Buying a football club — A kickin’ investment?

Is owning a football club an expensive hobby or a stellar investment? Let’s find out.

Real Madrid, a star studded team, won the 2018 Champions League.

The Dream

Wouldn’t it be nice to rub shoulders with Eden Hazard at Stamford Bridge, or shake hands with Christiano Ronaldo in his new Juventus jersey. How about mingling with sheiks, tycoons, heirs and heiresses in your private suite at Old Trafford? Ah, the stuff of dreams. But first, you’d have to invest in your very own football club.

Are football clubs a billion dollar hobby or a sound way to grow your wealth? Calling all aspiring club owners — And let’s find out.

For starters, how will I make money?

The golden question. Football clubs generate revenue through a mix of broadcasting agreements, prize money, ticket sales, merchandise, sponsorships, player transfers etc… The more money you collect from all those channels, the more valuable your football club (and investment) becomes.

Okay, how much should I pay?

Real Madrid is one of the most recognizable teams in the world.

How much should you pay for Real Madrid? What about Blackpool FC?

Like any investment, you’ll want to pay a price that fairly reflects the future profits and revenues that you’ll be generating. Naturally, prestigious clubs like Real Madrid are more likely to generate higher revenues on the back of sky-high ticket sales, prize money, lucrative sponsorships and more. It should come as no surprise that you’ll have to pay more for the likes of Real Madrid than a small town club. Duh.

Branding is key

This is where hallmark clubs, like Manchester United or FC Barcelona, bring in the gravy. Their die-hard fans fill every seat in the stadium whilst people from all over the world rush to snap up their latest merchandise. And finally, broadcasters from London to Bangkok are happy to pay a premium to air “big name” clubs on match day. Simply put, big brands commands big money.

Do historic clubs sit on an unfair advantage? No doubt.

It pays to win

Winning pays off. Falling behind in your league, or failing to crack into important tournaments can hurt your finances. In early 2018, Arsenal stomached a £25mln fall in football revenues they didn’t qualify for the Champions League. Ouch.

Oh yeah, the prize money is pretty sweet. The winner of the Champions league pockets a steady £42mln. Not bad.

How about a new scarf?

Selling merchandise is key to any football empire but you’ll likely need a star roster to keep your gear in high demand. And it’s not cheap.

Ronaldo’s latest move to Juventus cost a cool £112 million but the portuguese superstar boasts a following of over 300mln people across various platforms. Will his jerseys sell out? Will Juventus scarves fly off the shelves? You bet.

It’s no wonder that Juventus’ share price jumped by more than 30% in the days after his transfer. Investors were feeling bullish on Ronaldo’s ability to drive up merchandise sales alongside plenty of other sweeteners — like sponsorship deals, ticket sales and broadcasting.

Big players attract big revenues, and that’s (partially) why they’re so expensive.

Juventus fans rushing to buy the latest Ronaldo jersey.

Show me the money (sort of)

Let’s cut to the meat. Does investing in football clubs pay off?

Alisher Usmanov, a Russian tycoon, purchased a large stake in Arsenal 11 years ago, and recently sold his chunk to fellow billionaire Stan Kroenke.

Mr. Usmanov bought 30% of Arsenal in 2011 when the UK club was valued at £731mln. It was most recently valued at £1.8bln. More than doubling his money, and earning an annualised return of nearly 14%. If he would have invested in the FTSE100, the benchmark UK equity index, he would have made a yearly return of 5%. It’s clear — it paid off.

Arsenal is starting the new season on a fresh slate with a new owner.

It’s not all pretty. Football can be a tough business, even in a world of ballooning valuations. Manchester City’s value continues to increase on promises that its acquisitions, rising reputation, growing fan base and broadcasting deals will pay off in the long term. But turning a profit remains tough. In the 2016/2017 season, Manchester City made an impressive £475mln in revenue but only held onto a £1mln profit. That’s a meagre 0.2% profit margin. A few rough seasons, and external cash injection may be needed to keep your club afloat. Small change for a Sheikh, but risky business for the rest of us.

Should I place a bid?

We set out to find out more about the world of investing in football clubs. And we’ve realised that it’s like any other investment, filled with both risks and opportunities. Albeit, probably a little bit more fun. So go for it and start saving. When you’re ready, place a bid on your favourite football club. Small reminder though, capital is at risk.