TV bonanza and tradition make the Premier League irresistible

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The Independent Football

Premiership clubs are changing hands at an unprecedented rate, but why them specifically, and why now? Keith Harris is uniquely qualified to comment. As the chairman of the investment bank Seymour Pierce he did the deals to sell Chelsea, Aston Villa and West Ham to foreign billionaires. And he can pinpoint why 2006-07 is a selling season like no other.

The Premiership's new domestic TV deals, with Sky and Setanta, worth £1.7bn between 2007 and 2010, are major factors, but so is the league's backdrop of financial stability, wage inflation control ("towards a more sensible 50 to 60 per cent of turnover") and the Premiership's consistency as a world brand. Harris also cites a global upsurge in hugely wealthy individuals.

"The domestic TV deal was much higher than anyone thought. That underpins the clubs' revenue," Harris says. "The international rights are also being sold, and the news about BT and Setanta [joining forces to offer games on a pay-per-view basis] shows the appetite going forward. Pay-TV was always driven by movies, entertainment and sport. Now it's sport, and within that, football."

The extra cash from the new TV and sponsorship deals will be huge. The total prize pot now is £1.6bn over three years, or £25m per club each season on average, ranging from £17m (lowest) to more than £30m (league winners). From next year that will jump to £40m per club on average. Even the least successful team will see an extra £8m go straight to the bottom line, while the top clubs will earn £20m more each year.

"Clearly investors are attracted to the revenue streams, but how we are run is crucial," said Dan Johnson of the Premier League. "No one or two teams hog the broadcasting revenue as they do in Spain or Italy. There's a strong base to build from, and rewards for success."

Professor Chris Brady, the dean of the Business School at Bournemouth University, specialises in football finance and has researched extensively into sports management on both sides of the Atlantic. He says Leeds United's financial collapse "brought home the realisation of what disastrous management can lead to. It was a wake-up call, and has taken a few years to sink in but investors now realise that with proper management there are real opportunities again.

"Look at the recent buyers. Randy Lerner, the Glazers, Eggert Magnusson. These are people with a background in sports business. They get it. Think of Malcolm Glazer's logic in buying Manchester United. 'I own an NFL franchise, the Bucs, that frankly nobody has heard of, and I make more money from them than a genuine world brand like Manchester United do. So I'll have a piece of that.'

"There are others out there. I was doing some research work in America and senior people were telling me three or four NFL magnates have been sniffing around in England. The attraction is little debt, relatively, guaranteed revenue streams, and the new TV deal."

All the buyers say the same thing. "We're genuine fans who see potential as serious long-term investors," is the motto (copyright all of them). But why the Premiership over other countries? "Because it's well run, it's not so over-reliant on TV like Germany, or on commercial income like in Italy," says Brady. "It's easier to buy into places where you can just take out one or two big shareholders, which isn't often the case on the Continent.

"The growing attraction for Americans is opportunities you can't have in the NFL, where you're not allowed to sell a branded credit card or have ties with bookmakers because you're only allowed to 'do' the sport business. For football, England against other countries is just a better business deal all round."

So who's in the market? American billionaires with sports backgrounds like George Gillett (former Harlem Globetrotters and Miami Dolphins owner, current owner of the National Hockey League's Montreal Canadiens, wanted Liverpool), and the Kraft family (NFL and Major League Soccer franchises); Robert Earl (British-born American resident of Planet Hollywood fame who took a stake in Everton last month); and an assortment of oligarchs (Russia's Oleg Deripaska, worth £4bn, is apparently keen), Middle-East oil men and East Asian tycoons. Reading have reportedly talked with a South Korean group.

"There are a growing number of people who've made huge fortunes in very recent times, through new materials, hedge funds, property," Harris said, "and whereas yachts and houses are for some, a football club is now up there."

So how do you value a club? The Independent asked a panel of experts, brokers, analysts and club insiders and the only thing they all agreed on was: "What someone will pay."

For example, some felt that The Independent's "guide price" of £240.1m for Chelsea was too low, others much too high. One analyst said: "Remove Roman Abramovich from the equation and aren't they effectively back where they were in 2003, i.e., technically insolvent, only with ever more massive losses each year and a bigger wage bill?"

Dan Jones of Deloitte Touche said the purest valuation method is to use Discounted Cash Flow analysis, predicting future income against expenses. "But it's as much an art as a science, with loads of uncertainties."

Keith Harris considers turnover, wage ratio, attendance, stadium requirements and "push interest" from clients. The deals for Villa and West Ham were calculated on that basis, with a "London premium" for West Ham.

Brady says "brand equity" is vital, with Manchester United having the most truly global appeal. Liverpool, Arsenal and Chelsea have good brand value. Next come Newcastle ("ripe for takeover due to a combination of crap management, large and loyal support, guaranteed revenue streams and brand possibilities"), Tottenham and Everton.

Harris and Brady agree that Blackburn, Wigan, Bolton and Middlesbrough, all in "congested northern markets", and all with long-term "fan-benefactor owners", have little brand appeal, or any appeal to major speculators. As for this season's relegation favourites, Watford, Charlton and Sheffield United, their values could change by tens of millions, up or down, depending on survival. "And there's also a market outside the Premiership," says Harris, who has also worked on takeovers at Southampton and Cardiff recently.

And does Harris think there will be more deals? Yes. How does he know? Because he's already working on them.

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