Tottenham Hotspur Looks A Great Long Term Investment
Two English teams fighting for the European Cup (3 English teams in the last 4) and the English Premiership is the envy of every other country league.
Quite frankly, on a business level nobody can compete with the Premiership, and as top class football has morphed into a super greedy machine the only way to increase profits dramatically is the formation of a European Premiership where all the top teams play regularly.
A good example of why a Super League would be so profitable is to take into account how the current Champions League is setup. Right now it's possible for the two biggest powers in global football, Manchester United and Real Madrid, to not play each other for maybe 5 years or more. It all depends on how they perform and perhaps more importantly how the balls come out when the draw is made.
But with a Super League matches of this magnitude will likely be played on a yearly basis and that's a hell of a lot of money to be raked in by all involved. Plus of course the majority of fans won't be complaining that much.
In the September 2006 newsletter we published a piece entitled 'Are Football Clubs Currently Undervalued'. The article looked into the research carried out by Professor Szymanski of Imperial College London.
The important points were -
The Money Angle
- The league would consist of 48 Euro teams, with each having an average ground capacity of 45,000
- Currently the top five European leagues sell their broadcasting rights for £2billion per year total (about the same as the NFL sells for in the smaller US market)
- But the European League should be valued around 50% higher because of the attractiveness of the product across all of Europe (160 million TV households) plus of course the money generated from global sales
- Szymanski assumes that 40% of football income would come from TV with the balance from ticket sales, merchandising and sponsorship
- The League should therefore generate around £7.5 billion per year or an average of £150 million per club
The Club Valuation Angle
- According to Deloittes, only 4 football clubs in 2005/6 generated £150 million+ in income
- Now the interesting part - each NFL franchise generates an average of £100 million income but the average worth of each team is £500 million
- So valued on a similar basis each European League team should be worth £750 million against a present average value of £50 million
The Mega Advertisers Are Starting To Gain Control Of Football
Forget about the home town fans, they are not that important any more for one simple reason - numbers.
Take Liverpool for example, a city with a population of around 500,000. So how many Liverpool Football Club fans live in the city and surrounding area? Probably 150k at most, now add in another 500k fans from around the country and it still doesn't even make a million.
But in the Far East Liverpool's fan base is at least 100 million if not as high as 500 million. Why therefore would any global advertiser not want regular access to this gigantic market?
Yes of course most, if not all, of the Premiership matches are shown in the Far East but many of these such as Liverpool versus (just promoted) Hull are small time and nowhere near as attractive (to both fans and advertisers) as say a Liverpool v Barcelona or Juventus on a regular basis.
Proof of how the advertisers and big brands are gaining control of the future destiny of football comes from the BBC. Apparently the BBC have been told that there's no point in them bidding for the rights to show Champions League matches even if their bid is double or treble that made by ITV.
The reason is simple.
As the BBC doesn't allow advertising it cannot show the all important sponsors slot, these are the quick ads shown just before an advert break and again just after a break before going back to the main program.
I think Heineken now own this spot in the Champions League and these companies view this slot as not so much direct advertising but brand building and brand reaffirmation. Basically it's incredibly important for their overall marketing efforts.
Summary
It's not that pleasant to say but if you follow the money these days you normally get the correct answers. Following the money with football in the current climate can lead to only one thing - a European Football League.
I have no idea when this will actually happen, but 5 or so years looks a fair bet. And because of this with Tottenham Hotspur (ticker TTMM) having a market capitalisation of around £121 million versus a potential capitalisation, according to Professor Szymanski's research, of £750million the shares look like they have a potential upside of around 500%.
Finally why Tottenham? Simple, because they're about the only Premiership team that's traded on the stockmarket. Yes, Arsenal's shares are also quoted but I think they're about £40k each or some other crazy figure.
Also, only the large Premiership clubs with good track records in the league will be invited into any Super League so even if a club like Birmingham hadn't been relegated chances are they wouldn't make the cut.
My Investment Strategy
As a long term holder of shares this Tottenham trade looks exciting so I'm going to start buying at current prices. My strategy is going to be simple, buy a core holding and then add to this on any weakness, most probably buying at every 10p lower.
Hopefully, and perversely I hope the share price will go lower even after I've bought my initial holding, this will allow me to buy more shares at cheaper levels but if the shares don't move down then at least I'm a part owner and will take part in the upside.
As for whether Tottenham Hotspur is a good company I really don't know too much. This trade is not a bet on Tottenham, how it's run, whether it does well in the League or wins the odd Cup Final.
It's purely a bet on the back of the formation of a European Super League and the tremendous monetary advantages that come associated with it.
