How Liverpool FC Might Merit a $5 Billion Price Tag
(Bloomberg Opinion) -- It’s an opportune moment for US billionaire John Henry to try to cash in on his 2010 investment in Liverpool Football Club. But is there any financial rationale for buying what he may be willing to sell?
Henry’s Fenway Sports Group Holdings LLC is open to a deal and said last week it would consider accepting new shareholders. The £2.5 billion ($3 billion) purchase of London rival Chelsea FC in May shows there’s appetite for buying soccer clubs. The headline price understates the all-in cost, with US buyers Todd Boehly and Clearlake Capital Group agreeing to invest £1.8 billion in the club as part of the deal. While that’s money that stays in Chelsea, it’ll still need to generate a payback.
The share price of publicly traded Manchester United Plc gives an enterprise value of £2.4 billion. Again, that’s little reflection of what it would cost to buy it whole. The stock labors under a governance discount given minority shareholders are subject to the whims of the controlling Glazer family. And Man Utd’s value is depressed by a recent trophy drought; the valuation at which the Glazers might cede control of the franchise would almost certainly be far higher.
Against that backdrop, consultancy firm GlobalData says Liverpool could fetch at least $5 billion.
There are two drivers of the valuation uplift from Henry’s original £300 million purchase price. Firstly, Liverpool has been well run with relatively tight cost controls. After being rescued from near collapse, it made a small profit in 2013-2014 and was then lossmaking in only one other year prior to the pandemic. The appointment of manager Juergen Klopp in 2015 was astute, leading to six major trophies even if performance has wobbled this season.
Secondly, investing in European soccer has arguably become less risky over the past decade. Regulators have introduced spending constraints designed to prevent clubs going bust.
All the same, multibillion valuations sit awkwardly with current levels of profitability. In the three years before the pandemic, Liverpool’s annual operating profit plus gains on player sales averaged just £74 million.
There will always be buyers who want to own a football club for non-financial reasons. Yet Clearlake and the other private equity investors who vied for Chelsea are attracted to this sector because they see scope for making decent returns. They will need to take a 10-year view and have in mind a buyer who’ll pay still more when the time comes to exit. The business case rests on achieving three things: growing revenue, making that revenue more reliable, and keeping costs controlled.
One tailwind from the last decade will probably continue — the pressure to make football more financially sustainable. This comes from governments, regulators and owners. Hence the continued effort, despite antipathy from fans, to resurrect the Super League, a European closed-shop competition where the top clubs would play without risk of relegation.
What if the Super League never happens? US influence in the English Premier League has become notably stronger, with around half of the teams under at least partial US ownership. The US sports model is based on closed competitions and salary caps. Support for measures that would help profit maximization could therefore grow, according to Rob Wilson of Sheffield Hallam University. Major changes to the EPL need the support of at least 14 of the competition’s 20 clubs.
Then there’s the question of whether Liverpool could be run with more commercial aggression. Soccer club revenue comes from broadcast rights, matchday ticket sales and commercial activities including sponsorship, fan memberships and merchandise. Liverpool has a stadium expansion plan underway to increase capacity by around 15%. But the bigger opportunity is to make more of its global brand.
As a sales engine, Liverpool trails Man Utd by some way. Sponsorship revenue is $162 million, around half of what its rival makes and putting Liverpool fifth among UK clubs, according to estimates by GlobalData. Premier League title holder Manchester City has about twice as many sponsors as Liverpool. Dropping Anfield from the stadium’s name in exchange for the moniker of a sportswear brand or airline would probably be anathema to the club’s fans given its iconic status. But there is doubtless more that Liverpool can do.
True, Liverpool’s fanbase outside of the UK is not as powerful as Man Utd’s. It has 101 million followers across the main social media platforms, versus its arch rival’s 169 million, on GlobalData’s count. Still, for a financially minded owner, the business goal will be to generate recurring revenue from commercial activities even if the trophies don’t come consistently — just as there are lucrative American football teams that haven’t won the Super Bowl for years. That would have to go hand-in-hand with some mechanism to prevent revenue gains being absorbed entirely by player wages.
There are considerable uncertainties on this next leg of football’s journey, and additional investment will be required. Even if he doesn’t sell completely, Henry would be wise to bring in a fellow traveler.
More From Bloomberg Opinion:
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- World Cup Will Be Great Football But an Ugly Game: Martin Ivens
- Liverpool on Sale Shows Soccer's Financial Fickleness: Alex Webb
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Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.
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