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Your Money > Investing Comment Articles > Cinderella goes to...
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By Richard Hunter, Hargreaves Lansdown
It may be football's close season, but the back page headlines continue to be focused on transfer speculation and the financial outlook for clubs. The announcement that Setanta is likely to enter administration was accompanied by the Premier League taking back the rights to screen 46 Premiership games next season. It has now emerged that Disney-owned ESPN has paid an estimated £90 million for the privilege, which compares with the £130 million which Setanta had originally paid. Meanwhile, at the beginning of June, Deloitte published its annual report on the finances of the top European clubs and the UK Premiership clubs in particular. The report somewhat confusingly related to the 2007/08 season (as opposed to the one which has just finished), so that it is next year's report which will be more reflective of what sort of impact the global recession has had on football finances. It did, nonetheless, give some interesting updates on the fortunes of the Premier League. Revenues soared by 26% to just under £2 billion, with 11 of the top 20 sides posting an operating profit (up from eight the previous year). Meanwhile, salary costs exceeded £1 billion for the first time and the clubs' total net debt was £3.1 billion. The net debt figure has been the cause of some Media concern of late, particularly with the recession beginning really to take hold, but there are some mitigating factors. First of all, nearly £2 billion of the net debt figure was split between the top four clubs ( Chelsea £711 million, Manchester United £650 million, Arsenal £320 million, Liverpool £300 million). Also, of the £3.1 billion debt figure, £1.2 billion took the form of “soft loans” – at little or no rates of interest – from club owners. The main reason for the jump in revenues over the period was that the season 2007/08 represented the first of the new three year TV sponsorship deal, largely won by BSkyB, and worth around £1.7 billion. For the moment, then, the clubs in the game's upper echelons are on the whole holding their head above water. Further down the scale, the story is somewhat different. A relative lack of commercial TV sponsorship, a drop in attendances and the related merchandising resulting from (for example) relegation, and the increasing lack of corporate sponsorship (for boxes and so on) have all conspired to drive some clubs towards, or in some cases into, administration. Southampton was a recent example, succumbing after failing to find a home for (or refinancing of) its £24 million debt obligations. This brings the figure to eight clubs which have gone into administration this century, and the ongoing difficulty in obtaining credit lines from banks – football clubs are notoriously cash hungry and therefore rely heavily on cashflow – could yet cause this figure to rise further. At its peak, there were around 20 football clubs with a listing on the Stock Exchange. That number is now around five, including Rangers and Celtic and, on the AIM market, Birmingham City and Tottenham Hotspur. Some of the smaller clubs have opted to delist to save money on listing fees, whilst others have gone into the hands of private ownership (Manchester United, Chelsea , Aston Villa, etc). Also in private ownership are Liverpool, whose parent company recently announced an annual loss of £43 million, prompting its auditors to cast “significant doubt” on the future of the group as a going concern, even if the club's owners remain confident of securing the necessary funds. There have been mixed fortunes for those remaining with a listing. Birmingham City shares have rallied 27% over the last three months in the run-up to their eventual promotion to the Premiership. Millwall currently have a market capitalisation of just £7 million; Tottenham are down some 55% from their recent peak in March 2008. There are also some extremely tightly held shares, where a potential buyer (of even one share) must be matched up with a seller before the trade can be completed – and, in the case of Arsenal, the price of one such share currently stands at £7,200. Whilst for the moment the top clubs remain in a profitable but somewhat precarious position, for investors the choices are limited – which is probably no bad thing given the historic performance of football club shares, which tend to remain as a speculative investment mainly for the die-hard fan. And that is without the ripples Setanta caused to the game by failing – something which, for the moment, has been rectified. Richard J Hunter is Head of UK Equities at Hargreaves Lansdown Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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