The Investment column: Don't score an own-goal if you invest in football clubs

It has been quite a week for football. Millwall called in the administrators, Bournemouth went into receivership, Rangers received a pounds 40m cash injection from billionaire tax exile Joe Lewis while PizzaExpress entrepreneur Peter Boizot bought Peterborough. Football, as never before, is stealing the headlines on the business pages.

Even more worryingly, according to ShareLink five of last week's top 10 most heavily bought shares were football clubs, including Millwall. Even Alan Hansen, one of the most respected commentators on activities on the pitch, has put his name to a football investment fund run by Singer & Friedlander. If ever there were a sign that a bull market was ready to boil over surely it is this.

As with all investment stories at the height of market booms, there is more than a grain of truth in the apparent attractions of football and over the past year shares in the growing number of quoted football clubs have outperformed the rest of the market by a stunning margin. The trouble is, football's dazzling run so far does not mean it will continue to be such a great investment.

The bull case for football rests on a number of pretty compelling arguments. The game has been transformed since the Taylor report of 1990 was published, with far-reaching implications for safety standards, communication between clubs and fans and the behaviour of players and the media.

Arguably the report marked a watershed in the game, creating a family and television-friendly leisure activity with huge commercial potential out of the ruins of a hooliganised, male-dominated anachronism of a sport. As the chart shows, the decline in football violence and rising crowds have moved hand in hand.

The stock market has been slow to catch on to the full implications of those changes, but a number of recent developments have switched it on to the lucrative potential of football. Most important of these has been the rising role of television and especially pay-per-view deals.

Other developments have also had a large impact, however, including a growing appreciation of the role of merchandising, sponsorship and asset utilisation. In no other business would a company's major asset be used for only 90 minutes a week.

That has changed and the market has rushed for a share of the action to the extent that a leading club like Manchester United is now valued at the best part of pounds 500m. But anyone tempted by the sparkling share price performances of companies like Celtic, Chelsea Village and Caspian (Leeds) over the past 12 months should tread carefully.

Manchester United has a prosperous future because it has an instantly recognisable brand, more or less guaranteed income from television and the virtuous circle of success on the field leading to growing revenues. Most clubs do not have that potential.

The spiralling wage bills that will inevitably accompany such high potential profits will price all but a handful of clubs out of the financial premiership. Already, as the chart shows, they use up a large chunk of the lesser clubs' income.

The fact remains that most clubs are not profitable and those that are not propped up by a wealthy benefactor are dependent on the goodwill of their bankers to keep them afloat. More than anywhere the riches of football will fall on the biggest pile and the ratings currently enjoyed by second- line clubs will prove unsustainable.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Tom DeLonge, Travis Barker and Mark Hoppus of Blink-182 pictured in 2011.
musicBassist Mark Hoppus and drummer Travis Barker say Tom Delonge is 'disrespectful and ungrateful'
Arts and Entertainment
Olivia Colman and David Tennant star in 'Broadchurch'
tvBroadchurch series 2, episode 4, review - contains spoilers
cyclingDisgraced cycling star says people will soon forgive his actions
Britain's Prince Philip attends a Garden Party at Buckingham Palace in London
Arts and Entertainment
Ed Sheeran will play three sell-out gigs at Wembley Stadium in July
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Lena Dunham posing for an official portrait at Sundance 2015
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
Lars Andersen took up archery in his mid thirties
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea