Profit of doom?

Paul Fryer explains why he was tempted, in spite of himself, by a new football investment scheme promising quick profits

Football is rolling in money just now, but those of us wondering when the bubble might burst can hark back to a precedent in in the early eighteenth century. Then, the South Sea Company, with a monopoly of trade with South America, offered to take on half the national debt in return for further concessions. With the prospect of huge profits, its 100 shares rapidly increased to 1000 as investors rushed in. The trade could not service the shareholders, the ‘bubble’ burst and thousands were ruined.

Which brings us to the Football Fund. By now, we should all have seen the adverts: Alan Hansen staring out at us, as sincere as a fitted-kitchen salesman. The information pack paints a glowing picture of virtually global opportunity: “We’ll be investing in football clubs and football related businesses in Britain – and, if prospects are attractive enough – we can even invest in Europe, with clubs like Juventus, Brondby and Paris St Germain.”

All this with a reputable firm, Singer and Friedlander, which has, “a long association with football. It is a leader in financing player transfers with good contacts in most major clubs. The Football Fund manager already invests in football clubs and is an experienced investors in the sector.” This is the Stock Market, and a chance to buy into the commercial success of football as a whole.

As the firm obviously knows what it is doing, risks are surely minimized. So just look at the profits to be made, and it doesn’t cost too much. The offer is open until the middle of February. Easy peasy; money for nothing.

The commercial possibilities of football are, without doubt, immense, which is why so many wealthy people are making a commitment. As Patrick Harverson clearly showed in WSC No 120, the financial picture has changed enormously over the last five or six years, from Newcastle United’s inability to sell shares in 1991 to the actual or proposed flotation of nine clubs on the Stock Market in 1996. The rich, the Sugars and the Hardings, have already invested; flotation widens the option to more moderate earners.

It is still, though, a question of incomes. The Football Fund offers membership for a £1000 lump sum payment or through a savings plan at £50 a month; that minimum stake of £1000 is a sizeable amount, and presumably disposable at a risk, however small. The Fund is for those with money and seeking more; it is market opportunity. The profits are convincingly apparent. During 1996, that £1,000 could have brought a return of £5,877 buying solely into Celtic, £3,405 buying into Manchester United. Even lowly Millwall (£1,333) and Preston North End (£1,475) would have produced a reasonable return.

Add to this what is in the pipeline: the BSkyB deal worth £670 million; the estimated profits of £1 billion a year through Pay Per View; Carling Premier League sponsorship rising from £12 million to £36 million next year. Everyone knows money is currently flooding into football. The Football Club Index shows the sport performing at +696% between January 1993 and December 1996, and this is unlikely to fall in the short term.

Football, we can be assured, has ‘investment potential’, and now is the time to exploit it. That ‘potential’ can only confirm that football is no longer just the beautiful game, it is the beautiful business. It is a business, though, that risks emasculating its income source. Precisely because business changes the nature of the fan base, it changes the nature of traditional support, ie the foundations on which these short-term profits are based.

Since the rebuildings and refurbishments of the Taylor Report, there is a Premier League, at least, that is starting to move, in its customer profile, closer and closer to baseball and American football: family entertainment, good facilities, friendly atmosphere, a day out; no shouting, no screaming, no drunks, no violence.

This is an attitude to the game that is ahistorical, and there can be no predicting just how long the new image will generate the revenue it requires to support its core product. The Football Fund sells the risk of a future unknown but nevertheless safe within certain understood parameters. It is a future of financial, rather than emotional, ‘stakeholders’.

By way of comparison, imagine a company has produced corn flakes for many years; there are steady sales because they are a product of recognizable quality – until circumstances dictate that the cornflakes come to be sold in different packets at a higher price. Shoppers immediately assume that this is now not the same product, but probably better because it is more expensive. People flood to buy, profits soar. But do the shoppers then begin to wonder whether the new price is inflated for the product? Do they start to dislike the new boxes? Do they remember the reliable, cheaper, older product?

The Football Fund works with this same model. Investors do not know how long the ‘income potential’ will last because the football model is untried, but they do know it should be reliable before any ‘bubble’ bursts. They do not know how their money will be invested, but it is fair to assume not all will go into Manchester United and Celtic. They do not know whether more money on the market, more clubs floated, will increase demand or produce a flood: remember the South Sea Bubble.

So there is now a fan base of football followers (perhaps not ‘supporters’ in the usual sense of the word) with a grand to spare, knowledgeable enough about the Stock Market to know at least where to look in which newspapers. There is a changing product, and increased revenues at hand. At the moment, the product seems interesting and the commercial potential attractive.

But what will happen when people start longing for those old-fashioned corn flakes, when people attracted by the new, bright boxes find another product with a brighter, newer box? Then football may be back where it was, and can only hope that those who supported it through the lean and horrid years are prepared to forgive it its sins and return to the fold. It must only be hope, though, because that model, too, is untested.

As for me, I am almost ashamed to say that I can just about afford £1,000. But I won’t be in the Fund for too long, just long enough to make my bundle. I hate the idea, it smacks of immorality and betrayal somehow, and I hate what it says about the nature of modern football. So do many people, but unfortunately they’ll be investing too. And they, like me, will see it as a short-term, expedient financial commitment.

From WSC 121 March 1997. What was happening this month