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savinginvestments
Foreign billionaires have bailed out of the beautiful game, fortunes been made and lost on Tyneside and mammoth piles of debt left resting on creaking stadiums. Can anyone make money by investing in football clubs?
Despite recent turmoil, there are signs to indicate that yes, it is possible. Earlier this year, Deloitte published its annual report on the finances of the top European clubs and the English Premier League in particular.
It gave updates on the fortunes of the Premier League in the 2007/08 season (the most recent there are completed figures for). Revenues at England's top 20 clubs soared 26% to just under £2 billion, with 11 of the top 20 sides posting an operating profit, up from eight the previous year.
The Premier League, according to Deloitte, is now the most profitable in the world.
The downsides
But costs were rising as well as profits: salaries exceeded £1 billion for the first time and the clubs' total net debt was £3.1 billion. As the impact of the credit crunch continues, the interest on some of these debts could rise significantly.
But the figures are better than they first appear, with £1.2 billion of the total debt in "soft loans" from club owners, at little or no rate of interest.
The main reason for the jump in revenues in 2007/08 was that this was the first season of a new three-year TV deal worth around £1.7 billion to clubs. This has meant the clubs in the game's upper echelons are on the whole holding their head above water.
Pain for the lower leagues
Further down the scale, the story is somewhat different. A relative lack of TV money, a drop in attendances, sponsorship and the merchandising downturn that can result relegation conspired to drive some clubs towards or in into administration.
Southampton was a recent example, succumbing after its holding company could not find someone willing to refinance its £24 million debt obligations at an acceptable rate.
The club's fall means eight clubs have gone into administration this century. Worse, football clubs are notoriously cash hungry and so rely heavily on cashflow. With the credit crunch making it harder to get hold of this much-needed cash, more clubs could hit the wall in the months to come.
Can you still make money from football?
At the peak, around 20 football clubs were listed on the stock exchange. That meant anyone could invest in football and reap the rewards once restricted to the industrialists and aristocrats that ran the people's game.
That number has now fallen to around five.
Some of the smaller clubs have removed themselves to save money on listing fees, while others have gone into private ownership, including Manchester United, Chelsea and Aston Villa.
Also in private ownership are Liverpool, whose parent company last week 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.
Is it worth buying into the remaining clubs?
There have been mixed fortunes for those remaining with a listing. Birmingham City shares rallied 37% over the last three months in the run-up to their eventual promotion to the Premier League.
Millwall currently have a market capitalisation of just £6.75 million and Tottenham are down some 53% from their recent peak in March 2008 at around £79 million.
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 £7,100.
While for the moment the top clubs remain in a profitable but somewhat precarious position, for investors the choices are limited. This 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.
Tags: Investing, Football, Downsides, Money, Capital, C...