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Why have football clubs failed in the stock exchange?

ANALYST
Feature
5.15K   //    26 Aug 2016, 15:01 IST
Manchester United Stock Price
Manchester United are one of the most valuable clubs in the world

Football is without a doubt the most popular sport across the world. And naturally popular football clubs are big brands especially the likes of Manchester United, Real Madrid and FC Barcelona. Like major brands in various industries, these brands have their own style of functioning.

Over the next few weeks, we will be taking a closer look at certain aspects of a football club like the hierarchy in place and also analyze a few roles. In addition we will delve into the commercial side taking into consideration the cost and revenue aspects. Further, it will be interesting to see how big a business football really is and what do businessmen look to obtain by investing their money in such brands.

At one point in time, turning football clubs public entities was considered to be the next big step in the evolution of the game in many countries especially England. This was considered to be the most effective way to raise money and expand the club’s facilities.

Listing itself on a stock exchange is a big step for any company. From being privately held, the organization now comes under the ownership of the shareholders. This move implies that the company now plans to expand its operations beyond a certain scale and for this, needs to borrow from the market.

Keeping this in mind, a host of football clubs listed themselves on various stock exchanges across the globe. The likes of Tottenham Hotspur, Millwall, Arsenal, Birmingham City, and Celtic were at one point public holdings.

The case of Manchester United is, however, a bit strange. The club was delisted in 2005 but then in 2012, amidst a sense of euphoria and excitement, the Malcolm Glazer owned Manchester United, re-entered the market announcing its initial public offering (IPO) on the New York Stock Exchange.  

Since then, things haven’t gone according to plan for the Red Devils. Initially, a share was priced at $14 and currently it is valued at $16.30. Between 2012 and 2016, the share price has undergone immense fluctuations, a clear reflection of the side’s performances on the pitch.

Elsewhere the likes of Millwall and Tottenham Hotspur have delisted themselves from the Stock Exchange. Arsenal have a unique system in place such that they are publicly held but not listed on a Stock Exchange. A single share costs a big sum and it appeals more to fans than potential investors looking to make a profit.

Celtic have been dominating the Scottish game for some time but the lack of star players and failures in European competitions makes their shares unattractive for potential investors. Irregularities in the management structure led to Rangers, Celtic’s arch-rivals, to be delisted from the Stock Exchange.

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In short, football clubs have found it extremely difficult to perform well in financial markets.

Let’s delve deeper and understand why they have failed to be successful in the stock markets.

Poor performance on the pitch

A company’s performance in financial markets is to a great extent linked to its performance in its own market.

When a fast moving consumer goods (FMCG) company makes a substantial profit in a given quarter, its effects are felt in the financial markets. The stock price of the company increases.

Similarly, the performance of a football club affects its stock price. It is primarily due to this reason that the biggest brand in world football – Manchester United, has seen severe fluctuations in its stock price.

Post the departure of Sir Alex Ferguson, the club has gone through a rather tumultuous period and that has led to the fluctuations.

In Italy, the poor performances have led Lazio to quote a low price on the Stock Exchange.

Lack of profits

A company gives dividends to its shareholders when it makes profits and the lack of profits is a serious issue in football.

Only a handful of the top clubs in Europe end the financial year in black. This prevents them from paying dividends to the shareholders.

Manchester United made the highest profit last season and that has reflected in the side’s stock price slightly rising this year. The likes of Celtic, Lazio, Juventus and Roma haven’t made enough profits for investors to consider them lucrative assets.

The same goes for Millwall and Tottenham Hotspur, who just weren’t making enough money before leaving the market. Under such circumstances, apart from the fans, not too many people would be interested in buying the club’s shares.

Absence of a proper management structure

In today’s world, it is absolutely necessary to run a football club like a corporate house. Doing so ensures effective decision making and thus drives the club forward. The absence of a proper management structure creates doubts about the functioning of a club, that in turn leads to poor performance in financial markets.

Recently, Scottish giants Rangers, were forced to delist themselves after failing to hire an adviser and facilitate changes in its organizational structure. Shareholders invest in companies where they foresee growth, and that can only happen if there are professionals running the club on a day-to-day basis.

Such people bring in expertise and that prompts investors to purchase shares.

When clubs initially launch their IPOs on various stock exchanges, the aim is to get a wide variety of investors. However, most of the shares, over the years, have been subscribed by fans of the respective football clubs and not by people looking to make a fortune in the stock market.

Fluctuations and a lack of returns are two reasons behind it.

Further, the emergence of Russian, Chinese and Arab Billionaires have often led to clubs not putting in much of an effort in the stock market.

In short, the stock market experiment hasn’t really worked for football clubs.

A Case in Point: Borussia Dortmund

The men in yellow have made it a habit of defying the odds. Great results on the pitch have been complemented by consistent performances off it.

Listed on the Frankfurt Stock Exchange, Borussia Dortmund is a great investment from both a footballing and a financial aspect.

Since 2011, the club’s stock price has increased consistently and is currently valued at €4.33.

The club is expected to put in top notch performances in the future and that is sure to have a positive effect on its performances in the financial markets. Further, German football is growing rapidly right now and the club is expected to expand in the coming years.

So if you are a football fanatic and are looking to make a return in the stock market, you know where to put your money!

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