Commentary Box: More Coronation Street than Wall Street – Investing in non-league

Photo: Matthew Wilkinson Flickr CC BY 2.0

IS IT purely philanthropy or is there something tangible about investing in a non-league football club? It is hard to justify investment in any sports club, let alone a non-league outfit, but all over the country, local football is short of money and struggling to live within its means.

“Just do the math” as they would say on an investment banking trading floor. Money in, money out. That’s how many non-league clubs run. Indeed, some Football League clubs are in the same position. For a game that is awash with cash, thanks to TV money, best-ever attendances and massive media exposure, the bottom line is generally very anaemic.

In the non-league game, wages are still too high, and in most cases, teams are making too many long journeys to play in front of a few hundred people. So year-in, year-out, clubs are always looking for “investors”. Most of these are not really investors at all but donors. Nobody is ever going to make a fast buck out of non-league football.

Fortunately, there’s a lot of good people in non-league football, terrific stalwarts and generous, well-intentioned sponsors that keep the game going at this level. Sadly, the wrong people can also turn up on your doorstep, promising the world and the next “snake-oil” remedy. In today’s environment, clubs have to be aware of money launderers and tax-dodgers and of course, the huge ego that creates an “Emperors new clothes”-style regime.

Property speculation is another reason why opportunists get involved in the non-league game. Often clubs are sitting on real estate that can be very valuable, so whenever a property man gets interested in a club, suspicion is aroused. Of course, a relocation can be a very lucrative project for a club, removing debt and legacy issues and offering the chance of rebirth on a new shiny site that offers broader facilities than those that existed at the original home of the club. But the problem is that the “investor” might look to leverage the property deal for his or her own benefit. Some might argue that if the club gets a new home, where’s the problem?, but non-league clubs are too often vulnerable to the sharp businessman.

Given that non-league doesn’t have the critical mass needed to make big money, the real estate angle is often the only way any investor could get something back in return. “And why not?”, some would say, as investment often comes in the form of propping-up woeful balance sheets.

Another avenue that could appeal to investors is in being given the chance to run the concessions and entertainment facilities at a club in return for a substantial cash sum. Some clubs franchise their bar and social facilities, which is usually a sign that the club cannot make a profit or devote the time to turning their clubhouse into a profitable venture. Of course, this demands a certain set of skills and often unloading the responsibility can come as a big relief to the club.

Invariably, people want something back in return for cash injections. But there’s one set of stakeholders that don’t seem to require a quick financial return – supporters. I’ve long been an advocate of supporters’ trusts and fan-owned clubs at non-league level. In truth, they are probably the least demand segment of the triumvirate of sponsor, investor and fan. In the non-league game, the idea of “involvement” and “engagement” appeals to the loyal supporter who has stood on the terrace for decades. Football fans claim that their club belongs to the people that watch it, but the fact is, clubs like Manchester United, Chelsea and Arsenal do not belong to the fans – they are the property of owners and shareholders. Whether we like it or not, the paying spectator is a customer – albeit a special type of customer that deserves to be repaid for loyalty.

Non-league clubs have the opportunity to offer something that fans of the behemoth clubs cannot hope to benefit from, acquiring a realistic stake in the club. It is not the only way for there are many models, and there are genuine people who are literally benefactors and philanthropists who want to connect with their local community. The message is clear, engage your “investors” carefully, make sure they know the limitations and, above all, manage their expectations. They need to be clear that non-league is more Coronation Street than Wall Street. Above all, be aware of theodolites turning up on the centre circle in the close season!

This article appeared in the Non-League Paper on Sunday June 11, 2017


Investing in sport: Opportunity or chance?


Soccer - Manchester United Takeover Bid by Malcolm Glazer - Manchester City Centre
Photo: PA

THE RELATIONSHIP between the sports and investment worlds has often been uneasy. In the mid-1980s, Tottenham Hotspur became the first English football club to be listed on the stock market, but by 1991, following worsening economic conditions, Tottenham’s shares were suspended.  Manchester United, at the start of the 1990s, floated on the London Stock Exchange. It gave the team an advantage just as the FA Premier League was being formed. But this also made Manchester United more vulnerable to a takeover, and it was taken off the market when the Glazer family bought the club. It has since been floated on the New York Stock Exchange.

Football and rugby: a good investment?

For many people, investing in a sports club represents a ‘trophy investment’ and, invariably, the investors are already wealthy and aware that sports clubs are focused on playing success rather than delivering returns. The revenues for the world’s top 20 football clubs increased by 12% over the past year to €7.4bn, according to the Deloitte Football Money League 2017. But, equally, the rewards for players are such that clubs have rarely posted healthy profits. However, the revenue streams mean investors could sell their club for a profit; for example, France’s Paris St Germain, purchased by Middle Eastern investors some five years ago, is now among the top six in Europe, and would likely make a generous return on the owners’ investment. Furthermore, a successful disposal came with the acquisition of Chelsea by Roman Abramovich. The club’s owner, Ken Bates, purchased Chelsea for £1 in 1982 and, although it is often overlooked that he spent significantly over 21 years, he sold his asset for £140m.

