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Are football clubs like pieces of art or regular corporations? Empirical

evidence of the market valuation of football clubs in the big five leagues

Article in Managing Sport and Leisure · May 2022

DOI: 10.1080/23750472.2022.2081251

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Are football clubs like pieces of art or regular corporations? Empirical

evidence of the market valuation of football clubs in the big five

leagues

Luis Carlos Sancheza, Angel Barajasb,c and Patricio Sanchez-Fernandezc

a
Department of Economics, University of Oviedo, Spain
b
Deprt. of Finance, National Research University Higher School of Economics, Russia
c
Department of Financial Economics, University of Vigo, Spain

This is an Original Manuscript of an article published by Taylor & Francis in “Managing Sport and Leisure”

on 31 May 2022, available at https://www.tandfonline.com/doi/full/10.1080/23750472.2022.2081251 and

https://doi.org/10.1080/23750472.2022.2081251

ABSTRACT

Purpose: The aim of this paper is to determine whether football clubs are valued

according to financial parameters, as in other profit-seeking investments, or

depending on the subjective preference of the buyers, in situations where buyers

seek emotional rewards or a status symbol.

Design: This work analyses a unique data set of the prices of actual transactions

of shares from clubs in the big European leagues from 2001 until 2019. A

theoretical model is presented introducing financial, sporting, and localisation

variables to study their influence in market value.

Findings: We have found that the valuation of football clubs in acquisitions is

influenced by financial parameters, as in other profit seeking investments, and

does not depend on the subjective preference of the buyers.

Practical implications: Our findings show the end of the alignment of interests

between new football owners and fans or current organisers of competitions, due

to the preferences of the new investor profit-seekers of an American model of

sport.

Research contributions: The ownership of football clubs in the big leagues has

changed dramatically in the last years. For the first time, to the best of our

knowledge, the present paper demonstrates the opportunity of analysing the

valuations of the football industry with actual data from the transactions.

Keywords: sport economics, football, valuation, firm ownership, sport management,

investment

2
Introduction

European football has gone from being a local sport to a global business. In recent years,

revenues from overseas TV rights have soared, international sponsors have emerged,

continental matches have multiplied, and foreign players have filled squads. Globalisation

has also extended to the ownership of football clubs. Gone are the days where clubs were

controlled by fans or local celebrities. Each year, more clubs fall under the control of

investors, most of them foreigners.

The profile of the owner is related to the objectives of football. Earlier efforts were

focussed on listed football clubs, at a time when various English clubs were listed on the

stock market. However, the ownership of football clubs has changed dramatically since

then, and there is a lack of research about the valuation of privately owned football clubs.

Nowadays, only a few clubs from the main leagues in Europe are listed, and their traded

capital only represents a small percentage. For this reason, their stock exchange price

cannot be considered representative of the market value of the European football clubs.

The motivation to acquire a football club has attracted vigorous debate. Some authors,
such as Leach and Szymansky (2015) and Huth (2019), have pointed out that investors
buy football clubs looking for an emotional reward without economic rationality, as is the
case when buying a piece of art. In this way, Kupers and Szymansky (2015) compared
buying a football club to buying a Picasso. If investors acquire a football club to obtain a
profit, they should estimate the value based on objective economic data. The objective of
this paper is to determine whether the prices paid by the buyers of European football clubs
show economic rationality or a subjective approach. In this way, we will study the value
of the acquisitions of clubs competing in the Big 5 leagues since 2001. Previous research
about the valuation of football clubs presents some limitations. Some of them are outdated

3
given that the strong changes in football ownership in current century, some are based on
journalist estimations instead real price transactions and others are reduced to the few
clubs currently listed. However, earlier studies about American sports clubs were based
on real prices, but they did not consider financial variables.

The present study is relevant because it is based on real price transactions and

information from financial statements. This facilitates studying the objectives of the new

clubs’ owners, and an analysis of the economic rationality of their investments in

European football clubs. This issue has not been previously studied. The results of this

paper are relevant because if new owners are investing in football clubs under economic

parameters and in order to maximise profit, a governance problem would arise. The first

conflict would appear between fans and local communities who had objectives different

from those of the clubs’ new owners. Another conflict would arise with the current

pyramid competition system, given that new investors would prefer a closed system as in

North America.

The rest of the paper is organised as follows. First, it introduces an analysis of the

differences between the valuation of (1) assets linked to emotional rewards as pieces of

art, and (2) financial investments in firms. Second, we review the previous literature about

football clubs' valuation. Next, data analysis is presented which describes the models and

the variables studied. The results obtained are discussed, and, finally, conclusions and

practical implications are presented.

