Invest in football? Only if your goal is a net loss

Spring is in the air, the season approaches its dramatic finale – and clubs start to portray themselves as financial players. Don’t be sucked in, says George Pitcher

It’s usually at about this time during the football season, at some stage in March or early April as the first silverware takes its place in trophy cabinets and the end of the season comes into sight, that the business hype surrounding Premiership clubs is rekindled.

For those clubs likely to finish in the higher echelons of the Champions League or the Premiership, some confident budgeting can be done for the next financial year, if not season. But there are subtler psychological factors at play.

The sun begins to shine more warmly on Saturday afternoons and towards the start of evening fixtures. Watching English football transforms itself from an experience akin to being a stevedore at Lowestoft docks in an easterly sleet-storm into a lush lawn-game, redolent of Bobby Moore’s sunny Sixties triumph over the West Germans.

Under these circumstances, the game just seems more prosperous. You only have to witness the difference between an Arsenal fan in a T-shirt and Ray-Bans and one in a cagoule and bobble-hat to know what I mean.

The other psychological factor is the expression of financial muscle during the Premiership run-in of the final ten games or so. If you can be seen to be raising nine-figure sums for a stadium that can seat not only the entire supporters’ club but also the whole home capacity of the visiting team – perhaps with a sliding all-weather roof that can be seen from space – it has a usefully intimidating effect on the opposition.

So it is that, in the post-match analyses of Sunday’s Worthington Cup final in a Cardiff stadium that seems to have its own microclimate, a variety of stories have cropped up in the capital markets, designed to demonstrate the commercial wealth of contenders Liverpool and Manchester United.

Never mind that this was, until recently, widely referred to as the Worthless Cup, because the big clubs shunned it in favour of the glittering prizes of the Premiership, the FA Cup and the Champions League.

Liverpool used the platform of its win to regenerate speculation about a capital-raising exercise to fund a new stadium, re-establishing its domestic prestige and prosperity. Manchester United, smarting from its humiliation, reminded us of its status as a multinational brand, letting it be known that Malcolm Glazer, owner-president of the Tampa Bay Buccaneers American football team, has built a predatory 2.9 per cent stake in its publicly listed stock.

Neither of these business manoeuvres has as much substance as the clubs would like us to believe. No one in the North-west has any doubt that Liverpool will replace the glorious but outdated Anfield at some stage soon, but its management has no idea how it will raise the alleged &£100m required.

There’s just some vague talk about securitisation of future revenue streams, a bond, a bank loan or some combination of all three. Meanwhile, Manchester United’s largest shareholder is Rupert Murdoch’s pay-TV operator, BSkyB, which tried its own bid a couple of seasons ago and holds 9.99 per cent.

Other shareholders are fund managers UBS and Hargreaves Lansdown, with some five per cent each, and a collection of Irish speculators who speak for 10.1 per cent in total. Manchester United is certainly comparatively cheap, being capitalised at about &£295m, against a peak valuation in 2000 of &£1bn.

But it’s difficult to see Murdoch ceding his stake under these circumstances to a rival sporting buccaneer, or any of the other investors cashing in at an undervalued price. Manchester United’s shares can be expected to be volatile, like any football club’s, but it isn’t a basket case.

So talk of the Red Devils being the target of a takeover bid and Liverpool raising &£100m or more in the capital markets is premature, to say the least. But there is another, more important reason why investors should pay no attention to the mad March hubris that surrounds major football clubs and which, ultimately, can never make them serious leisure industry investments.

Since the demise of live theatre – save for a few blockbuster musicals that pull in the tourist coaches – at the hands of first the cinema and then home-viewing formats, football has been the UK’s only surviving and prospering form of mass live entertainment.

Were it not so, contracts for televising matches would not be so sensitively negotiated to avoid adversely affecting gate receipts. And, as any “angel” investor from the theatre will confirm, live entertainment is a notoriously unpredictable and unmanageable investment, depending as it does on the vicissitudes of performers.

In other sectors of the entertainment and leisure industries, some longevity and predictability to future revenues is provided by recorded formats. That is why Vivendi Universal is reluctant to part with its music business in any break-up of the group – the back-catalogue in the record industry is just too juicy and reliable a revenue stream.

By comparison, football’s back-catalogue barely exists. The sport lives and dies by its live appeal or lack of it. As Manchester United has demonstrated over the years, the industry can – as a result – be exciting and cash-generative.

But it is unmanageable over the long term, operating only on short-term revenue bursts, of which top clubs hope to accrue as many as possible, but which will never constitute a predictable cashflow. So the answer must be never to believe the protestations of future prosperity at this stage of the season.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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