It isn't all over for football investors

The industry still has it all to play for, says Dan Gledhill

Manchester United directors are this weekend nursing some badly bruised wallets. The Government's decision to block BSkyB's proposed acquisition of the club wiped pounds 84m off United's value in minutes. Chief executive Martin Edwards alone is almost pounds 12m poorer and other board members, including Greg Dyke and Sir Roland Smith, have also been clobbered.

So this might not be the best moment to discuss football's money-making potential. However, it was only 10 years ago that Mr Edwards came within an ace of selling out to property millionaire Michael Knighton for pounds 10m - a figure which seems bizarre given BSkyB's willingness to shell out pounds 623m for English football's leading light.

Even BSkyB's bid was dismissed as inadequate by analysts, who believe the club's real worth exceeds pounds 1bn. The combination of BSkyB, which owns the rights to screen live Premier League football until 2001, and Manchester United, the world's biggest football club, presented an irresistible prospect to investors. BSkyB was ideally placed to promote the United brand to an eager public at a time of almost unparalleled success in the club's playing history.

Now this lucrative future seems far away. As well as blocking BSkyB's acquisition of United, the Government said cable group NTL's bid for Newcastle would be referred to the Competition Commission. The bid premium supporting the quoted football sector vanished and soccer shares plunged.

But some analysts believe that Friday's market sell-off represents the perfect opportunity to invest in football clubs. Steven Lloyd, an analyst at the KPMG European Football Unit, does not think recent events will prevent media companies buying English football clubs in the future. Nor does David Gill, United's finance director, rule out another company succeeding where BSkyB failed. "It would have to be the right entity," he says. "But I firmly feel that a tie-up with BSkyB would have been good, and if someone else approached us we would have a duty to look at it."

Most analysts agree that the verdict on NTL's bid for Newcastle is critical. No doubt Rupert Murdoch, whose News Corporation media group controls BSkyB, would be furious if the Competition Commission cleared NTL's deal, but Friday's ruling suggests the Government is willing to ruffle his feathers. If NTL gets the go-ahead, a flurry of deals is expected - with Carlton, Granada and United News & Media likely to target football clubs.

The other big variable is the Office of Fair Trading's review of the Premier League's contract with BSkyB. If it rules that the deal represents a cartel, clubs would be free to negotiate their own TV deals. Mr Lloyd believes top clubs could see their income from TV rights soar. "At present even the biggest clubs only generate about pounds 9m maximum from TV rights each year," he says. "But in Italy, four of the top clubs have broken away to negotiate their own rights."

The four - Internazionale , AC Milan, Juventus and Napoli - have grabbed 70 per cent of the revenue from Italian football coverage. Translate that to the UK and the top four - United, Arsenal, Chelsea and Liverpool, for example - would share pounds 117m a year.

Of course, the end of collective negotiation of TV rights would be a blow to all but the biggest clubs. Almost all the clubs to have floated on the stock market in the last few years have seen their shares slump. Leicester City, for example, is valued at less than pounds 15m. Its star striker, Emile Heskey, is worth almost as much.

But the sector's depression has not prevented privately owned Liverpool appointing Schroders, the merchant bank, to advise on its financial structure. David Moores, the controlling shareholder, seems to accept the future lies in the City.

So Martin Edwards should find some comfort. He has come close to selling United three other times - to Mr Knighton, media group VCI and Robert Maxwell. Every time a deal has fallen through, the club's value has appreciated dramatically. There is little reason to suppose it won't happen again.