Football clubs not fit for stock markets

14.04.2009

By Steve Menary
The beleaguered financial model of football clubs operating as Public Limited Companies on stock exchanges has taken a further knock with one of the last PLC teams in England sinking into administration.

Simon Chadwick, Professor of Sport Business Strategy and Marketing at England’s Coventry University, says: “I would not envisage seeing the phenomenon again for a while and, if it does reappear, it will need to take a different form to that we have witnessed over the last decade or so.”

The boom in England took after Manchester United floated in 1991 and money for Premier League TV rights from BSkyB flooded in, prompting a swathe of clubs to float.

Specialist funds were even set up championed by the likes of Alan Hansen, the former Liverpool and Scotland defender and now a TV pundit, but these proved disastrous.

One by one, clubs de-listed from the main London Stock Exchange or the junior Alternative Investment Market, where shares in Southampton Leisure, were listed.

Kevin Rye, media spokesman for Supporters Direct, which co-ordinates fans’ trusts to take charge of clubs, said: “At Southampton, there were specific problems when they were in the Premier League and they never recovered from going down.

“As far as PLCs go, the rules are specifically geared towards profits and PLCs are there to deliver shareholder value. PLCs as a model for owning football clubs died a few years ago. The environment [before] was geared towards people and institutions buying lots of shares and at the moment that’s not the case.”

Since investors in the UK realized that football clubs would not provide the necessary returns, a swathe of clubs from Bolton, Leeds and Leicester in England, Celtic and Hearts in Scotland and Swansea in Wales, quit the bourses – often in the wake of disastrous financial performances like Southampton, who owe millions from building a new stadium.

Only a handful of English clubs remain floated: Sheffield United and Spurs on AIM and Arsenal and Rangers on Plus Markets, the more loosely regulated third division of the UK stock markets.

Despite the woeful experience in the UK, a handful of clubs in continental Europe also adopted the PLC model, notably in France, where rules were recently changed to allow Lyon to float to raise funds for a new stadium.
Other French clubs had considered following Lyon before the credit crunch hammered the world’s financial markets.

Football’s finances - once described as ‘prune juice economics’ by one academic – are unlikely to see a return to financial model ill-suited to the sport with the collapse at Southampton, who played in the 2003 FA Cup Final and in Europe the following season before being relegated in 2005, a timely illustration.
Professor Chadwick added: “The juxtaposition of on-field and off-field performances simply did not, and may never, sit well together. To win, a club will often have to spend significant amounts of money on player acquisition and remuneration costs; but such expenditure inevitably impacts upon the bottom-line, thereby weakening financial performance.

“Clubs operating as public limited companies find themselves in a quandry: the reality is for them that there really has been no way forward and no way back. While the expectation that clubs should control costs, generate revenue and therefore (at least) break-even has some credibility to it, the public floatation model of achieving this goal will simply be remembered as the wrong model for the wrong industry.

“There are other issues too that have been implicit within the failure of the model: floatations are a 'one-hit' deal in that clubs can initially secure significant cash injection. Unless the clubs invest the injection wisely it has a short-term impact only, the downside of which is the continuing long-term need for the club to pay-out dividends to shareholders. This inevitably impacts upon the money available for signing players, something that is important in bringing success to a club. Moreover, the commercial model in general imposes a mode of operation on football clubs that is anathema to many of them, as it requires levels of managerial competence and commercially-oriented decision-making that most football clubs are simply not equipped for.”

The model was championed in Britain, where 27 clubs floated, and some big European clubs followed suit but only a handful of British clubs remain listed and one of the last, former Premier League side Southampton, now face collapse.

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