For sale: English football
Liverpool, Manchester City, Newcastle, Spurs, Reading, Fulham and Everton are next in line as foreign owners continue to buy into the Premiership
Special report by Nick Harris
Published: 08 December 2006
Foreign ownership of English football's Premiership clubs is almost certain to increase over the next 12 months, an Independent investigation has revealed. Chelsea, Manchester United, Portsmouth, Aston Villa and West Ham are already owned by overseas buyers, but at least another seven clubs could soon join them. Liverpool look likely to be bought by the billionaire ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, while Newcastle United have been in takeover talks, most recently with the Jersey-based Belgravia Group.
Manchester City yesterday became the latest club to disclose they are involved in talks with a potential investor, and it is understood the club are available lock, stock and barrel, for an initial investment of around £75m. The club's chairman, John Wardle, said "talks are at a very early stage" with an unnamed potential investor. Perhaps the most surprising revelation in The Independent's investigation is that the tycoons who own Tottenham Hotspur would consider selling but it would take an eye-popping £300m for them to do so. Another London club, Fulham, who are £160m in the red, mostly to their benefactor-chairman, Mohamed al-Fayed, would probably be available to anyone wanting to assume that debt.
And there are two more clubs susceptible to takeovers in the near future: Reading's owner, John Madejski, has gone on record as a potential seller and Everton might consider offers there is a possibility of a majority of Premiership clubs soon being owned by newcomer speculators.
Today's Independent investigation also reveals, for the first time, guide prices to all 20 Premiership clubs and the likelihood of each one being sold.
It shows that the Premiership's 20 clubs are worth £3.3bn combined. The most valuable club according to our "guide prices" are Manchester United, who would cost upwards of £923m to buy today. Arsenal, at £569m, are rated as the next most valuable, followed by Liverpool, Chelsea, Newcastle and Tottenham. Manchester City's share price values the club at shy of £13m. Their debts are £51m, made up of "external debt" of £32.3m plus £19m owed in private loans to Wardle and his business partner, David Makin, who between them own 30 per cent of the club.
It is thought that both men, as well as the next largest shareholder, Mark Bowler, with 18 per cent, would happily walk away if a new investor was willing to spend £75m to buy all the club's equity (for £36m, probably less), pay off private loans (£19m), promise about £20m for squad investment, and take on the external debt on top. Wardle, Makin, Bowler and others paid up to four times the current value for their shares. "John Wardle is City through and through," a source said. " But he has made no secret that he has always been a reluctant chairman, and as long as it's in the club's interest, if someone comes in with serious and credible investment, he would sell." Premiership clubs are changing hands at an unprecedented rate, but why them specifically, and why now? Keith Harris is uniquely qualified to comment. As the chairman of the investment bank Seymour Pierce he did the deals to sell Chelsea, Aston Villa and West Ham to foreign billionaires. And he can pinpoint why 2006-07 is a selling season like no other.
The Premiership's new domestic TV deals, with Sky and Setanta, worth £1.7bn between 2007 and 2010, are major factors, but so is the league's backdrop of financial stability, wage inflation control ("towards a more sensible 50 to 60 per cent of turnover") and the Premiership's consistency as a world brand. Harris also cites a global upsurge in hugely wealthy individuals. "The domestic TV deal was much higher than anyone thought. That underpins the clubs' revenue," Harris says. "The international rights are also being sold, and the news about BT and Setanta [joining forces to offer games on a pay-per-view basis] shows the appetite going forward. Pay-TV was always driven by movies, entertainment and sport. Now it's sport, and within that, football."
The extra cash from the new TV and sponsorship deals will be huge. The total prize pot now is £1.6bn over three years, or £25m per club each season on average, ranging from £17m (lowest) to more than £30m (league winners). From next year that will jump to £40m per club on average. Even the least successful team will see an extra £8m go straight to the bottom line, while the top clubs will earn £20m more each year.
"Clearly investors are attracted to the revenue streams, but how we are run is crucial," said Dan Johnson of the Premier League. "No one or two teams hog the broadcasting revenue as they do in Spain or Italy. There's a strong base to build from, and rewards for success."
Professor Chris Brady, the dean of the Business School at Bournemouth University, specialises in football finance and has researched extensively into sports management on both sides of the Atlantic. He says Leeds United's financial collapse "brought home the realisation of what disastrous management can lead to. It was a wake-up call, and has taken a few years to sink in but investors now realise that with proper management there are real opportunities again. "Look at the recent buyers. Randy Lerner, the Glazers, Eggert Magnusson. These are people with a background in sports business. They get it. Think of Malcolm Glazer's logic in buying Manchester United. 'I own an NFL franchise, the Bucs, that frankly nobody has heard of, and I make more money from them than a genuine world brand like Manchester United do. So I'll have a piece of that. There are others out there. I was doing some research work in America and senior people were telling me three or four NFL magnates have been sniffing around in England. The attraction is little debt, relatively, guaranteed revenue streams, and the new TV deal."
