The news that trading in the shares of Rangers, listed on the PLUS stock exchange, has been suspended, with a possible de-listing in May, is further evidence of the demise of football club shares as an investment, some 20 years after the concept was launched.
What happened to the investment culture and what are the options for an investor, or supporter, still looking to own shares in a football club?
Fans typically own shares in the club they support for sentimental reasons while investors have a very different objective – to make money. Over the last 20 years, 26 clubs listed their shares, partly in response to the broadcasting revenues received from BSkyB, on a variety of stock exchanges such as AIM, PLUS and the London Stock Exchange. These included Celtic, Aberdeen and Hearts in addition to Rangers, while examples in England were Arsenal, Aston Villa, Manchester City, Manchester United and Newcastle United. The trend perhaps reached a high point in January 1997 when the fund management group, Singer and Friedlander, launched a ‘football fund’ but by 2002 it had run into difficulties and was closed.
Many reasons for football shares to de-list have been given and not all of them, from an investment perspective, are necessarily bad. For example, Manchester United shares were acquired by Malcolm Glazer at a significant premium to the listing price. However, typically the de-listing of shares has occurred after a period of dismal share price performance. Millwall de-listed in order to save costs estimated to be £100,000 per annum. while the Spurs chairman, Daniel Levy, announced the club’s intention to do the same because listing “restricts our ability to secure funding”.
Aberdeen floated on the Alternative Investment Market in February 2000 at 150p per share. The club found the administrative costs to be high and delisted in August 2003, by which time the share price had dropped to less than 40p. Hearts also found the cost of listing to be an unnecessary expense, after floating in April 1997 at a price of 140p per share. When the club was delisted by Vladimir Romanov in January 2006 – citing the need to reduce costs and facilitate debt reduction – the share price was 30p.
So why have quoted football shares not delivered better returns? Revenues generated, particularly in the English Premier League, are significant, but in order to compete there is a constant requirement for new capital to buy players, meet wages and upgrade stadium facilities.
Cash flow is typically weak and dividend payments are way down the list of priorities. Basically, football clubs are just not very good businesses and that is before you take into account an owner viewing football club ownership as a vanity project.
Supporters of Celtic and Arsenal can still live the dream, but a word of warning: shares in Arsenal Holdings are seldom traded and some may be put off by the £1.3m - £1.5m asking price! However, not everyone believes that football clubs make a bad investment. Respected fund manager Nick Train, has built up a significant interest in Celtic Football Club. His investment style is ‘value’ and he is quite prepared to wait a number of years for the value to be ‘crystalised’.
The rights to televise sport are a prized broadcasting asset and have been in a long-term bull market, but opportunities for investors are scarce. Football’s biggest clubs are becoming increasingly global and a European league may develop. Clearly this long-term scenario is not currently factored into Celtic’s share price so if Nick is right then maybe it’s not all over just yet for investors and football shares.
• Charles Robertson is senior investment manager with Murray Asset Management