Valuations based on emotional rewards vs financial returns

An old debate exists about the objectives of sports clubs. Some authors, such as El-Hodiri

and Quirk (1971), Fort and Quirk (1995), Vrooman (1995), and Feess and Stähler (2009),
4
have assumed that clubs’ owners aim to maximise capital invested, as in any other

industry. Other authors, such as Szymanski and Kuypers (1999), Morrow (1999), Gerrard

and Dobson (2000), Késenne (2006), Zimbalist (2003), and Ascari and Gagnepain (2006),

have assumed that clubs’ owners look for other non-monetary motivations, usually

emotional rewards that are linked to sporting success. Sanchez et al. (2017) revealed a

new possibility pointing out that the objective of the clubs would depend on the identity

of owners. In this way, some owners would buy a club to obtain profitability from their

investments while others would buy it to obtain emotional satisfaction.

Depending on the aim of buying football clubs’ shares, the valuation of the club

should be different. If the buyer expects financial profitability, the valuation of the equity

would depend on economic factors, as is the case with most investments. If the buyer

expects an emotional reward, the valuation would depend on their personal preferences

as in the case of the art market. Art buyers are examples of agents that do not follow the

behavior in the rational utility theorem, as Schoemaker (1982) and Machina (1987) have

explained.

Investing in art provides low profitability with a high risk (Anderson, 1974;

Agnello & Pierce, 1996; Marinelli & Palomba, 2011; Worthington & Higgs, 2004). For

this reason, Baumol (1986) labelled the art market as a floating crap game. Candela et al.

(2004) maintain that art buyers face uncertainty in the accuracy of the pricing because the

quality is based on aesthetic judgements. These subjective judgements could move prices

depending on art fads among collectors (Buelens & Ginsburg, 1993) or art experts

(Becket & Rössel, 2013). In this way, returns in art markets will depend on future tastes

5
(Chanel et al., 1994), and art investors should thus expect to reap emotional benefits,

rather than high financial returns (Renneboog & Spaenjers, 2013).

In particular, the aesthetic benefit is part of the utility of owning an artwork (Frey

& Eichenb, 1995). Karpik (2010) designated the art market to be one of singular goods

because each is different, and is appreciated differently by each buyer. This could be

applied to football clubs because fans would be interested only in investing in their club,

but not in others.

In cases where the objective of the clubs’ owner would be to obtain economic

returns on their investment, the price paid would be based on financial data, as in most

industries. The most common valuation methods take into account the profitability of the

firms, such as the use of multiples like the price earnings ratio (PER), or the ability to

generate cash flows in the future—discounted cash-flow (DFC) (Kaplan & Ruback, 1995;

Demiakos et al. 2004; Penman & Sougiannis 1998).

Although a firm's valuation is usually linked to its ability to bring cash back to the

investors, cases of companies with a low or negative profitability, but a high valuation,

can be found beyond the football industry. In this way, investing in low-profit industries

is not a sign of not seeking profit, as was indicated by Leah and Szymanski (2015). What

is relevant is not the current profitability, but the potential to generate cash flows in the

future. This is the case of the technology industry where companies are usually considered

overvalued according to traditional earnings ratios (Barlett, 2016; Gompes et al. 2019).

This overvaluation does not mean a lack of financial rationality, unlike in the art

market. In this way, these valuations follow the utility theorem which requires higher

6
returns for greater perceived risk, as Manigart et al. (1997) and Pintado et al. (2007) have

pointed out. Schultz and Zaman (2001) found that individuals investing in Internet firms

really do not think that they are overvalued, although valuations can be considered

optimistic. Schwartz and Moon (2000) noticed that if sales growth rates are high,

valuations can appear abnormally high for the multipliers used. Similarly, Cuming and

McIntosh (2000) noticed that investors in private companies showed strong trust in their

own valuation capabilities. Specifically, the profit-oriented investors paid higher prices

than those with strategic motivations (Röhm et al., 2018). For all this, the valuation of

firms in overvalued industries is not estimated using earnings ratios or cash flow

discounts, but depends on other variables, such as book value (Aggarwal et al., 2009;

Collins et al., 1999) or revenues (Davila & Foster, 2005; Davis, 2002; Sievers et al.,

2013). Thus, the valuation of firms is not homogenous, and depends on the particularities

of the industry and the firms' stage in the business lifecycle.

Football Clubs' Valuation

Previous research on football clubs’ market value was focussed on listed clubs. In the

1980s, English clubs were pioneers in listing their shares on the stock market. Although

it would be thought that clubs could become profit-oriented, Leach and Szymansky

(2015) do not find any variation in the clubs' objectives. It is difficult to know the

motivations of each individual shareholder, but some facts point indicate that fans saw

the Initial Public Offering (IPO) of the clubs as an opportunity to become owners. Morrow

(2003) indicated that the illiquidity of club shares was a sign of the inexistence of real

financial investment, and the presence of fans in the capital of the club. Fans would not
7
be interested in selling their shares whatever happened, unlike financial investors,

because they were more interested in a long-term relationship with the club. Another sign

of the existence of a relation between the evolution of the price of the club shares and the

sporting performance was found by Benkraeiem et al. (2009), Berument et al. (2009), and

Bell et al. (2012). Moreover, Zuber et al. (2005), Gannon et al. (2006), and Tiscini and

Dello Strologo (2016) did not find that financial performance influenced share prices,

unlike in other industries.

