Going public on a stock exchange is not always the most popular choice in sporting terms, but here is why it makes sound economic sense
By Jake Holloway
On 23rd August 2018, Manchester United PLC, the holding company which owns European football giants Manchester United FC, became the first football club in the world whose value exceeded $4 billion, after the price of a share in the club on the New York Stock Exchange (NYSE) rocketed to a record high of $24.60. For context, the club’s initial public offering (IPO), just over 6 years earlier on 10th August 2012, was priced at $14. When Manchester United reached their 2018 valuation, fellow English giants Liverpool and Chelsea were reportedly subject to potential takeover bids of roughly $2 billion each. How can we be so sure of the record-breaking 2018 Manchester United valuation, while the potential Liverpool and Chelsea valuations were simply rumours?
European Clubs on Stock Exchanges
The simple answer is that Manchester United, as mentioned above, is a publicly traded club on the NYSE, while Liverpool and Chelsea are privately owned clubs. Other European clubs who have followed Manchester United’s lead include the three Italian giants Roma, Juventus, and Lazio, who all have shares traded on the Italian Stock Exchange (known as the Borsa Italiana). In addition, there is German club Borussia Dortmund, who are listed on the Xetra Exchange in Frankfurt, and Glasgow rivals Rangers and Celtic, as well as Arsenal, all three of whom are listed on the London Stock Exchange.
The big question is why? What are the advantages of a football club being floated on a stock market? What are the drawbacks? Most crucially, however, is it worth it?
Why do they do this?
The biggest and perhaps most obvious financial reason that some clubs elect to become publicly traded companies on various stock exchanges is that it can be a significant supplementary source of income. Traditionally, the only other method with which a club can finance its day-to-day activities is through their owners, however, being a publicly traded company can help give the club a financial edge. On the other hand, listing is not absolutely necessary for comfortable club finances – Borussia Dortmund are the only club with publicly traded shares in Germany, according to ADVFN, yet their market value as of January 2021, according to Statista, lies at €264.3 million below that of FC Bayern Munich’s €879.5 million valuation.
How can shareholders benefit?
There are also tangible benefits to the shareholders of clubs who are publicly traded. They can vote on key decisions, such as who the company directors are, and they have access to the day-to-day price of their shares, which they can sell on the open market for a quick profit. In turn, this means both shareholder and club can benefit financially from the system. Shareholders are not, however, involved in the day-to-day running of the club, such as player transfers or ticket prices, although this is not a concern from an investment perspective.
Bad for sport, but good financially?
Despite the advantages, there are three significant disadvantages to listing on a stock exchange in traditional sporting terms. However, these disadvantages could be seen as financial advantages and will now be discussed.
Firstly, there are extra compliance costs, alongside a necessity to abide by the rules of the respective stock exchange on which the club in question is being traded. Additionally, there are more complex, and expensive, company law requirements. This can be interpreted as a financial advantage since it allows for greater transparency in a club’s financial activity, further encouraging higher levels of legitimacy and honesty in said activity. Indeed, one article reporting on an AS Roma player acquisition in July 2019 highlighted the necessity for the club to give “very precise details on their transfers,” by virtue of the club’s presence on the Borsa Italiana. Were Roma not to do so, it would likely have had detrimental ramifications for the club’s financial reputation, possibly leading to a fall in how attractive prospective investors view the club’s shares.
Secondly, the club’s board of directors will often have to take questions from investors and traders, which from a sporting point of view could certainly be construed as a waste of time. However, from an investment perspective, having to answer questions surrounding their club’s financial activity, from industry experts, provides further scope for transparency in the club’s decision making. Furthermore, it allows for the provision of sound financial advice from those who know the sector best, should the club require it.
Thirdly, in many cases, the majority of publicly available shares for such clubs are owned by large financial institutions, such as pension funds and insurance companies, whose precise interest in owning the shares of a club revolves around a short-term profit maximising operation. Naturally, this can have negative long-term consequences in terms of the sporting success of the club, but with regard to their short-term financial situations, it is certainly beneficial.
Possible Loss of Control
The one disadvantage, in both traditional sporting and financial terms, is that owners can come to lose control of their clubs if too many shares are owned by external investors. However, strategies can be implemented to prevent this. Manchester United PLC, for example, has two types of shares – Class A shares count for one vote each and are the ones traded on the NYSE, but Class B shares carry 10 votes each and are all owned by the family in control of the club – the Glazers. This strategy leads to Class A shares counting for 25% of the nominal number of shares in the club, but they carry just 3% of the vote, allowing the Glazer family to comfortably retain control of their club without having to worry about the influence of third-party investors. Indeed, this structure allowed £140 million to be generated by the sale of Class A shares after the club’s initial IPO, half of which was used to pay off club debt, and the other half of which became part of the Glazer fortune.
Is it really worth it?
Whether or not the idea of floating a professional football club on a stock exchange is worth it is a difficult question to answer. You could argue against a listing, simply because it is possible for a club to be in a strong financial position without being publicly listed, with a position of such financial strength necessary for a strong performance in player transfer markets. On the other hand, from an investment perspective, the advantages are clear: in addition to the opportunity for greater clarity and transparency in a club’s financial activity, advice from insiders of the finance and investment industry, and the profit motive of third-party investors, there is the financial advantage. This leads to many questions: Could Bayern Munich be even wealthier if they were also floated on the stock exchange in Frankfurt? Would clubs already floated on various exchanges across Europe be worse off were they not publicly traded companies?
In the end, football is a business, and purely from a business and investment perspective, the idea of going public is certainly one worth considering.
https://www.youtube.com/watch?v=z76DvvEDPhM – Tifo Football video on why some clubs elect to be floated on stock exchanges
https://ir.manutd.com/investor-faqs.aspx - Manchester United investment FAQs
https://uk.advfn.com/football - Football Club Share Prices
https://www.football-italia.net/140901/official-roma-take-atalantas-mancini - Article on an AS Roma player acquisition in July 2019
https://www.statista.com/statistics/595941/german-bundesliga-football-clubs-market-value/ - Market value of German top-division football clubs