This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
“When you're on the pitch, life goes away, the problems go away, everything goes away.” Thus spoke the great, infamous Argentinian football player Diego Maradona. It’s a quote that neatly captures what many fans of the beautiful game feel. For many of us, football is a near transcendent experience, one that allows us to escape the stresses of daily life and forget about material concerns.
For those in the football business, things are rather different. Consultancy group Deloitte carries out an annual review of the money-making side of the beautiful game. According to their latest report, European football clubs alone totted up approximately £23.5bn in revenue during the 2020/21 season. What makes this particularly remarkable is that it covered a period when fans couldn’t come into stadiums because of the pandemic, which meant there was a large drop in ticket sales.
Given how much money is at stake, it’s probably inevitable that the business side of the game often runs into the more emotionally driven beliefs of fans. This was on display in 2021 when 20 of the largest clubs in Europe announced plans to form a continent-wide Super League. Widespread backlash from fans meant the project died but, when it was first announced, shares in publicly listed clubs Manchester United and Juventus rose 9% and 19% respectively.
For prospective investors that highlights one of the potential problems which exists in the sector. Fans and results are hard to predict but are big drivers of revenues. And shareholders’ desires to push for more revenue often runs contrary to the interests of fans. For instance, there has been a decade-long freeze at Man Utd on season ticket prices. Liverpool have also struggled to raise prices and have backed away from doing so after trying.
On the other hand, the marketing side of football clubs is compelling. Man Utd have proven particularly adept at this, increasing the proportion that ‘commercial agreements’ constitute of total revenue from around 25% in 2009 to almost 50% today. Total revenues also increased from $366.2m in 2009 to $796.4m in 2019, although that dropped to $683.2m last year because of Covid.
One manager who has long been keen on football investments is Nick Train. Lindsell Train (LTI) is the second largest shareholder in Juventus and the largest shareholder of Man Utd Class A shares. The fund manager also has a 5.7% stake in Scottish club Celtic. Investors in the fund managers’ open or closed-ended funds will have varying degrees of exposure to these clubs.
Train, the person not the company, has said he believes the clubs his funds hold are great brands that will continue to expand globally and increase their digital presence in the future. Doing so will lead to more revenues, and thus better returns for shareholders.
Whether or not he’s right remains to be seen. But it’s likely the strange balance between emotion and money will play a role. The World Cup in Qatar illustrates this. It’s attracting lots of criticism, but it also purportedly cost the Qatari government $229bn. With those sorts of sums involved, it’s easy to see people leaving their morals at the door.
Past performance is not a reliable indicator of future results
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