Fans do not take into account financial information in their investment decision

making (Zuber et al., 2005), and for this reason, emotions can lead to changes in the share

prices (Demir & Rigoni, 2017). This leads them to consider that emotional benefits should

be used to explain the value of football clubs. This emotional motivation was confirmed

by a survey between actual and potential investors conducted by Huth (2019). Prigge and

Tegtmeir (2019) studied the market valuation and risk of listed football clubs, and

confirmed that they are overvalued according to CAPM. This is analogous to the art

market where buyers do not follow economic rationality.

The listing of football clubs allowed fans to become shareholders with only a few

shares. However, the ownership of European football clubs has changed dramatically.

Currently, only six clubs in the Big 5 leagues out of 98 clubs are listed in stock markets,

and the percentage of capital traded in those six clubs is low. In this way, the market value

of these traded shares cannot be considered as representative of the industry.

Sanchez et al. (2020a) described this transformation in detail with regard to the

ownership of Big 5 leagues. If local celebrities controlled English clubs, and fans bought
8
shares when clubs were listed in the eighties, most of the clubs in the Premier League

currently have foreign owners, and all of them have concentrated ownership. French

football clubs were controlled by fans through member associations in the past.

Nowadays, more than 80% of them have concentrated ownership, and 30% a foreign

owner. If the Spanish football clubs that are companies – which excludes Real Madrid,

Barcelona, and Athletic Club de Bilbao – traded their shares in the stock exchange,

thousands of fans would buy the shares of their clubs. However, half of the Spanish clubs

are controlled by investors currently with concentrated ownership, and many of them are

foreigners. Although Italian clubs were historically associated with local businessmen,

now 20% of the clubs are currently owned by foreigners. Even in the German Bundesliga,

more than 20% of the clubs have a majority owner when all of them were member

associations a few years ago. This process of concentration in ownership is similar in

other industries where investors see an undervaluation of the firms, and they want to catch

all the potential profitability as Weir et al. (2005) and Renneboog et al. (2007) have

pointed out.

This concentration process has brought a new kind of investor into European

football, as institutional investors have withdrawn from listed English football clubs

(Wilson et al., 2013). Prigge and Tegtmeier (2020) distinguished between three kinds of

non-financial investors in football-clubs. These are: strategic investors investing in

football clubs to deepen their relationship with them, as in the case of German clubs as

described by Bühler (2006). Patron investors or sugar daddies are shareholders who

behave as non-profit seeking investors (Andreff, 2007). A third type would be fans

9
participating in ownership of football clubs in the way that Sanchez et al. (2020a) have

described. However, financial investors have not disappeared from football, and many

clubs have been bought by venture capitalist and investment funds. Table 1 shows the

percentage of clubs in 2017/18 with different types of ownership by each of the big

leagues.

INSERT TABLE 1 AROUND HERE

The majority shareholders obtain profits selling control of the clubs, as Fort (2006)

demonstrated in the case of baseball. For instance, the money invested by David Dean in

Arsenal’s shares was branded dead money by the former club chairman Peter Hill-Wood

as if it were akin to the purchase of a luxury car or a piece of art (Moore, 2006). However,

it was a very profitable investment when Dean sold the shares to a foreign investor with

a return of more than 2.56 times. The positive influence of the investment in European

football clubs in the stock prices of Chinese companies observed by Chen et al. (2019)

could point out that investors are looking for profitability instead of emotional benefits as

indicated by previous research.

Previous studies about the valuation of non-listed football clubs were based on

Forbes estimations. Scelles et al. (2013), discovered a relationship between Forbes

valuations and the clubs’ revenues, their sports performance, the domestic competition,

and the size of the population of clubs’ cities. In a subsequent study, Scelles et al. (2016)

noticed that operating income also influenced Forbes' valuations. However, important

differences have been detected between Forbes' estimations of clubs’ value and the price

of real clubs’ transactions as Fort (2006) and Humphrey and Mondello (2008) detected.
10
For this reason, the estimations and Forbes valuations should be treated with caution

because they could provide a better acknowledgement of the methodology of the

magazine but not about the actual clubs’ value.

For this reason, this paper will take into account the actual prices, instead of the

estimations from Forbes as previous works have done. Given that most of football clubs

have been unlisted, the only data about actual market value comes from sales transactions

of shares out of the stock market. On the other hand, Humphreys and Lee (2010) and

Humphreys and Mondello (2008) studied the characteristics of North American clubs

with influence in the real transaction prices, such as local market or facilities, but they did

not include financial data among the independent variables. The present paper not only

includes real transaction prices, but also analyses the influence of the club's financial

situation. This allows us to better explain the clubs’ valuation, and to identify the

motivations of the takeovers as we detailed previously.

Data Analysis

Sample

The present work focusses on the transactions of the shares of clubs from the Big5 leagues

from 2001 until 2019. Our sample is a unique hand-collected dataset that includes the 61

corporate transactions where the price was made public. The source of the data are the

different newspapers and press agencies that reported the transactions (see Annex 1).