Andrea Sartori, global head of sports at KPMG and head of the company’s Football Benchmark team, credits the UEFA Financial Fair Play (FFP) regulations, the initiative established to prevent professional football clubs from spending more than they earn, as the catalyst for stricter financial management discipline that has already started to become evident. However, he says: “Pure returns on investment considerations do not always exist in any decision-making. There is often a degree of emotion, philanthropy, occasionally ego-driven reasons and, in some countries, even politics. In fact, in football there are often a lot of irrational decisions made. Synergies with other assets owned by a prospective owner can also be a driver to the acquisition of a club.”

Gary Sweet, CEO of Luton Town, echoes and expands on this point. “Much of the value of any investment might not necessarily be measured by capital,” he says. “[But] being involved with a club like Luton can bring enormous goodwill benefits.”

Rugby, similarly, has always attracted high profile sponsorship and interest from sponsors and investors. The game has grasped professionalism and employed creative ways to market themselves. But the sport does not have the financial clout of football as evidenced by the total revenues of its top clubs. Leicester Tigers, arguably the best supported club in Britain, generated £19m in 2016, a fraction of the drawing power of top level football. Jim Turley, a former banker and England rugby international at youth level, has maintained his interest in rugby union and, in particular, Roslyn Park. Jim has been involved at the club for some years, acting as chairman and also spearheading fundraising initiatives. “From a cash flow point of view, without the involvement of individuals, the sport cannot make the game pay,” Jim says. “So anyone investing below the very highest level has to be aware that this struggle exists.”

Generating income

While investors in smaller clubs may have to settle for goodwill benefits instead of financial returns, one aspect of sport where they can make a return is real estate. Gary points to Luton Town’s proposed ground relocation as a project that offers possible benefits for investors in the future.  Most clubs that have moved to new purpose-built stadiums have realised a number of benefits. Arsenal, for example, after moving from its old home at Highbury to the Emirates Stadium, enjoyed a dramatic increase in revenue generation. In 2005, the club’s match day revenues totalled £37m, but by 2007 this had risen to £90m, and in 2016 revenues were close to £100m. Moreover, commercial revenues grew on the back of this, climbing from £30m in 2006 to £106m in 2016.  Regardless of the potential a new ground offers, real estate and ground development have to be handled sensitively, as sports fans are sceptical about the motives of developers. This underlines the importance of the ‘fit and proper person test’ for potential owners of British football clubs, which attempts to prevent corrupt individuals from buying a club.

Although the elite band of clubs enjoy huge revenue streams from television, commercial activity and performance-related income, there are other ways for clubs to drive revenues, Andrea explains: “Player trading and talent management is an area of income that is invaluable and some clubs, such as Udinese in Italy, Porto in Portugal, Ajax in the Netherlands and Sevilla in Spain, have demonstrated their expertise, leveraging strong academies to make notable profits. Therefore, a club’s ability to successfully trade players and/or grow talent is something that strategic investors might look closely at.” The clubs that are more successful at this demonstrate there is still a place for prudence and financial acumen – qualities that would appeal to would-be investors. Not surprisingly, the clubs excelling at player trading do not derive the greatest benefits from playing success or commercial activities and broadcasting fees.

The market drivers

Right now, the appetite for European football is coming from all corners of the globe. Very few top English clubs are locally owned and many have investors from China, the Middle East, Russia and the US. China, in particular, has been investing in European football clubs as well as paying inflated fees for players.

Elsewhere, there are a number of investors who have built portfolios of clubs across Europe and other parts of the world. Red Bull, the Austrian beverage company, has – rather controversially – invested in clubs in Salzburg, Leipzig, New York and Ghana. Sceptics suggest that the future of big-time football rests in the hands of the corporate world. If that’s true, investment opportunities for the average retail investor may be limited to the lower leagues and should be accompanied by realistic expectations of returns, which may not necessarily be monetary. Even the possibility of a portfolio investment, through a fund dedicated to football, has its challenges. Generally, shares of football clubs are illiquid and performance can be stagnant. That said, there are professional funds dedicated to football clubs and players, but these are not widely available. Some, such as the Football Talent Fund, floundered due to regulatory issues. At the highest level, however, the acquisition of a club can often be part of an overall basket of assets that provide exposure for the owner, and in the case of football, there are few more visible or compelling activities across the globe.

This article was originally published in the CISI members’ magazine The Review. Republished with permission.