Publicly traded football clubs have a history of poor performance

One of the world’s largest football clubs, Manchester United, is planning an initial public offering later this year. I think it is fair to say that, historically, publicly traded football clubs have had terrible share price performance, with few exceptions. Manchester United however is one of these exceptions, as it was (and still is) one of the very few football clubs that is able to turn a profit. Manchester United was previously publicly traded up until 2005 when the Glazer family bought the club in a leveraged-buyout. Now the family plans to sell some shares back to the public.

Contrary to most other publicly traded companies, football clubs are in general not supposed to make significant profits. Most clubs, and it doesn’t really matter if they are privately or publicly held, have a single or a few large owners who pour cash into them, signing big stars and paying salaries others can only dream of. If, however, a football club properly manages itself, the fans (who are usually the ones who keep the business running by buying tickets and merchandise) usually demand all available proceeds are spent on high quality players.

For those football clubs that have been publicly traded (and some still are), I believe it is fair to say that their stock price performance is poor! See table 1.

The average annualised return for the stocks I have listed in table 1 is minus 10 percent, ranging from a positive 23.7 percent return annually for Manchester United to a negative annualised 44.7 percent return for Watford. For those clubs no longer listed on the stock exchange, deep pocketed investors have usually taken them over at a low price, probably seeing them as long-term investments or hobbies.

The one stock that stands out on the list is however the one going public again, Manchester United. Does that mean history will repeat itself and the stock will continue to show such decent returns? Probably not! Throughout the years, Man Utd has been successful in growing its own players and not spraying too much cash around on players from outside. Such a business model is becoming tougher to maintain in today’s sports environment however as many of the club’s main competitors have very deep pockets to build up their all-star teams, and fans demand big signings every year.

When we look at the STOXX Europe Football index performance back to 2002 (chart 1), we see very volatile price performance. 21 European football clubs are constituents of this index which has a YTD performance of minus 11.5 percent, and is trading close to its lowest level ever. In comparison, the STOXX600 index has posted a negative 0.2 percent YTD.