Given accounting harmonisation thanks to European Union Regulation No 1606/2002,

11
we believe that there are not significant differences between clubs’ accounts at the level

of detail of the data used.

The English Premier League has been the most active market with 44.3% of the

operations, while only 8.2% of the trades were from Bundesliga clubs. The rest of the

transactions had their origin in Spanish La Liga (18%), French Ligue 1 (16.4%), and

Italian Serie A (13.1%). Most of the transactions (61.7%) were takeovers to obtain

majority control of the clubs. New shareholders joined the club by the issue of new shares

in 21.7% of the cases. During this period, the presence of foreign investors in Big5

leagues had increased as 70% of the buyers were foreigners while 70% of the sellers were

from the country of the club. It is worth remarking that in the case of the Bundesliga, all

transactions were among Germans, and there were no foreign investors.

The English Premier League featured more transactions including foreigners with

81% of the buyers being foreign. The rest of the competitions also presented an important

rise in foreign investors as in the case of the French Ligue 1 (78%), Italian Serie A (75%),

and Spanish La Liga (73%). Obviously, all of these new foreign owners did not have any

emotional link with the clubs. In the case of the rest of the investors, we cannot rule out

that many of them also had no link. The transactions of our sample are the cause of the

change in the landscape of the ownership of European football with more concentrated

ownership, and the emergence of foreigner owners, as explained by Sanchez et al.

(2020a). Table 2 presents all the transactions of a relevant number of shares in the Big5

leagues from 2000 until 2019.

INSERT TABLE 2 AROUND HERE

12
Description of the models and variables

The study performs analysis using Ordinary Least Squared (OLS) regression on the

market value (MV) of the Big5 leagues clubs, based on the price in the transactions of big

packages of football clubs' shares since 2000. The price is expressed in Euros and adjusted

for inflation. The following models includes clubs’ financial characteristics and other

variables chosen according to previous literature. It is important to remark that to avoid

endogeneity, lagged values are used for the variables with financial information. The

same is applied to variables related to sporting performance. Given that residual errors of

the model do not follow a normal distribution; we use variables in logarithm values.

Ln MVit = β0 + β1 ln NPit-1 + β2 ln BVit-1 + β3 ln POPit + β4 STAit + (1)

β5 ln LEAit-1 + β6 ln REVit-1 + + β7 ln GDPit-1 + Years Dummies + ɛit

Profitability can be one of the drivers for the market value of the firms, and it can

be measured in different ways, such as cash flow, operating income, or net profit. Given

the strong relationship among all these measures (Bowen et al. 1986; Dechow et al. 1988),

net profit (NP) has been chosen for its simplicity given the heterogeneity of the sample.

However, this is not the main financial variable in all cases that explains the value of a

club. In addition, investors are interested in the expected return, and for that reason,

historical financial performance may not be a good explanatory variable.

On the other hand, when a market is not mature, great growth is expected and

many firms may not obtain profits until the current moment. This is the case with

technological and dot-com companies, as was explained previously. These companies

13
had a strategy of winner-take-all-the-market, where one of the main variables used to

value them was the revenue because it is supposed that only the companies with clear

leadership in the market will survive. Sanchez et al. (2019) noticed the similarities

between European football and fast growth industries. First, since the 1990s, income from

TV rights has grown by 85.5%. Moreover, this increase is concentrated in a decreasing

number of clubs resulting in a possible endgame of winner-takes-all, like the dot-com

industry. For these reasons, revenues (REV) are included as a variable to study their

influence in market value following previous research in other industries (Davis 2002;

Davila and Foster 2005; Sievers et al., 2013).

If revenues are the most relevant variable in the valuation of a football club, we

considered the introduction of potential revenues to be necessary because new owners

would try to increase them. Some variables have been introduced as proxies of these

potential revenues. The population of local market has been included as a proxy of the

potential revenues from stadium. TV rights depend on deals by domestic leagues; for this

reason, a variable about the strength of the league in which the club plays has been

introduced. The capacity of commercial revenues depends on sporting success

(introduced as a variable), the visibility of domestic competition (also introduced as

variable), and local market (proxied by population). All of these are outlined below.

Book value of the equity (BV) is a firm’s net asset value found on its balance

sheet. This variable has also been used in research on the valuation of technology firms,

as was previously described (Aggarwal et al., 2009; Collins et al., 1999). The football

industry presents some similarities with technological and innovative industries with

14
strong growth and market transformation, such as globalisation, new competitions, and

innovation in streaming models. The influence of the capital structure in firms’ value has

been widely studied. Empirical studies have produced mixed results such as Fama and

French (1998), Davis et al. (2005), and Chen and Zao (2006). Myers (2001) pointed out

that the influence would not be universal depending of previous leverage, industry, and

economic cycle. In order to study their influence in football clubs, debt ratio

(LEVERAGE) has been introduced in the models studied. All financial data comes from

the financial statements made public by the clubs.

