballs sinking, in black-and-white, into December mud?
For those wary of investing in clubs, perhaps a better bet would be buy shares in any remaining manufacturers of flat caps, wooden rattles, and baggy cotton shorts.
There are charts, which can be seen at
news.bbc.co.uk/1/hi/business/1490693.stm