Why are Premier League clubs attracting savvy global investors?
In this series of feature blogs, the Sports Business Group at Deloitte offers financial commentary on some key issues in the global football industry. The third blog looks at the investment value of Premier League clubs and why they are attracting so many foreign investors.
Trophy asset or savvy investment?
Investors have consistently been attracted to Premier League football clubs, with two-thirds of the 2014/15 season’s top-flight clubs having had a change of majority ownership in the last decade.
This attraction has often been based on the prestige of owning a Premier League football club, seen by many as a global trophy asset, providing enhanced business profile and access to important relationships. However, where potential investors have tried to justify an acquisition with a rational business case, most have been left disappointed, or at least reliant on profiting on the sale to another investor, as despite the annual record revenues, the losses have also continued to grow.
It is likely that the list of interested investors, in both Premier League clubs and Championship clubs with aspirations of promotion, will have grown significantly following the announcement that – for the first time in 15 years - Premier League clubs generated a collective profit in 2013/14. Particularly as this profit was spread across the clubs, with all but one making operating profits and once player trading, net interest charges and the amortisation of player contracts have been accounted for, 14 making a pre-tax profit.
Will it continue?
Investor interest will have been strengthened further by the knowledge that the factors required for this profit to be achieved on a consistent basis are already in place, both in terms of revenue generation and cost control.
The 2013/14 profit was predominantly driven by the first year of the much improved three year domestic and overseas Premier League broadcast contracts. The next deals will commence in the 2016/17 season, with the value of the live domestic element already confirmed to be 70% higher than the current deal. This gives investors certainty that this is not a bubble about to burst; the opposite is true with demand from broadcasters continuing to grow.
Equally important to many investors are the financial regulations, introduced by UEFA at a European level and by the Premier League and Football League domestically, which encourage a more substantial balance between clubs’ costs and revenues. Whilst these rules do allow some overspend on the income generated, and actively encourage investment in facilities and youth development, they also provide some limitations on the amount investors may be expected to lose. This is especially useful during negotiations with players and agents and in helping to set fans’ expectations of the owners’ spending.
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Paul Rawnsley is a Director with over ten years of sports business experience. He has undertaken a wide range of assignments working with governing bodies, leagues, clubs, rights holders and other sports business organisations in the UK and around Europe. His advisory work has included several due diligence examinations for potential investors, preparation of expert witness reports, independent business reviews, corporate governance advice, advisory work in respect of sporting rules and integrity of competitions. Paul has advised UEFA for over ten years regarding UEFA Club Licensing and Financial Fair Play Regulations.