"Very early on you saw people like Sir John Hall at Newcastle buying rugby union and basketball franchises alongside Newcastle United, but he had demerged all of these before he floated the football club and has since sold on his rugby union interests."
"We tend to focus on the football club shares," confirms Richard Hunter of NatWest Stockbrokers, "and the fact remains that these are not `widows and orphans' investments. Football club shares are highly volatile and the share prices are almost totally dependent on the on the field performances."
He cites Sunderland, currently top of the First Division of the Nationwide League and almost certainly heading back to the top flight, as a prime example. "Sunderland's share price has gone up recently on the expectation of the club getting promoted to the Premiership, with all the extra income that entails. Generally speaking, the fortunes of football club shares are totally related to what happens on the field."
This view is not shared by Tony Fraher, chief executive of Singer & Friedlander Unit Trusts, which runs the only UK specialist collective fund concentrating on football club shares. "People think that, as a sector, there is nothing happening, but they are not looking for the opportunities," he says. "They are paying too much attention to what is going on on the pitch and that is getting less and less significant."
What matters is the rights to broadcast the club's core product - football matches. "In the football sector, there is only one real issue and that is the outcome of the MMC [Monopolies and Mergers Commission] report into BSkyB's bid for Manchester United," Mr Fraher says. "You could see that when the club recently announced a good set of results and the market took no interest whatsoever."
The reason for such apathy is plain. "If the report says BSkyB can buy it, then we know what the price will be. If it says it can't, then it simply means the field opens up for another international bidder, and Manchester United will go for a higher price." He also points out that, if the bid is allowed, a similar agreed bid for Newcastle United by NTL, an American cable television company, will be triggered.
Supporting a football club can be an emotional business but the investor has to remain resolutely disciplined when considering the sector and concentrate on the financial merits or otherwise of a club.
"Much as it pains me to say it," says Mr Hunter, "the only one that is even a medium-risk investment is Manchester United. Not only has it been a very successful club on the pitch but it has concentrated on its brand as well. Its merchandising operation is second to none."
But the key area for presumed future growth is the potential of pay-per- view television to boost the coffers of the major clubs. As Mr Hunter points out, Manchester United were keen to develop their media interests even before BSkyB's interest. "There has been a return of interest in pay-per-view recently and the potential for tie-ups with media companies has caused the most interest, but a lot of this is very short term," Mr Hunter says.
"One of the major positives as far as sport is concerned is that it is a very valuable entity for the broadcast arena," says Nick Battram. "Broadcasters are increasingly seeking valued added content. It is analogous with the software industry, where the value is in the software, not the hardware.
"There is no point setting up a satellite or cable station unless you can show something that people want to watch and the biggest pull is football, especially premiership football. This is why you have BSkyB trying to buy into Manchester United, as they recognise there is only one way these rights are going to go and that is up."
Mr Fraher agrees about the importance of broadcasting. "What is driving it is the introduction of digital television," he says. "If you are running a TV channel you want people to watch and football is one of the biggest draws; and the best way to ensure you have football is to buy a football club."
The reason is the increasing power of clubs to control their own broadcasting destinies. "It is now fairly clear that, when the current Sky deal runs out in 2001, every club will be negotiating its own deals for the rights to broadcast its home games," he adds. "I reckon that 16 out of the 20 current premiership clubs will be taken into media ownership within the next two years."
Reaction to pay-per-view has come to dominate sentiment in the sector, but it is not entirely a one-way bet. "From about May 1996 to the end of 1997, there was a lot of excitement over pay-per-view and the potential of media sales, but then an academic report came out which said that the potential had been greatly overestimated," Mr Hunter says. "This wiped one-third off the value of football club shares overnight. Since then, there has been nothing to make football club shares return to those sorts of levels."
Mr Fraher also points out that wider exploitation of a club's brands will be important. "They are already beginning to go into areas like financial services and travel, but there is even greater scope if they get into things like virtual banking, selling services to a fan base that has a much greater loyalty to a football club than to Barclays or General Accident or Tescos. And that potential growth is not yet in any of the share prices."
"Everything that can be branded is branded," Mr Battram continues. "The question then is, does this add much value at the end of the day? The answer is, probably not a lot, but they are trying to reduce the volatility of their core earnings, which come from what they are doing on the pitch."
Indeed, it seems that for a football share to have any long-term attraction it needs to diversify away from its highly volatile `core' business. "You have clubs like Leeds Sporting, which is trying to build a media empire of which the football club is just a part and Loftus Road, which is a tie-up between Queens Park Rangers and Saracens Rugby Club, to try and ensure that maximum us is made of the ground," points out Mr Hunter. "And then there is Chelsea Village, which is more of a property play than a pure football club, with a high-quality residential development in west London."
Mr Fraher insists that there is undiscovered value in the sector. "Take a club like Leicester City as an example," he says. "Its current market valuation is around pounds 15m, yet it has one player, Emil Heskey, who is valued at between pounds 5m and 10m and cash on its balance sheet of around pounds 10m.
"So between cash and Heskey, you have the entire valuation of the club. Set that against the pounds 8m or so a year it would cost for the TV rights to the club's home games, and you can see that it is much cheaper to buy the club for pounds 15m than the TV rights, which, in any case, have to be renegotiated every three years."
Another example he cites is Celtic in Scotland. "Celtic currently has an ordinary share price of 370p but also has 6 per cent preference shares at 270p, which convert into ordinaries in 2001," he points out. "This is the kind of massive anomaly that can be found in this sector, which means there are some screaming opportunities for those that want to get involved."
The fundamental link, however, remains between sporting success and financial success. "In the past," points Nick Battram, "it was disappointing if you didn't win the League or you lost in the Cup final, but it wasn't necessarily financially crippling. Now, if you are relegated from the Premiership, the effect on your income and cashflow can be devastating, as Crystal Palace has recently proved."
Keiron Root is editor of `The Investor' magazine.