Investing in football may be out of fashion in this country, but the hype in Italy is just beginning. Lazio will become the first football club quoted on Milan's Borsa when trading starts on Wednesday. Early reports suggest that the shares are already being traded on the "grey" market at a significant premium, and the issue was eight times oversubscribed.
The compelling argument against investing in football clubs is that the ups and downs of their performance on the field makes for extremely volatile share prices. Richard Hunter, head of dealing services at NatWest stockbrokers, says his advice to Lazio investors is to "beware the UK experience": the Nomura index of football shares dropped 34 per cent this season.
Mr Hunter says: "Ninety per cent of a club's share price reflects what happens on the field. The exception is Manchester United, which makes a huge amount from merchandise."
Football experts believe the Lazio float is the start of a whole new Europe-wide football share market. Ajax in the Netherlands is also planning a float, and has reserved almost all the shares for club fans, rather than professional investors. Other European clubs will be watching Lazio's progress.
"I've got some Lazio shares," says Tony Fraher, chief executive of Singer & Friedlander, and the manager of its Football Fund, an investment trust that buys football club shares. He's also trying to buy some holding in Ajax. "What I'm doing with the fund is looking to European shares. We kept cash back for that when we launched." The fund launched in February last year at the height of the over-hyping of the sector. Its shares are now trading at a discount of 12 per cent to the value of the underlying assets, so could be a good long-term bet for those who believe that football will become a global success story. The key to future profits, Mr Fraher believes, is to pick clubs that are great international brand names.
That means rejecting most UK-quoted clubs. Shares in Leeds Sporting, for example, owner of Leeds United, have been tipped as a good buy. They are cheap at 19p (down from a high of 46p). The firm has plans to develop land around the ground into an indoor arena and hotel complex. But Mr Fraher isn't keen: he believes Leeds simply isn't glamorous enough.
"Leeds and Newcastle are local brands, they aren't well enough known," he says. The flotations to look out for, he believes, will be super-clubs such as Juventus, Milan and Bologna, as well as Lazio and Ajax.
All of this optimism is founded on one hope: that the current Champions' League will evolve into a huge European Super League. And the big money for the clubs in that league would come from pay-per-view television matches: the holy grail for the magnates who run giant clubs. "The whole concept of the Super League is tied to pay-per-view matches," says Robert Jeffery of FourFourTwo magazine. "Sky wanted to introduce pay-per-view matches but it can't under its current contracts. But if you wiped the board clean and started a new Super League, they could say that we'd have to pay for it. Clubs will coin it."
Mr Fraher echoes this view: "It's a lot easier to pay pounds 10 to watch Juventus against Real Madrid than it is to get to to the match. People all over Europe will pay for this. Pay per view is just not domestically viable except for the top clubs."
The Champions' League is becoming more like an official
European league each season, and the number of clubs taking part looks likely to rise, if not next season then in 1999/2000. A full 20- club league cannot be far away. There's already plenty of money to be made from taking part: Borussia Dortmund, last year's champions, walked away with pounds 9m from television deals, sponsorship and prize money. Manchester United, the losing semi-finalists, got pounds 6m. And the pan-European brand managers are hard at work: "The Champions' League is already marketed using one name. If television stations want to show the games they have to show the same logo, play the same theme music, and they have to give priority to league sponsors in the ad breaks," Mr Jeffery says. Even so, it looks as if it will take at least until the 2000/01 season for the first true European Super League to get under way.
Several of the big clubs, including Milan and Glasgow Rangers, are holding off flotation until plans for a big-money league are confirmed. Rangers' shares are already traded on Ofex (off-exchange facility) but it is an unofficial market and there simply aren't enough shares to meet demand. Mr Fraher does hold some Rangers shares in the Football Fund and describes it as a "no-brainer" of a buy: given the legendary lack of competition in Scotland, if the country is to have a representative in a European Super League, Rangers are almost certain to be the one.
Still, there is hope for UK investors determined to take a punt on their favourite club in the hope of doing well next season. Nottingham Forest is looking cheap: despite being promoted back to the Premiership, which brings a guaranteed pounds 6m share of television profits, the share price hasn't moved. But if it's glamour you want, keep an eye on Manchester United: the share price is low. It seems likely that the league title will go to Arsenal this year, but United shares will almost certainly prove a good long-term hold. Although, as Mr Fraher warns, "Even Manchester United got relegated once."
q Singer & Friedlander 0171 623 3000.