Regarding non-financial variables, Humphreys and Mondello (2008) found a

positive relationship between North American clubs' price in transmissions and the

population (POP) in the club area and the ownership of the stadium (STA). This last

variable is a dummy that takes the value 1 if the club owns the stadium and 0 otherwise.

Both variables were also used in most of the previous studies with Forbes estimations.

These authors found that the market value also varied depending on the competition. In

the present paper, all clubs analysed are from the same sport, but are taking part in

different domestic leagues. For this reason, a variable measuring the strength of each

competition is included (LEG). This variable is measured using the UEFA coefficient of

the league where each club plays. We introduce the economic situation of the country at

the time of the transactions with the variable of GDP per capita (GDP). The economic

situation at the national level is more relevant than that of the local level, given most of

the revenues come from national deals of TV rights and commercial arrangements, as

Sanchez et al. (2019) have shown.

15
 The value of customers is the most important factor for a firm’s valuation in high

growth industries with negative earnings (Gupta et a. 2004), given the winner-takes-all

strategy in these industries. In this way, the number of customers or the size of the

revenues can hide other variables influencing the firm's value. Table 3 shows that this

could happen in our sample, given the correlation between market value and revenues.

For this reason, we introduce additional models with a relative measure, ratio market

value to sales (MVtoS), instead of the absolute value of the market value. The MVtoS

variable follows a normal distribution, and the errors of the models present also follow a

normal distribution.

The omission of the variable ‘revenues’ allows us to introduce variables relating

to sports performance due to the strong relationship between both variables (Arnold,

1991; Szymansky &Kuipers, 1999). Scelles et al. (2016) showed that Forbes’ estimations

of European football clubs’ value are positively related to their sports performance and

players’ value. We introduced similar variables, including recent national sporting

performance (NATSP), measured as the percentage of league points with respect to the

maximum possible, and historical national record (NATHIS), measured as the number of

league and cup titles. Given the relationship between players’ value, nationality, and

continental sporting performance as Table 3 shows, other models are presented. One

model includes recent UEFA competitions performance (UEFSP), based on a UEFA

coefficient used in establishing of seed clubs, and historical UEFA competitions record

(UEFHIS), based on historic coefficient of titles won used as bonus in sharing of money

prize by UEFA. Sporting performance is measured homogenously at national and

16
continental level. A measure combining both would need to introduce a subjective weight

between both performances. Moreover, there is a strong relationship between domestic

and continental success. Table 3 shows that the correlation between continental and

national performance is greater than 75%. For this reason, we decided not to use a

combination of both. Another model with players' value (PLAY) based on Transfermarket

data has also introduced to the study the influence of squad quality.

MVtoSit = β0 + β1 NPit-1 + β2 BVit-1 + β3 POPit + β4 STAit + β5 LEAit-1

+ β6 GDPit + β7 UEFSP it-1 + β8 UEFHIS it-1 + Years Dummies + ɛit (2)

MVtoSit = β0 + β1 NPit-1 + β2 BVit-1 + β3 POPit + β4 STAit + β5 LEAit-1

+ β6 GDPit + β7 NATSP it-1 + β8 NATHIS it-1 + Years Dummies + ɛit (3)

MVtoSit = β0 + β1 NP it-1 + β2 BV it-1 + β3 POP it + β4 STA it + β5 LEA it-1

(4)
+ β6 GDP it + β7 PLAY it-1 + Years Dummies + ɛit

Although all the clubs included in the sample belong to the biggest leagues, they

are very different according to financial data and sporting performance, as can be seen in

Table 4.

INSERT TABLE 3 AROUND HERE

INSERT TABLE 4 AROUND HERE

17
Results

The results, presented in Table 5, show that two financial variables have a significant

influence on the market value: revenue and book values. All the models have an overall

statistical significance and a relevant coefficient of determination. The influence of

revenues in the market value also can be found in other winner-takes-all industries where

future success can be conditioned on size. This is the case with Internet industries where,

with many start-up companies competing, only the first ones will get a dominant position

in the market. A market-share as big as possible is determinant of survival in an industry

where only a few corporations will remain. Moreover, it has to be considered that in the

football industry only a few clubs have a global impact.

We have to remark that due to the fact that the number of acquisitions of clubs is

limited, the number of observations is low (only 60), and the model could be considered

overfitted mainly when the year dummies are included. In order to understand whether

we have this problem, we have run the regression using decade dummies instead of years,

thus increasing the degree of freedom, and the results remain similar (see model

‘Variables Reduced’ in the second column in the Annex 2).

INSERT TABLE 5 AROUND HERE

This situation is different in American sports competitions where the leagues

control the market, and the new members are decided by the existing ones in a system of

franchises. European football has an open system with competitions organised by leagues,

18
national federations, and UEFA. Participation in these competitions depends on previous

sporting performance. In practice, however, a reduced group of clubs has been

monopolising the competition in recent seasons. This is an effect of the increasing

difference of the financial capacity between the European clubs, as Sanchez et al. (2019)

have described. The relevance of revenues justified the use of the relative variable ‘market

value to sales’ in the other three models presented in Table 6.

