European football clubs

Top European football clubs have proven themselves to be excellent at generating revenue. The international demand and popularity of European top football has increased revenues from broadcasting rights and competitive fees. However, these clubs do not seem to as profitable when it comes to returning profits to their shareholders. There are several reasons for this:

  • Sports in Europe are not as commercialized when compared to the professional sports leagues in the US. This implies that the aim of the owners of the clubs isn’t necessarily profit maximization.
  • Another reason is the organizational differences in these leagues. European competitions are very open, both in terms of relegation and promotion, as in property rights and entry barriers sportive resources (Dietl & Duschl 2009).
  • That last observation is worth closer attention. As the teams in the US leagues are run as franchises within the league and the league sets barriers to the inflow of players (drafting systems) and salary caps, a game theoretical view would imply that US clubs do not need to go into an ‘arms race’ as they know for sure that the other clubs are restricted as well. The openness of the European clubs causes competing clubs to drive up salary costs as well as transfer costs.

Therefore, any attempt to invest in European football clubs should be aimed at finding clubs that are trading at a considerable discount. Most often these clubs carry valuable assets and there revenue should be at least so some extent, inflation resistant.

Another point to consider is uncertainty of (economic) outcome in respect to competitive performance. For example, the underachievement of Juventus FC (7th place in Seria A) this season, means that the club will be loosing out on about €25M next season as it did not qualify for UEFA Champions League. So clubs invest in players in accordance to their sportive ambitions but if these are not realized, it has significant impact on their bottom line.

Another source of uncertainty of outcome is the management of registration rights (the player contracts). These registration rights are carried in the books as intangible assets. Although these contracts are costs (rather investment though) to the club it is a right to the future use of the talent of the player, which the club needs to generate revenue. These rights are also tradable and can be a significant source of revenue for smaller clubs.

In my view, any attempt to invest profitably in European football clubs would be to look at clubs that are trading at a significant discount to their intrinsic value. Avoiding clubs with large amount of debt would provide a further margin of safety and less exposure to the risks caused by uncertainty of outcome. I have access to seven clubs trough my broker and will concentrate on those clubs.

Clubs trading on open exchanges

  • AFC Ajax NV
  • Borussia Dortmund GmbH & Co. KGaA
  • Futebol Clube do Porto SA
  • Juventus Footbal Club SpA
  • OL Groupe Promesse
  • Sport Lisboa e Benfica Futebol SA
  • Sporting – Soc. Desportiva de Futebol
  • STOXX® Europe Football index

Sources of information

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