Investing in sports
‘Over the long term, a successful sporting team should be able to grow its revenue from an increasing number of sources as global interest increases and more brands look to benefit from the halo effect of that success.’ Russell Pointon, Edison consumer analyst
Source: Statista
Note: Franchise values are based on valuations carried out over the past year for the NFL, NHL, NBA, MLB, Formula One, soccer and Nascar (no NHL, F1 or Nascar teams made the top 50).
Who owns the major sports teams?
The majority of the most highly valued sports teams are not publicly quoted securities and cannot be bought and sold by investors. They tend to be owned by wealthy families (Dallas Cowboys, Real Madrid and New England Patriots), members (FC Barcelona), larger corporations (New York Knicks and New York Rangers), or a combination of these (FC Bayern München).
In the public markets, the majority of investment opportunities are football clubs, mainly with partial free floats as ownership is shared with wealthy families (eg Manchester United) or a combination of different parties (eg Borussia Dortmund has a free float of 60%). In Europe, the main quoted football clubs include AFC Ajax, Broendbyernes, Celtic FC, Juventus FC, Olympique Lyonnais Groupe, AS Roma, Silkeborg and Sporting Clube de Portugal.
With the exception of football clubs, the number of investment opportunities in pure-play sports teams is limited, with Williams Grand Prix Holdings seemingly the only UK quoted company. Apart from these investments, where an investor can buy an interest in their favourite team, the opportunities are more generic, eg focused on a specific sport or brand. For example, World Wrestling Entertainment has a market value of U$5.5bn and a free float of 59%.
What is the financial profile of a successful football team?
Over the long term, the more successful football teams have grown revenue as the number of revenue sources have increased (eg more sponsors and partnerships), and the ‘revenue per source’ has increased (eg TV rights inflation). For example, Borussia Dortmund’s revenue increased from €113m in FY08 to €490m in FY19, while Manchester United’s revenue grew from £320m in FY09 to £627m in FY19.
Broadly, the most successful football teams have benefited from the fragmentation of media and increasing global interest in the sport. A Gallup poll in 2018 cited that 7% of Americans watch soccer and Nielsen SportsLink noted a 27% rise in interest in the sport between 2012 and 2018 in North America.
How important is match day revenue?
For the majority of quoted football teams, traditional match day revenue has diminished in importance over time, albeit it has grown and is relatively predictable. Borussia Dortmund’s match day revenue has increased from €23m in FY08 to €45m in FY19.
The variability of this revenue stream is driven by the number of games played, which is dependent on success in knockout competitions, a relatively small percentage of games in a season and the increase in ticket prices. Incremental revenue from more games in a season also means incremental costs to host that game, and the impact on profitability will therefore be lower.
Source: Company accounts and Edison Investment Research
Which revenue sources are increasingly crucial?
In recent years, revenue from broadcasters for teams in the main leagues, such as the Premier League and the Bundesliga, has increased as they have competed to produce a differentiated viewing offer. While for domestic leagues, all teams will benefit from an increase in multi-year rights prices, a team’s relative success will determine its share of total broadcast revenue in any season, which can therefore have an impact on the company’s profitability.
For pan-regional competitions, eg tournaments like the UEFA Champions League, increased success in the competition will have an impact on the revenue and profitability of the club.
Like broadcast revenue, a more successful team is likely to generate greater revenue from sponsors and partners as they are likely to be attracted by the resulting increased media exposure. As these partnerships are typically multi-year deals, they should be more stable and less reliant on short-term fluctuations in the team’s performance on the pitch. However, this works in both directions, so it can take time for a newly successful club to develop this revenue stream.
If we take the example of Borussia Dortmund, we see how revenue mix changes can affect profitability.
Source: Company accounts and Edison Investment Research
