How to invest in sport as an investment opportunity
By Justin Harper
29 January 2015
'There aren't that many companies that can claim a higher brand loyalty than sport'
While most men love watching and playing sport, some take it a step further and invest in it.
Professional sports leagues and teams are big business once you factor in their gate receipts, TV rights and clothing ranges and accessories. Some of the players themselves are as famous as movie stars, with multi-million dollar incomes from sponsorship deals and prize money. So what do you need to know before you look to get a piece of this lucrative action?
Like any other form of investment, there are risks involved in sports investing. Clubs, like companies, can rise or fall in value at the drop of a hat. But there are also some very positive fundamentals. Sports teams, be they football, rugby or cricket, have a strong emotional attachment with their audiences. There aren’t a lot of companies that can claim a higher brand loyalty to their businesses. Typically, this means a fan’s dollars will follow their hearts. Viewing of live sporting events on mobile devices is growing rapidly, as well as on satellite radio and pay-per-view TV. All of these distribution channels are revenue drivers for these businesses.
Another major advantage that big sports teams have is that they enjoy repeat business; most people don’t just own one t-shirt of their favourite team, they own several, buying a new (and costly) strip each year. Many families pass down season tickets to their children, instilling further brand loyalties for future generations.
However, on the downside, sports teams are not immune from economic shocks. Demand for sports entertainment depends on the economic climate. The sluggish recovery of the world economy has hurt attendances at many sporting events. Then there are the regular sports scandals that can see a team’s or star player’s value plummet overnight.
While you may not be able to invest directly in stars like Tiger Woods, taking a punt on Nike which is major sponsor of the US golfer could be an indirect way to cash in on his regained popularity. Nike, like fellow sportswear giant Adidas, is a publicly-listed company.
Another indirect way to invest in your favourite sports team or player is via collectibles. Football cards, autographed balls and boots along with seats from old stadiums can be worth a small fortune, especially if they have an interesting history.
In the most recent edition of Deloitte’s annual “Football Money League”, published earlier this year, Real Madrid were crowned winners, completing a record breaking 9th consecutive year at the summit with revenues of €518.9m. The key to Real Madrid’s success has been their ability to generate significant commercial revenue on a global scale.
The total revenue of Europe’s top 20 earning football clubs is now set to top €5bn annually. While the majority of the top clubs remain privately owned, several of Europe’s elite clubs are publically listed: Celtic is listed on AIM, Manchester United is listed on NYSE, AS Roma and Juventus Football Club are both listed on Borsa Italiana, while Germany’s Borussia Dortmund is on Xetra.
Real Madrid were crowned winners of Deloitte's 'Football Money League'
Favourite EPL team Manchester United endured a tough first season without Sir Alex Ferguson both on and off the pitch. The immediate aftermath of Sir Alex Ferguson’s retirement in May last year led to a fall in Manchester United’s share price by almost six percent to a day’s low of $17.73, reducing the club’s value by almost £100m.
The share price, like United’s performances post-Ferguson, has been volatile ever since. Expiring sponsorship deals such as Hublot, the luxury watchmaker and failure to qualify for the lucrative Champion’s League have all taken their toll. This saw the share price tumble to a low of around $14 in January. At the time of writing it was above $16, showing some slight recovery despite the team’s patchy start to the 2014/15 season.
Manchester United was on the PR offensive after their January low, announcing the club would seek lucrative friendlies in the Middle East, the US and India if they failed to salvage European qualification. The tour of India seemed to particularly interest investors. The club claims to have 35 million followers in the country although previous efforts to visit India have always proved difficult in pre-season.
Sadly, United’s strong title rivals Chelsea and Manchester City are both privately owned by rich tycoons so no chance of cashing in on their success anytime soon.
Arsenal shares, on the other hand, are publically traded – but be warned, they’re not cheap. One share will set you back around £15,000, so you’ll need to start saving up. Arsenal shares can be bought and sold through the independent “Fanshare” scheme, or directly on the ISDX market.
However, rather than being a money-making venture, the shares are designed for Arsenal fans to have a stake in the ownership of the club. The largest individual shareholder of Arsenal shares is American business entrepreneur Stan Kroenke, who owns more than 66 percent of the club.