Investment Comment
25th August 2023
Beautiful game, ugly investment?
After a summer hiatus and the success of the Women’s World Cup, August in England signals the return of domestic football. Whether it be taking your kids to their Sunday league game, supporting your local team or following the latest stars in the Premier League, football is well underway for another 9 months. The Women’s World Cup that took place in New Zealand and Australia this summer saw record attendances and viewership figures, whilst the UK’s Women’s Super League has seen exponential growth with aggregate revenues up 60% in the 2021/22 season compared to the previous. The Premier League is the market leader of domestic football leagues globally and was UK’s biggest audiovisual export in 2019/20201 attracting investment into football, ranging from Hollywood actors in non-league teams to Middle Eastern interest in more established clubs.
There is undoubtedly money in football but can investing in it make you money?
Investing in publicly listed football stocks can be seen as something of a niche investment due to their low market capitalisations and subsequent exclusion from mainstream indices. Historically, football has been viewed as purely for entertainment, however, the continuing commercialisation of football, development of multiple revenue streams and expansion of broadcasting rights has changed the landscape. The uniqueness of a football club as a business in terms of brand recognition raises the question whether they deserve attention from investors and ultimately if they can form part of a diversified portfolio.
Risk and Reward
The overwhelming majority of professional clubs are privately owned. We created an index of 15 listed football clubs based in Europe (including well known clubs such as Manchester United, Celtic FC, Juventus FC and Borussia Dortmund) from 2008 until the end of 2022 (the last date for which revenue data is available), which is equally weighted and assumes annual rebalancing. This sample showed total return of 117% and revenues increased by 159%. One could conclude that the stellar revenue numbers depict businesses that have strong financials and are worth investing in.
However, over the same time frame, returns for the STOXX Europe 600 increased by 252%, massively outperforming our sample of listed football clubs, even though the revenue growth of 133% lagged the football index. Despite the global attraction and popularity of football, on average these clubs have underperformed broader indices despite the strong revenue growth.
STOXX Europe 600 and Football index: Revenue (2008-2022): similar revenue growth since 2008
Source: Artorius, Bloomberg
STOXX Europe 600 and Football index: Total Return (2008-2022: but very different total returns for investors
Source: Artorius, Bloomberg
What affects the price of a listed football club?
The stock price of a listed football club is determined by the same factors that influence the price of any other stock: the expectation of future profits/earnings and the forces of supply and demand. Additionally, they can fluctuate based on how they perform on the pitch and the players they sign.
Manchester United’s share price jumped as much as 11% on the day they announced Cristiano Ronaldo was returning to the club in August 2021. Other examples include Celtic’s stock price jumping 159% in the 2006-07 season when they secured the national title and qualified for the Champions League knockout stages. Or Borussia Dortmund returning 138% in the 2010-2011 season when they won their first German league title in 9 years.
Despite overall revenue growth for the football industry and some sporadic share price increases driven by on-field success in this sector, investors regularly witness periods of poor returns and are left disappointed, in aggregate, when compared to the broader equity universe.
Enjoy the game but avoid the investment pain
The wider football industry is often viewed as being recession proof, in terms of revenue. There have been instances of clubs going bust, such as Bury FC and Macclesfield Town, but it should be noted that these were privately owned. Even in periods of economic hardship attendances rarely suffer, which points towards a resilient industry with ‘sticky’ consumers. Avid fans may derive non-financial utility from investing in their beloved football club. Nevertheless, the nature of football clubs continuously choosing to reinvest in the hope of on field success rather than paying out dividends or ‘profit-maximising’ suggests that from a purely financial perspective, football stocks historically have not been a good investment and should not be an investor's first choice when looking for sustainable long-term returns.
Bad economic news is good news, at least in the US
The past few weeks have seen sharply higher (and then lower) bond yields. Investors have taken the better-than-expected economic data from the US to position for higher for longer interest rates from the Federal Reserve. As a result, bond yields increased. This resulted in downward pressure on equities, which have sold-off since the recent peak at the end of July. However, over recent days, bond yields have moved back as some economic data has come in weaker than expected. Lower bond yields have supported a small recovery in equities in recent days.
Economic data in Europe has been much weaker than expected of late. Whether it be the heat over the summer, on the continent rather than in the UK, or the impact of higher interest rates, economic growth that has disappointed. Having been resilient initially, investors appear to be concerned about the fate of corporate profits in the face of continued economic weakness.
Yuval Peshchanitsky Portfolio Analyst
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All expressions of opinion reflect the judgment of Artorius at 25th August 2023 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions. Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
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