March 28, 2014    5 minute read

IPO’s in Football

   March 28, 2014    5 minute read

IPO’s in Football

The roar in the stadium, the passion of the fans, the racing hearts, all leading to moment of silence, watching with bated breath, the ball drops in and the stadium erupts like a volcano and you experience a feeling like no other. Being at a football match is a truly unique experience and one which I have been lucky enough to experience a number of times. With a growing population and therefore a growing base of football fans, it is easy to see why so many firms have chosen to invest in football.

In the late 1990’s many clubs decided to list themselves on STOXX Europe football exchange to raise capital especially in the late 1990’s when sponsorship and TV were not as lucrative. A prime example and most recent of the IPO’s is Manchester United. The largest football club to be listed on a public stock exchange. The Glazer family decided to list the club on the New York Stock Exchange in 2012 for $14 USD per share giving them a market value of £1.5 billion. The IPO raised £142million for Manchester United. Since then, there have been fluctuations. When United won their 20th league title in May 2013, prices reached $19.03 USD. Since then they have suffered a downward trend, hitting a low of $12 USD costing the club $250 million. The share price seems to reflect the form of the club, and with new manager David Moyes not living up to the lofty heights reached by Sir Alex Ferguson, the club leaked money. The price has perked up since but it seems like it will be a while until they will reap substantial returns for investors.

Irving Scholar was the first man to float his football club as he floated Tottenham Hotspur back in 1983 on the stock exchange. Shares started at £1.08. On the first day of trading the price dropped to 90p. It would take almost 3 and a half years for the shares to rise above £1. Tottenham, however, set off a trend of listing on stock exchanges and by the late 1990’s almost 30 top clubs in Europe had floated on the stock exchange. However this lack of success in raising capital via an IPO for Tottenham was mirrored for many clubs with only a handful having a higher share price after 1 year after having been listed.

With the form of the club being closely linked to their share price, it can be very hard to get large returns on your investment. If form drops, shareholders lose out when the share price drops and it costs the club money as well.

Borussia Dortmund, German footballing powerhouse has had recent success with their shares at €4 from their slump in late 2008 where shares dropped to €1.13. However when the club listed back in 2000 on the German Stock Exchange, shares were initially offered at €9.50. They proceeded to decrease with the odd spike until late 2008, when some life was sparked into the share price and it rose gradually. Dortmund were fiscally responsible, not paying huge wages or transfer fees and built a young team for the future. That hard work came to fruition when they reached the Champions League final, the world’s biggest club football competition, 5 years after facing bankruptcy. This turnaround has forced the share price up considerably.

Nowadays, with enhanced TV coverage and networks fighting hammer and tong to get the rights, there is a lot of money flowing into the clubs without the need for an IPO. Rights for the premier league are worth approximately $1billion and with extremely lucrative sponsorship deals for the top clubs like the £125million deal the Qatar Foundation struck with Barcelona to have their name on the Barcelona kits, enhances revenue. There has been an extreme influx of foreign money into football with the Arabs taking over Manchester City most notably, as well as PSG and Nottingham Forest. The Russians also put their money into football with the likes of Roman Abramovich buying Chelsea. There is a lot of capital in these clubs. However, most clubs are loss making institutions with a lot of those losses accredited to outrageous wages and transfer fees. This happens mostly in the English and Spanish leagues which means most of the clubs are in debt. However they are most attractive leagues to foreign investors and companies who may look to sponsor as well as the best players, so there is a definite trade off.

I feel the IPO era is coming to an end for football. It is risky, there are not great returns to be had for smaller clubs and with football being so unpredictable, the share price is unstable as it so closely linked to form. For me it is not worth investing in it for a relatively short period of time. The STOXX is down 13.66% this year showing that it could be time for clubs to quit the stock exchange and focus on sponsorships. Tottenham, for example, withdrew their shares from the AIM index with the last day of trading on January 13th 2012, looking for private sponsorship for a new stadium. I feel more clubs will follow. Corporate sponsorship is a lot more attractive to clubs now and with the vast global following, there is no shortage of companies looking to sponsor teams. IPO’s cannot offer a stable source of income for the club and can end up costing the club money, like it was the case with Manchester United. There are more attractive options on the table than IPO’s for football teams to raise capitl.

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