Whether it is a bitter sell-off or bankruptcy, the problem that every club will face before selling is its own "list price".
How to "price" a professional football club is a very brain-draining and emotional intelligence science.
The main body of this article is translated from the original text of The Athletic
Due to the needs of editorial expression, some deletions and additions were made to the original text
Translation / Zheng Zhi
Editor / Song Xinyu, Yin Haonan
After Abu announced his departure from Chelsea, the discussion about "who will take over" has become one of the hottest topics in football circles recently.
The high valuation of the club's assets under the premise that Abu gave up debt and profits is also a barrier to many buyers – after all, Abu had offered buyers in the market three years ago, when he rejected more than £2 billion bids from American investor Todd Boley and British industrialist Sir Jim Ratcliffe. According to follow-up media exposure, Abu's psychological price for the sale of the team is far more than 2.5 billion pounds.
However, as the British government announces further sanctions against Abu, its plans to sell the club may also be affected. According to the Daily Mail, the sanctions even mean that Abu will no longer be allowed to sell Chelsea Football Club.
The Athletic featured image for Chelsea 'Sale'
However, going back to the question we are going to discuss today: how to value and ultimately price a football club is actually a very nerve-wracking topic:
First of all, if the club is regarded as an ordinary commercial company, many clubs have negative profits all year round, and it is impossible to use the conventional cash flow discount model valuation;
In addition, the club's important "fixed asset" - the value of players will fluctuate sharply with the performance on the field, and many clubs do not own their own stadiums;
As a "community asset", the football club also has a strong public attribute, and behind each team emblem, it carries the historical glory and the collective memory of the local residents from generation to generation.
Scotland Hibernian Fans Image source: The club's official website
How should these intangible values be measured in money? Many financial experts try to answer this question from different perspectives.
01
Same Tottenham, different valuations
Let's first use the "buy a house" scene to understand the trading business of the club.
Let's say you're buying a house now, and you've made it clear that you want a new home that's a little more modern, and the location is already in place: a neighborhood that's not far from the heart of the city and has some potential for development.
However, since you don't want to spend too much energy looking around, you search for listings online first, and quickly find a house within your budget that matches all the conditions.
But something strange happened: the same apartment was listed 15% higher on another site and even 70% higher on a third site, while the fourth site listed a "low price" that doubled the original price, claiming that if it was below this price, the landlord would simply skip the conversation.
So the question is: which price is reliable? Can I still get a lower price for a "slash" with my landlord?
Continuing the above example, replacing buyers with Gulf oil producers, hedge fund tycoons or Russian oligarchs, and replacing houses with football clubs, the degree of chaos in this market is no different from the above hypothetical case of buying a house: the news is flying around, and the price signals are confusing.
Tottenham Hotspur Stadium Image credit: To the lane and back
For example, in January last year, the accounting firm KPMG used an "exclusive algorithm" to conclude that Tottenham Hotspur Was worth nearly 1.5 billion pounds, ranking ninth in the world in global football; just three months later, the famous American financial magazine Forbes also valued Tottenham Hotspur at nearly 1.7 billion pounds, ranking tenth in the world. But that's not the number that makes Danny Levy the happiest.
A year ago, Kieran Maguire, a football finance expert at the University of Liverpool, used pre-pandemic revenue and other figures to calculate the valuation of 20 Clubs in the Premier League and concluded that Tottenham Hotspur clubs are worth the first in the league, about 2.7 billion pounds.
That is to say: a season or so apart, the valuation of the same club in the eyes of different authoritative experts is almost 1.1 billion pounds. That's almost enough money to buy 2 West Ham, or 4 Southamptons.
Wait a minute! For a pause, why should we assume that West Ham are worth twice as much as Southampton? The reality is actually crazier than the theory, because West Ham United are worth almost three times as much as Southampton.
02
West Ham united vs Southampton: is London more expensive?
The best way to determine the value of a club is to look at how much money people are paying.
When Czech billionaire Krettinski bought a 27% stake in West Ham United, the value of West Ham United was around £650 million, while when Serbian media mogul Dragan Sorak bought an 80% stake in Southampton from Chinese boss Gao Jisheng, Southampton was valued at just £230 million.
It is worth mentioning that Krettinski has always been known for his sharp vision and "bottom reading" in the market, and he has even been called "Austro-Hungarian Empire" by admirers as Buffett. Southampton and West Ham United, the valuation difference between the two clubs that joined hands in the past was as much as 400 million pounds, what is the reasonable explanation for this huge gap?
Czech billionaire Krettinski Image source: Daily Mirror
First of all, one of the concepts you need to understand is that the "corporate value" of a club does not equal net assets or shareholders' equity, it includes liabilities.
This concept, which is very basic in the business world, usually confuses many fans and football journalists. It can be understood simply: "corporate value" measures the value of the whole package to buy the next company, in which the good part and the bad part are inseparable, so the value of the "bad thing" of debt is included in the corporate value of the club. West Ham United's debt levels are around £130 million, around £50 million higher than in Southampton.
Looking at the "good things" outside of debt, the two clubs have been upgraded hand in hand and are now competing in the Premier League for 10 consecutive years. Southampton have had consecutive successes between 2014 and 2017, finishing eighth, seventh, sixth and eighth respectively, and have made a lot of profits in selling players (mainly to Liverpool).
This good year also attracted Chinese businessman Gao Jisheng to acquire an 80% controlling stake in Southampton for more than £200 million in 2017. However, after this golden period passed, Southampton quickly fell to a fairly low position in the lower half of the table, and the profit from player sales also decreased rapidly, making Gao Jisheng gradually lose interest in investment.
West Ham United, on the other hand, has been climbing upwards, finishing sixth last season and still in the "scramble for four" this year. Their big moves off the pitch are even more noteworthy: in 2016 they bid farewell to Upton Park, beloved by fans but with depreciating assets, and moved their home stadium to London Stadium (possibly named by sponsors in the future). The stadium, which cost taxpayers a fortune to build for the 2012 Olympics, has easy and fast public transportation and connects the West Ham United brand to the wider world.
West Ham United home "blow bubble" tradition
In the last financial year before the pandemic, West Ham United reported revenue of £191 million in 2019, while Southampton reported revenue of around £150 million. Although last season was affected by closed-door matches, West Ham's 2020 revenue rose to 192 million pounds without falling, and Southampton has not yet released the same period of earnings, but it can be predicted that the gap between the two teams' revenue will continue to increase.
However, can this part of the gap really fully explain the valuation difference of 400 million pounds between the two teams? Particularly considering the recent price of the Saudi consortium's acquisition of Newcastle, it is doubtful whether West Ham's high valuation is supported by reasonable factors.
West Ham United London Stadium Image source: West Ham United official website
Football finance expert Maguire said West Ham United's 99-year long-term stadium lease (£2.5 million a year) added a lot to the club and the London team also enjoyed a "geographical premium".
As a result, West Ham United's valuation is on the high side compared to the £305 million sale of Newcastle United boss Ashley to the Saudis. After all, Newcastle has a modern stadium with a capacity of 52,000 people, and it is the exclusive local fans of "one city, one team", and the team can also rank eighth in the Premier League in terms of revenue in 2020.
However, if you look at it from another perspective, Newcastle has not won an important trophy in 67 years, and it is still possible to relegate the Championship, and the price of 300 million pounds still looks like the Saudis' "money is stupid" arrogance, which is greater than rationality.