Club Value, Market Value, Book Value....

I'm coming back to the idea of how extremely competitive the UEFA Top5 cluster is. In the chart below you will see how the value of these clubs has evolved in recent years, it's million US$ in the Y-axis.

To many the answer to the question "how much is a club worth?" is obvious: "As much as someone is ready to pay for it". Not bad, ain't it?

This answer is not at all banal, since you will see how the value of Manchester United is much higher than the rest. It is true that they own a great Stadium in a cool area of Manchester, but so does Arsenal in London, FC Barcelona or Real Madrid in the most expensive area of the Spanish capital city. It is also true that they own a great set of players, but so do their competitors as well. Debtors? Nothing to mention either. Debt? Under control, better than the Spanish clubs, not so well managed as the Bayern....

So the reason why their club value is up there comes from the fact that the Glazer family bought it not too long ago and therefore they are entitled to introduce a line called "Goodwill" in their balance sheet. And that bridges the gap.

I know, some may rightfully claim that we cannot measure club value based just on their balance sheet, but when clubs are yielding -despite a yearly average of 10% income growth- such low profits and ROIs, it is possibly the value of their assets what makes a club more appealing for any prospective investor. And that means brick and mortar, not free cash flows.

I'm adding here another chart comparing the asset value of the Top5 clubs one to each other at the end of previous season, 2010-2011, and just as a present to you some blue dots pointing at an estimated market value.

In all cases where goodwill is not declared the blue dots are higher than the asset value. For ManU this is not the case, which means that the club has actually destroyed part of its value since the Glazer jumped in. Probably they paid too much, or they did not anticipate the depth of this worldwide money crunch we are still struggling with. Or maybe they found some other good reasons that are not so easy to speak of in monetary terms that made them take the step. Good luck anyway.

I guess the gap between book value and market value comes in this case from tha fact that assets are normally to be reflected in the books according to their acquisition prices, therefore not taking into account the huge inflation that affects not just those brick-and-mortar assets, but also the transfer rights of star players. Clubs do not report any value for their brand either. I'm not quite sure how well do they manage this last chapter, since Marketing and TV income appears to be attached to the image of footballers, rather than Clubs. Are therefore Clubs just a platform for players to bright? Do they take away the income whenever they change clubs? How can a club retain this value for themselves? Would football be the same with star-clubs rather than star-players? Can actually football players ever be considered "anonymous" employees? Would Barça ever sell as many shirts with their brand as Messi does with his name?

Why Barça is the only club reporting negative Equity and what does that mean? That's a hot question, maybe we'll come back to it later on.

The Champions League is also hot these days: within the Top5, the English clubs are struggling quite a lot, and staying out at this stage of the season would mean big losses for them on all fronts (.... more than a 100 Mio. € in turnover for this season only, all chapters included, plus a giant loss in their brand value?). I'm curious, let's see what happens next.

Who's the big guy in Football Town

The UEFA Top20 is quite a hard chart to jump in. Last year only two teams managed to climb into this list of the glorious (Valencia and Napoli), while the rest hardly changed positions. Actually the Top5 list is even more elitist: FC Barcelona, Real Madrid, Bayern München, Arsenal and Manchester United are not likely to leave this group under normal circumstances, unless something weird happens.

And it happens: Arsenal loss against Milan this week and hence their chance gone to cash their involvement in the Champions League may boost their leaving this group of excellence, mainly if we take into account that their income has stagnated in recent years and their turnover in Marketing is quite low compared with the rest.

So if there's little to fear from new entrants, there's even less to fear from substitutes: Football fans tend to be very loyal, and it's quite unconceivable to believe that Español would with fanbase at the expense of FC Barcelona, or Atlético Madrid from Real Madrid's and so on.

A big thing is however to secure the loyalty of your overseas fans. Locals are quite likely to remain attached to their clubs somehow, but when Asian, South American or African fans start to be thrilled by this or that player belonging to another club, you may well start seeing your merchandising sales fall. They quite have a strong bargaining power, haven't they? And with then, the TV stations paying for the broadcasting rights in remote countries. This is no longer an old school boys game, it's become a lovemark branding strategy that needs o be sustained overtime.

Because the big kids in town are actually the football stars. Some teams like Barcelona or Bayern München quite rely on their ability to grow football players from their junior teams, and even send scouts around the world looking for future stars. Others, like Real Madrid trust their checkbooks and the ability of stronghanded technical staff to stick the best together. Both strategies are good, they have displayed similar results in recent seasons, and it's just the type of image you want to project as a club to the outer world in order to improve your sales. I just wonder what would happen if the concept "transfer rights" was deleted from the map, that is, if players were actually allowed -like any other worker in Europe- to switch employer whenever they felt like doing it, without incurring into transactional costs that are a pain in the neck to most elite UEFA clubs nowadays.

All this fight happens within the norms stablished by the national leagues and international associations, not to speak about the EU itself: when the Bosman case went through in 1995 a huge revolution took place in the football industry, since EU players started to move easily up and down good old Europe no matter what country they were coming from, no matter if a team was made up of 11 foreign players. Quite a change, wasn't it. More recently, UEFA's program on Financial Fair Game is putting step by step things under control. Clubs like FC Barcelona could be banned from the Champions Leagues if they repeated the financial practices of the past. Hopefully they are taking things seriously and they'll do well: I would not like to miss Messi scoring five again :-)