Are Football Clubs Currently Undervalued? - Part 1
Yes, massively so according to a thought provoking piece of research just published by Professor Stefan Szymanski of the Tanaka Business School, Imperial College London.
Let's forget about the traditions of English football and the romance of the supporters - football is now a business as cold and cut throat as any other. Profits and greed are all that matter these days whether anyone likes it or not.
Professor Szymanski's research points to the restructuring of the game across Europe with the sole purpose of creating a massive European Super League. These ideas are not new, in fact they're one of the main reasons why the top clubs formed some years back a semi-secretive organisation called G14. And as we see more powerful money men (now with the backing of Hedge Funds) like the Glazers of Manchester United and the new American boss of Aston Villa, Randy Learner, expect the pressure for a Euro League to intensify because as Szymanski's research shows the potential riches on offer are glittering.
Television Is THE Dominant Factor - It Will Be The Driver Of Any Change
Szymanski's research is based on the simple fact that TV viewers are more important than local club fans and the TV is where the money is. Armchair viewers around Europe and the globe therefore want to see the best teams playing each other on a regular basis - a so called European League. At present the top teams play each other infrequently and only in the Champions League so it may be literally 5 years or more before say Manchester United, AC Milan and Barcelona compete against each other.
So a Euro league consisting of the top teams from England, Italy, Spain, Germany plus some teams from the lesser leagues of Scotland, France and Holland etc would create a massive boost in TV viewing figures.
One of the cornerstones of Szymanksi's research is the interesting fact that in the US there are around 110 million TV households but in Europe this figure is 160 million. Also, note that the top American sports of Football, Baseball and Basketball have a very limited following outside of the US. But football, especially European Club football has a truly global following especially in the massive Asian markets.
How A European Super League Might Work
Europe is divided into 4 divisions -
- North - UK
- South - Italy with 3 of the largest French Clubs
- East - Germany plus 2 Dutch teams
- West - Spain & a few teams from Portugal
- Each conference would have 12 teams and would play each other twice, home & away
- The teams in each division would be divided into blocks according to their position, 1-4, 5-8, 9-12
- Each block would then play every other team from another division in their block
- Assume that Chelsea, Man U, Liverpool & Arsenal were in the top block, they would each play the top-ranked teams in the other divisions, including (assuming they're in the first block of their divisions) Barcelona, Real Madrid, Bayern Munich, AC Milan and Juventus - this would generate another 24 games per team
- So a regular season is 46 games but then the top 4 in each division would qualify for a play off scenario which would be similar to the present Champions League
- And while 46 games seems like a lot (68 games if you reach the final of the Champions League) it is on a parity with the amount of games a top team is playing right now
Interestingly there would be no such thing as relegation and therefore no chance of promotion from the lower divisions. The League would be a closed shop which carries enormous monetary advantages.
For example, guaranteed big-time matches together with a better chance of qualifying for the Champions League format. One of the main gripes of the G14 teams right now is that they (the top teams) run the risk of not playing in the Champions League and therefore all the revenue (forget about prestige that's only for the fans) that comes with it.
Szymanski also points out that with no relegation teams would become franchises so Tottenham would be able to move to the Ukraine if they wanted, the Board of Directors might view there's more chance of expanding the club in a developing Eastern Europe than there was in North London. OK, that might be far fetched but it would still be a possibility nonetheless. Clubs could also agree to share revenues where necessary and introduce salary caps and squad limits.
The Money Angle
According to Szymanski's research -
- The 48 Euro teams each have an average ground capacity of 45,000 with most games being a sell-out (in the new Euro League)
- 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 the whole 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 rest 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 value on average of £50 million
Now we can see just why the Glazers and Lerners of the world are so keen to buy into football clubs. As Szymanski says 'Unrestricting European football could make a lot of rich people much richer'.