The book value of equity represents a significant influence in all models. This

happens regardless of whether we use market value as an absolute measure or in relation

to revenues. The objective of equity in the balance sheet is to show the theoretical value

according to accounting standards. The strong relation between book and market value

shows that investors take financial statements as a relevant signal of market value as it

happens in other industries. This result shows economic rationality given that the

valuation of football clubs can be estimated by taking objective financial figures instead

of value being related to personal preferences.

On the other hand, earnings do not influence the market value of football clubs.

This may represent another signal that investors consider football to be an emerging

industry, where position in the market is more important than the current profitability or

knowing future earnings. In this way, poor profitability – and even losses – are not

significant for the financial evolution of the firm, if there is the expectation of future cash

flows. This is common to fast-changing industries, such as technology, where investors

prefer low profitability firms with the potential strength to control the market, rather than

companies with earnings. The Internet industry contains different examples of

19
investments in companies with losses that have lately consolidated their position in the

market, consequently providing big profitability. This is consistent with the studies of

Barlett (2016), Gompes et al. (2019), and Scwartz and Moon (2020) about growing non-

sport industries with poor profitability. This also shows the economic rationality of the

valuation of football clubs in the transactions studied, unlike with pieces of art that are

valued according to emotional motivations.

Results show a positive influence of the level of debt in the price paid in the

purchase of football clubs. A possible explanation for this relationship could be based on

the monitoring of clubs' management by debt-holders, as explained by Harris and Raviv

(1990). Given that in the case of an acquisition, there is an asymmetrical information

distributed between the buyers and the seller, the existence of debt-holders whose have

been previously monitoring the management reduces this asymmetry.

A control premium could be expected to be paid when the buyers are acquiring a

certain percentage of the shares, or when they take over the company. To check if this is

the case in the acquisitions of European football clubs, we have included two additional

models in the Annex 2. Model (3) in the Annex 2 includes the percentage bought, and

model (4) includes a dummy variable if the acquisition implies a takeover. The results of

both the variables are not significant.

INSERT TABLE 6 AROUND HERE

Regarding the non-financial variables, the league where a club participates

influences market value as an absolute variable and as relative to sales. In this way,

20
investors pay more for those clubs playing in the strongest leagues. The importance of

the domestic league indicates that buyers not only invest in a club, but also in participation

in a domestic league. The league's capacity for income generation helps the financial

viability of a club with regard to the sharing of TV revenues and the attraction of sponsors.

The GDP per capita of the year and country of the transactions also influences the price

paid for the investors in market value as an absolute variable and as relative to sales.

Investments in the football industry depend on the economic landscape, as with other

industries.

Previous research confirmed the influence of sports performance on clubs’ market

value. Our results show that their importance is reduced when financial data is considered,

unlike in previous studies. The previous season's sporting performance does not influence

the value of the clubs. In this way, short-term sporting performance and squad value do

not modify valuation in the football industry. On the other hand, international historic

sporting performance has some influence on clubs’ value. This performance has an

important role in building the club brand, the international reputation, and the evolution

of a broad fan base. These elements can be relevant for the business, and cannot be

achieved in the short term.

The remaining non-financial variables do not show any influence on the market

value of football clubs. The population in the influence area and the ownership of the

stadium do not seem to be considered in the acquisition of a football club. This result is

different from previous studies of the valuation of clubs in American sports. A reasonable

explanation could be that those studies do not consider financial variables omitting data

21
that the present paper shows as relevant. In this way, the size of the local market seems

not important for the buyers because the importance of the revenues from the stadium is

reducing with respect to income from TV or merchandise from international consumers,

as Sanchez et al. (2019) showed. Moreover, the stadium, despite to be an asset, seems

less important in the valuation of football clubs than historic sports performance.

Conclusions

As investors are profit-seekers, the valuation of firms in takeovers is given by the capacity

to turn profits from their investment. The objective of football club owners depends on

their personal traits because different owners can have different objectives. Traditionally,

club owners had strong ties with the clubs, and their investments were related to social

responsibility within the club area, or emotional reward. These motivations have

commonly been the reason for the poor financial results of the clubs. However, a new

kind of owner has emerged in the football industry without ties to the clubs, and in many

cases with investments in other sports, as in 14 of the 61 transactions of our sample. This

profile of investors may be identified as profit-seeking.

A way to grasp the motivations of this new kind of owner is to understand which

factors better explain the value of football clubs. If the assessment has a subjective

approach, as in the case of the art market, the valuation would not be related to the

financial value of the football clubs. The low profitability of the industry should not be

considered as a sign of no profit-seekers, because it is common to other industries with

high growth and rapid changes, such as in the case of technological firms. In this kind of

22
industry, the market valuations of firms are supported in financial variables, although not

the earnings, together with the intangible capital of the companies.

