Investing in English football? Ask yourself these 3 questions first.
English football is in the midst of a gold rush.
Private capital is pouring into clubs at all levels of the pyramid like never before. From Truro and Carlisle, to Leeds United and Chelsea, investors have clamoured to take stakes in English clubs in an attempt to emulate the stunning valuation growths enjoyed by the likes of Wrexham and Ipswich over the past five years.
Anyone coming in assuming that they are going to ‘do a Wrexham’ is almost guaranteed to fail - and lose substantial money whilst doing so.
The investors who stop to ask themselves the following three questions will, in our view, give themselves a much better chance of succeeding when investing in English football than those who don’t.
Why am I investing in a football club?
Before taking any meaningful steps towards owning a football club, ask yourself: why are you doing this? Answering this question will give you a philosophy to shape your investment strategy.
Returns. Maybe the rationale is to maximize the likelihood of a return on investment - if it is, then you know you should target an undervalued club (likely in League Two/the National League) where there is a legitimate chance of operational improvements driving an increase in asset value.
Multi-club. Perhaps the reason is to add an English club to a mutli-club portfolio - if so, then the acquisition should focus on a club with an established academy which can provide an effective player trading pathway for the wider group.
Influence. Or maybe, the reason is simply to enjoy the outsized political and cultural influence which accompanies football club ownership in England. If it is, then focus should turn to clubs with a ‘legacy’ brand with maximum cultural and political relevance.
Passion. Maybe you just love the idea of football club ownership - no matter the costs and risk involved. In which case, you can afford an open-ended strategy and pursue a club which aligns with your passion.
The point is that the answer to this question will drive the acquisition strategy. Purchasing a random club and subsequently applying a generic strategy (e.g. a ‘content play’) is a recipe for failure. Understand your motivations, develop a strategy accordingly and seek to invest in a club which fits this strategy.
What is my growth strategy?
For many investors the answer to question one will be: achieve a return on investment.
If that is the case, you need to then ask yourself: what is going to drive the increase in the club’s valuation that will achieve a return on investment?
We see four common paths to increasing asset valuation of football clubs in England.
Fixed asset development. Developing the fixed assets of a football club (stadium, training ground) to create assets that increase non-matchdays revenue.
Brand development. Using social media and digital engagement to develop a fanbase outside of the club’s traditional geography, thereby growing commercial sponsorship revenues.
Promotion. Rising through the leagues - and ultimately entering the Premier League - offers the chance to share in the multi-billion pound TV rights deals that the top of the English game enjoys.
Player trading. Sourcing under-valued players - or developing players for free through the club’s youth academy - and then selling these players for profit.
Knowing which of these strategies is at the core of your investment is pivotal - both for choosing the right club to invest in but also for shaping post-acquisition Day 1 strategy.
What are the risks in my growth strategy?
When considering your growth strategy, it is essential to consider what the risks are. The football industry in England has a number of unique risks which, if not considered pre-investment, can fatally undermine the prospects of success.
Examining each of the potential strategies listed above demonstrates the depth and nature of the risks inherent in any strategy.
Fixed asset development. Building things in England is notoriously difficult. From obtaining planning permission to getting the necessary support from local government, there are a number of obstacles which investors need to overcome in order to recognise the vision of redeveloping a clubs fixed assets.
Brand development. Every club in England is now trying this. What makes your club special? Why will people choose to watch your club’s content, rather than the similar content being produced by every other club in the UK?
Promotion. The raw statistical likelihood of any one team getting promoted in a season is less than 15%. There might be untold riches if the strategy succeeds, but the inherent volatility of English football makes it a high-risk strategy to pursue in isolation.
Player trading. This strategy requires long-term patience and trust in players that the rest of the market does not value. Although it may increase asset valuations in the long-term, in the short/medium term it could undermine success on the pitch which could have a net negative impact on the club’s valuation.
Every strategy comes with risk. The objective should be to assess these risks holistically alongside your investment goals to work out which strategy gives you the best opportunity of achieving your goals.
Like football itself, investing in the English game is unpredictable with no guarantees of success.
Insight Eleven gives you the intelligence you need to put yourself in the best possible position to achieve your objectives.
