Patrick Harverson of the Financial Times explains why football clubs are suddenly eager to become listed on the Stock Exchange
Six years ago, Newcastle United tried to sell shares, but the club couldn’t give them away such was the lack of interest among fans and financial investors. In the next few months Newcastle will try it again. Only this time things will be a little bit different. The queue to buy shares in NUFC plc will stretch from St James’ Park, across the Tyne Bridge and down the M1 to London where pension funds, insurance companies and other blue-chip City institutions will be lining up around the block for a piece of the Toon pie.
Newcastle’s decision to join the stampede to list on the stock market – in 1996 nine clubs floated or unveiled plans for a flotation – is powerful evidence of how much football has changed in the past six years.
Football boasts many new, modem stadia. Newcastle, not content with one big, smart ground, plan to build a second. Football is awash with glamourous foreign stars. Newcastle have Ginola and Asprilla. Football has a huge wage bill to meet. Newcastle pay Alan Shearer £25,000 a week. And now Newcastle are following football’s latest fashion and floating on the stock market.
But why? Why have Newcastle and so many others decided to go public, and why is the City – which only a few years ago would not have touched most clubs with a bargepole – suddenly so excited about investing in football? The answer inevitably is money. The clubs need it to pay for new stadia and new players and to exploit the commercial opportunities newly available to football, and the City sees a chance to profit from the sport’s remarkable growth. Professional investors used to shy away from putting money in football because they did not trust the people who ran the clubs – but then who did? Also, they were unimpressed by the modest revenues the game generated and the poor, or non-existent, profits record of most clubs. And they did not like the idea that their investment could be damaged by an ill-timed injury, a run of bad form and the subsequent death rattle of relegation.
Now, however, investors are comfortable about the idea of handing their money over to football. Although there is still room for improvement, the financial management of top clubs has improved. Revenues from television rights, ticket sales, merchandising and sponsorship have exploded since the creation of the Premier League. And the growing disparity between rich and poor, and the increased depth of squads at the top clubs, has guaranteed what appears to be lifelong protection from relegation to a sizable number in the Premiership.
If investors had shared any lingering doubts about the wisdom of investing in football, the performance of club shares on the London stock market last year provided all the reassurance that was needed. Last year, the stock market as a whole rose by 11 per cent. In contrast, the top five football shares – Celtic, Leeds, Manchester United, Tottenham Hotspur and Chelsea – rose by an average of more than 200 per cent. The price of shares in Celtic increased almost fivefold, while shares in the company that owns Leeds almost tripled in value.
The astonishing performance of football shares (even the sector’s only dud, Millwall, did better than the market average last year) has left investors goggle-eyed and eager for more. It has also left the game’s heavy-hitters – the owners and directors of the big clubs – a hell of a lot richer than they were at the beginning of the year.
At Manchester United, chairman Martin Edwards took the opportunity several times last year to cash in on his new-found riches by selling some of his shares. At Chelsea, the late Matthew Harding, and more recently the executors of his estate, bought options to buy stock in the club’s parent company at prices well below the market share price, netting huge paper profits in the process. At Leeds, three directors redesigned the share structure of the club in 1995 to give themselves 98 per cent of the shares, and a year later made millions of pounds each when they sold Leeds to the Caspian media group.
Of course, the people who own and run the clubs will argue – in some cases justifiably – that they deserve their rewards because they have risked their money for many years to keep their clubs in business and continue to do so. Yet it remains an inescapable fact that one reason why many clubs have gone public is that it has enabled owners and directors to realize a market price – and a very substantial price at that – for their shares.
Not surprisingly, club chairmen put this somewhat differently, arguing that flotations offer fans an opportunity to own a stake in their club. Peter Maclean, head of public relations at Celtic, says that for many years before the flotation in 1995, supporters had clamoured to own a part of their club. “They were unhappy with the direction the former board was taking the club,” he says. “Now we have over 10,000 owners of Celtic and they have the opportunity to voice opinions as shareholders as well as supporters. That’s a welcome change.”
Maclean, however, is being disingenuous. Sure, owning a share means a fan can turn up at the club’s annual general meeting, but whether he or she has a real say in the running of the club is another matter. Sid and Doris Bonkers may own 500 shares in British Gas or British Telecom, but they cannot tell the board what to do. The boards of public companies only listen to powerful City institutions and rich investors who own millions of shares, not hundreds. Why should it be any different in football?
Just ask Spurs fans, who are unhappy that their club doesn’t spend more of its money on new players. Chairman Alan Sugar appears more determined to keep his shareholders sweet than to win the hearts of the club’s supporters by forking out £20m on a couple of big overseas names. Yet Sugar’s parsimonious policy has gone down well in the City.
Paul Wedge is an analyst at stockbrokers Collins Stewart and a financial advisor to Tottenham, and he says the club’s institutional shareholders are quite happy with Sugar. “Investor sentiment about Tottenham is good – they feel he is running the club on a proper basis. I’m with Alan Sugar on this one. You can’t have a club that consistently loses money. The supporters won’t be happy unless they win everything. But there are only three trophies to be won in England and 20 clubs chasing them in the Premier League, which means the majority of clubs are going to be unsuccessful. So while spending lots of money appeases supporters on a short-term basis, it does not guarantee success.”
This is how the new money men in football think. They would rather a club makes a profit playing competent if unexciting football than it loses lots of money by hiring expensive stars to play thrilling football in front of appreciative fans. But Spurs supporters, of whom only a few are also shareholders, don’t give a fig about the share price or the state of the balance sheet at the end of the financial year. They care about the team and the type of football it plays, and whether it is capable of competing for top honours every season.
Yet it would be wrong to characterize football’s investors in the City as obsessively profit-oriented. Some of them are also fans, which is why they became interested in buying football club shares in the first place. Michael Goldman is a Chelsea supporter who also happens to invest millions of pounds in football as manager of the City’s only specialist sports investment fund. He worries that in their search for off-the-field commercial success some clubs may be alienating themselves from their supporters. “I ask myself whether Newcastle moving to a new ground is a good thing. You can tamper with the roots too much.”
He fears the trend towards putting the interests of shareholders and owners before those of supporters is irreversible. “By and large fans are being looked after, but slowly and surely they will be less catered for. The time to worry is when it becomes self-evident that clubs don’t care about the fans anymore.” But how will we know when football has finally sold its soul to the corporate devil? “When Man Utd run on the field with Mickey Mouse on their shirts because they’ve been bought by Disney,” he says.
Don’t laugh. it could happen. In America, Disney owns a professional ice hockey team. Why not an English football team? Profits are profits, whatever the language, whatever the culture, whatever the sport.
From WSC 120 February 1997. What was happening this month