All the buyers say the same thing. "We're genuine fans who see potential as serious long-term investors," is the motto (copyright all of them). But why the Premiership over other countries? "Because it's well run, it's not so over-reliant on TV like Germany, or on commercial income like in Italy," says Brady. "It's easier to buy into places where you can just take out one or two big shareholders, which isn't often the case on the Continent.
"The growing attraction for Americans is opportunities you can't have in the NFL, where you're not allowed to sell a branded credit card or have ties with bookmakers because you're only allowed to 'do' the sport business. For football, England against other countries is just a better business deal all round."
So who's in the market? American billionaires with sports backgrounds like George Gillett (former Harlem Globetrotters and Miami Dolphins owner, current owner of the National Hockey League's Montreal Canadiens, wanted Liverpool), and the Kraft family (NFL and Major League Soccer franchises); Robert Earl (British-born American resident of Planet Hollywood fame who took a stake in Everton last month); and an assortment of oligarchs (Russia's Oleg Deripaska, worth £4bn, is apparently keen), Middle-East oil men and East Asian tycoons. Reading have reportedly talked with a South Korean group. "There are a growing number of people who've made huge fortunes in very recent times, through new materials, hedge funds, property," Harris said, "and whereas yachts and houses are for some, a football club is now up there."
So how do you value a club? The Independent asked a panel of experts, brokers, analysts and club insiders and the only thing they all agreed on was: "What someone will pay."
For example, some felt that The Independent's "guide price" of £240.1m for Chelsea was too low, others much too high. One analyst said: "Remove Roman Abramovich from the equation and aren't they effectively back where they were in 2003, i.e., technically insolvent, only with ever more massive losses each year and a bigger wage bill?"
Dan Jones of Deloitte Touche said the purest valuation method is to use Discounted Cash Flow analysis, predicting future income against expenses. "But it's as much an art as a science, with loads of uncertainties."
Keith Harris considers turnover, wage ratio, attendance, stadium requirements and "push interest" from clients. The deals for Villa and West Ham were calculated on that basis, with a "London premium" for West Ham.
Brady says "brand equity" is vital, with Manchester United having the most truly global appeal. Liverpool, Arsenal and Chelsea have good brand value. Next come Newcastle ("ripe for takeover due to a combination of crap management, large and loyal support, guaranteed revenue streams and brand possibilities"), Tottenham and Everton.
Harris and Brady agree that Blackburn, Wigan, Bolton and Middlesbrough, all in "congested northern markets", and all with long-term "fan-benefactor owners", have little brand appeal, or any appeal to major speculators. As for this season's relegation favourites, Watford, Charlton and Sheffield United, their values could change by tens of millions, up or down, depending on survival. "And there's also a market outside the Premiership," says Harris, who has also worked on takeovers at Southampton and Cardiff recently.
And does Harris think there will be more deals? Yes. How does he know? Because he's already working on them.
On paper, Spurs, a plc, are worth around £90m, which equates to the value of their ordinary shares plus the value of an additional £30m of preference shares. Given the recent sale of West Ham (for £85m plus the assumption of £23m debt, for an "enterprise cost" of £108m) Spurs' relative price should be about £120m. Allowing for a whopping premium on top for their shareholders the largest stake, 30 per cent, is held by ENIC, whose managing director, Daniel Levy, is the Spurs chairman and the price might rise to £200m-plus. But in today's sellers' market, insiders at White Hart Lane feel that they could achieve more. The current shareholders paid up to twice the current value for their stock. Tens of millions of pounds have been spent in recent years, and the club also ownplayers with big price tags who are not listed on the balance sheet; Aaron Lennon and Ledley King foremost among them. On a like-for-like basis against Manchester United, sold for £790m last year, insiders insist Spurs are worth £200m-plus, at least. When rated by EBIT potential (earnings before tax and income), Spurs, a debt-free club, are worth £12.8m per year against £46m for United using the most recent financial figures. On that basis, Spurs' value would equate to £221m. "You can't justify a £300m price tag on paper, but if you buy a sports franchise you don't pay what it's worth in a traditional sense these days, but what it could be worth," one source said.
Arguably one of the less likely clubs to be sold is Fulham, if only because most investors would baulk at assuming such huge debts on a small club. But while Fulham are not being hawked around, it seems they are for sale. " The chairman [Fayed] has never said he wants to sell, and considers it as a family business with a long-term goal of breaking even," a spokeswoman said. "But it would be naïve to think that if he got a substantial offer, sufficient to recoup 100 per cent of his investment, that he would not consider it."