The results of the paper show the importance of the financial variables in the real

prices of transactions, as they occur in studies about firms’ value in non-sporting

industries. They also show the importance of the financial variables in the real prices of

transactions as it occurs in studies on firms’ value in non-sport industries (Collins et al.

1999; Davis, 2002; Sievers et al., 2013). We can conclude that economic rationality exists

in the valuation of football clubs in the cases of the acquisition of relatively big packets

of shares in the last two decades. There are financial variables, such as book value and

revenues, influencing the price paid by investors. In this way, the football industry is

similar to other fast-growth industries.

For this reason, we can establish some practical implications, given that we detect

that new owners are seeking an economic return, in a similar way to the case of American

sports, instead of emotional rewards. First, this can affect the relationship of the football

clubs with their stakeholders as fans or local communities. Giving that financial and

sporting performance are not related, as Sanchez et al. (2020b) found, profit-seeking

owners would clash with the interests of those stakeholders. Second, these new owners

would prefer the establishment of a competition with less variability of the revenues, in

order to obtain better profitability and reduced financial risks. This can create differences

with the current organisers of domestic leagues or UEFA. The ever-increasing power of

the new investors in football is a challenge to the current governance system. The ‘Big

Picture’ project, where not all the Premier League clubs had the same rights, or the failed

23
project of European Superleague, revealed these investors' interest in replicating the

American sports system

Third, football governing bodies and public administrations should watch the

change of ownership in football clubs. The presence of venture investors can lead to the

taking of elevated risks to obtain higher returns, as happens in other fast-changing

industries. This not only endangers the club they bought, but also the rest of the clubs.

For this reason, the acquisition of football clubs should be controlled in a similar way that

regulators control the takeovers of banks and financial institutions.

These results suggest the possibility of further studies about methods of valuation

for the clubs that are more accurate and transparent. This will be especially important to

protect small shareholders when control ones carry out equity transactions. Further

research could investigate the differences between the valuations of big and small

shareholders. One of the limitations of our work is that the sample only includes

observations in certain moments, but not their evolution over time. In this way, we could

not perform a panel data analysis which could provide better results. The repeat sales

method from Humphreys and Lee (2010) could not be used given that the period of our

sample is shorter, and the number of repeat sales is very low. Future research could

address these problems. Other limitation of the study is that there are few listed clubs. In

the future when more cases appear, the different behaviour between public and private

owned clubs would present an interest line of research.

24
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Table 1. Distribution of ownership in Big 5 leagues

Premier La Liga Bundesliga Serie A Ligue 1

League
Foreign Majority Owner 65% 20% 6% 20% 35%
Domestic Majority Owner 35% 30% 17% 80% 50%
Dispersed Capital 35% 61% 15%
Member Association 15% 17%
Source: Own elaboration.

Table 1. Transactions included in the sample

Transact. in
Buyer Seller Corporate Percentage constant
Club League Year Buyer
Nationality Nationality Operation 1 of capital Euros
(millions)
Capital
Bayern Munich Bundesliga 2009 National Audi National 9,1% 102.2
Increase
Capital
Bayern Munich Bundesliga 2014 National Allianz National 8,8% 114.3
Increase
Capital
Borussia Bundesliga 2014 National Evonik National 9,0% 28.1
Increase
Klaus-
Capital
HSV Bundesliga 2015 National Michael National 7,5% 19.5
Increase
Kühne
Klaus-
Capital
HSV Bundesliga 2016 National Michael National 3,5% 9.6
Increase
Kühne
Atlético de Capital
Liga 2015 Foreigner Wanda National 20,0% 46.8
Madrid Increase
Atlético de Quantum Capital
Liga 2017 Foreigner National 15.0% 51.4
Madrid Pacific Increase
Atlético de
Liga 2018 Foreigner Idan Ofer National Minority 18.0% 50.8
Madrid
Carlos
Celta de Vigo Liga 2006 National National Takeover 39.0% 6.1
Mouriño
Carlos
Celta de Vigo Liga 2014 National National Takeover 24.0% 5.7
Mouriño
Espanyol Liga 2015 Foreigner Restar Group National Takeover 56.0% 18.7
Wuhan
Granada Liga 2016 Foreigner Foreigner Takeover 100.0% 38.5
Doublle
Abdullah Al-
Málaga FC Liga 2010 Foreigner National Takeover 100.0% 11.8
Thani
Sevillistas
Sevilla Liga 2018 National National Minority 5.8% 10.15
Unidos 2020
Valencia CF Liga 2014 Foreigner Peter Lim National Takeover 70.4% 103.9
Ronaldo
Valladolid Liga 2018 Foreigner National Takeover 51.0% 30.5
Nazario

