Football, the beautiful investment game?
Another football season is upon us and we dream of silverware to be won. However, planning for the next transfer window begins almost immediately for those clubs listed on a stock market. There are opportunities to increase their share price through new signings, managers and sponsorship deals.
At one time shares could have been purchased in the likes of Tottenham or, perhaps more surprisingly, Millwall. However, in recent years a delisting has been more likely. Shares can still be purchased in Juventus, Borussia Dortmund, Roma, and perhaps most notably Manchester United. Are these shares proving to be good investments, or the ultimate fan's folly?
Unlike a conventional listed company on and off field factors can affect the value of football club shares.
On the field performance
Measures of performance for a listed sports team can in many ways mirror those of any listed company. Unlike other businesses, performance is not limited to announcements or the latest set of accounts. It can be judged on a match by match basis which provides the share price with a high degree of volatility. A single lost game can result in a dramatic fall in value.
When Juventus qualified for the quarter finals of the 2018/19 Champions League its share price rose by 18%. Conversely, when Juventus then lost in the next round their shares fell by the same amount.
Ajax, the club that knocked out Juventus, left their investors thankful for their investment in the club after their shares rose by 8% as a result of thumping Real Madrid in the round of 16. Unfortunately for Ajax, their dramatic last minute loss to Tottenham in the semi-final resulted in an equally dramatic share price drop of 20%.
Manchester United provide a case study in how the mere appointment or dismissal of a manager can influence its share price, although, despite the importance of the manager and the media coverage, the share price movements were not material compared to the on field performance:
- the hiring of Jose Mourinho, the self-appointed "Special One" in 2016 raised hopes, but clearly not by much (and accurately it transpired), as the club's share price rose by only 1% following the official announcement; and
- the subsequent sacking of Mourinho after a prolonged period of gradual decline (and alleged rows with players) led to a share price rise of 6%, it then rose modestly again following the appointment of former super sub Ole Gunnar Solskjaer (who had relatively little experience), although recent performances have done nothing to maintain the increase.
Celtic experienced similar smaller fluctuations in share price when Brendan Rodgers made the decision to leave and join Premier League club Leicester City with a modest fall of 2.1%.
Key hirings and departures are not uncommon in a non-sporting environment and a price fluctuation on this basis is no surprise. For example, earlier this year Elon Musk announced that Telsa's CFO Deepak Ahuja's was leaving and its share price fell by 4.5%.
However, the frequency and sudden nature of the changes in football can mean that the share price is subject to more frequent fluctuations. The League Manager's Association's "End of season manager statistics" report dated 31 May 2018 noted that 15 Premier League Managers had been dismissed in the 2017-18 season. The average tenure for all of the managers in post at the end of the same season was a mere 1.53 years. It would be unusual for a listed company to experience such employment turbulence.
Signing key players can also have a positive impact on a football club's share price. In the summer of 2018 Juventus announced the signing of the then 33 year old Ronaldo for €110 million. Although coming to the end of his career, the commercial value and certainty that Ronaldo will deliver trophies (and maybe even the coveted Champions League) for the club led to a record high share price of €1.62 in the subsequent weeks, a rise of 153%. Conversely, when Manchester United announced the signing of Paul Pogba in 2016 its share price rose by a much lower 4%.
It's not just performance on the field which can affect an investment; off the field performance is also important but not predictable. Back in 2014, Manchester United and Adidas announced an official partnership, the deal being worth £750m. Over the course of a week, the share price of the club rose 5%. At the start of the 2018/19 season Manchester United announced commercial agreements with Chivas and ICICI Bank, despite starting the season in poor form, shares rose from $20.55 to a record high of $26.20 (an increase of 27%).
Such fluctuations are what would normally be expected in a corporate environment where new contracts could be procured and growth obtained but in the context of a football club the dual dynamic of financial performance and sporting performance cause unpredictability. On the one hand a club could be commercially thriving, whilst on the other enduring a barren spell on the pitch. The two combine to paint a rather unconventional picture.
The debate as to whether an investment in a football club is a matter for the head or the heart will continue. It is certain that winning competitions, marquee transfers, and the manager merry-go-round leads to increases and decreases in share price but the result gives uncertainty.
However, regardless of their performances on the pitch, many football clubs carry a heritage and a dedicated (merchandise-seeking and ever increasing) fan base, which would be the envy of many companies. As the world of online streaming and in-game advertising grows, so will the commercial pull of listed football clubs and their investment appeal.