By Tom Evans
English Premier League football clubs may start to look more attractive for investment following the League’s £5.14 billion live broadcasting deal with Sky and BT. The deal, for three years from the 2016-17 season, marks a 70% increase on the last deal, worth £3 billion.
As with previous deals, the expectation is that a significant portion of the broadcasting rights revenue will be shared with clubs, a portion for participation and another portion dependent on where a club finishes in the League. In addition, the existence of “parachute payments” for clubs relegated from the League is expected to continue, with the potential for those payments to be more generous as a result of the increased broadcasting revenue.
As a result, with a number of Premier League teams rumored to be on the market, PE houses may start to run their slide rules (or HP12Cs) over certain teams. PE sponsors may feel that they can deliver greater success to these teams through their financial rigor and commercial discipline.
If the inherent volatility of a football club’s revenue can be accommodated – this will always be linked to the performance of the first team – then the opportunity exists to exploit the club’s brand and to leverage its supporter base. Opportunities exist in retail merchandising and licensing, new media opportunities and sponsorships. Some of the key issues to consider when examining football clubs as investment opportunities are set out below.
Regardless of the opportunities, revenue volatility for football clubs will remain; player performance and player pay will be significant issues. For those reasons, we expect that debt investments may be preferred as a way of providing exposure to this increasingly successful sector, while mitigating the extent of risk arising from a club’s performance on the field.
Key Challenges for Investors
- Certainty of revenue from existing sponsorship, retail merchandising and licensing, and new media arrangements and restrictions on developing direct to fan arrangements
- Brand protection, particularly in emerging markets where IP rights may be inconsistently enforced
- Managing creditor risk and third party performance, especially when relying on single manufacturers and distributors of products
- Restrictions on increasing match day revenue, including any potential to expand the stadium
- Managing privacy issues, particularly personal information of supporters
- Understanding the changing regulatory context, particularly Football Association rules requiring home grown players and UEFA limits on investment in clubs by reference to revenue, which are currently under threat
- Certainty regarding future broadcasting rights income