1 Takeover is an operation where the buyer controls the most of the capital or increases it.

33
Girondins
Ligue 1 2018 Foreigner GACP National Takeover 100.0% 76.1
Bourdeaux
Lille Ligue 1 2017 National Gerard Lopez National Takeover 95.0% 82.3
Nice Ligue 1 2016 Foreigner Alex Zheng National Takeover 80.0% 11.4
Nice Ligue 1 2019 Foreigner Ineos Foreigner Takeover 100% 100
Capital
O. Lyonnais Ligue 1 2007 National IPO National 28.0% 104.7
Increase
IDG Capital Capital
O. Lyonnais Ligue 1 2016 Foreigner National 20.0% 104.0
Partners Increase
Frank
O. Marseille Ligue 1 2016 Foreigner National Takeover 95.0% 46.8
McCourt
PSG Ligue 1 2006 Foreigner Colony Funds National Takeover 100.0% 49.7
PSG Ligue 1 2011 Foreigner QSI Foreigner Takeover 70.0% 55.0
PSG Ligue 1 2012 Foreigner QSI Foreigner Takeover 30.0% 32.1
Stan
Arsenal Premier 2018 Foreigner Foreigner Takeover 30.0% 634.5
Kroenke’s
Aston Villa Premier 2006 Foreigner Randy Lerner National Takeover 56.9% 75.9
Aston Villa Premier 2016 Foreigner Tony Xia Foreigner Takeover 100.0% 70.2
Birmingham Carson
Premier 2009 Foreigner National Delisted 100.0% 104.0
City Yeung
Blackburn Venky's
Premier 2010 Foreigner National Takeover 100.0% 30.1
Rovers London Ltd
Bolton Capital
Premier 2003 National Eddie Davies National 64.8% 4.2
Wanderers Increase
Chelsea Premier 2003 Foreigner Abramovich National Takeover 100.0% 262.9
General
Sports and
Derby County Premier 2008 Foreigner National Takeover 100.0% 28.9
Entertainment
(GSE)
Fulham Premier 2013 Foreigner Shahid Khan National Takeover 100.0% 246.3
Liverpool Premier 2007 Foreigner Hicks National Takeover 100.0% 304.7
Liverpool Premier 2010 Foreigner NESV Foreigner Takeover 100.0% 392.5
Manchester Thaksin
Premier 2007 Foreigner National Delisted 100.0% 142.8
City Shinawatra
Manchester Abu Dhabi
Premier 2008 Foreigner Foreigner Takeover 100.0% 336.6
City United Group
Manchester China Media
Premier 2015 Foreigner Foreigner Minority 13.0% 312.3
City Capital
Manchester Capital
Premier 2019 Foreigner Silver Lake Foreigner 10.0% 454.0
City Increase
Manchester
Premier 2005 Foreigner Glazer family National Delisted 100.0% 1459.8
United
Manchester
Premier 2012 Foreigner IPO Foreigner IPO 10.0% 189.7
United
Newcastle Utd Premier 2007 National Mike Ashley National Delisted 100.0% 229.3
Alexandre
Portsmouth Premier 2006 Foreigner Foreigner Takeover 50.0% 57.1
Gaydamak
QPR Premier 2011 Foreigner Tune Group National Takeover 66.0% 44.3
Lander Sports
Southampton Premier 2017 Foreigner Foreigner Takeover 80.0% 245.5
Development
Steve Kaplan
Swansea City Premier 2016 Foreigner and Jason National Takeover 60.0% 139.5
Levien
West Yunyi
Premier 2016 Foreigner National Takeover 100.0% 184.1
Bromwich Guokai
West Ham Premier 2006 Foreigner WH Holding National Takeover 100.0% 151.6
David
West Ham Premier 2010 National Sullivan and Foreigner Takeover 50.0% 68.7
David Gold
34
 David
West Ham Premier 2010 National Sullivan and Foreigner Minority 3.8% 4.6
David Gold
David
West Ham Premier 2013 National Sullivan and Foreigner Takeover 26.2% 31.3
David Gold
AC Milan Serie A 2017 Foreigner Li Yonghong National Takeover 100.0% 761.3
Elliott
AC Milan Serie A 2018 Foreigner Foreigner Takeover 100.0% 355.3
Management,
Thomas Di
AS Roma Serie A 2011 Foreigner National Takeover 67.0% 77.4
Benedetto
Capital
Inter Milan Serie A 2013 Foreigner Erick Thohir National 70.0% 314.4
Increase
Suning
Inter Milan Serie A 2016 Foreigner Holdings Foreigner Takeover 68.5% 280.8
Group
Inter Milan Serie A 2019 Foreigner Lion Rock Foreigner Takeover 31.5% 150.0
Juventus Serie A 2001 National IPO National IPO 24.0% 142.1
Claudio Capital
Lazio Serie A 2004 National National 27.0% 26.7
Lotito Increase
Source: Own elaboration from media (see summary in Annex 1)

35
 Table 3. Variables correlation

Variables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
(1) MV 1.000
(2) MVtoSALES 0.798 1.000
(3) REV 0.856 0.612 1.000
(4) NP 0.342 0.262 0.442 1.000
(5) BV 0.841 0.565 0.811 0.300 1.000
(6) POP 0.061 -0.073 0.050 -0.026 0.321 1.000
(7) STA -0.006 0.033 -0.054 0.202 0.101 0.118 1.000
(8) LEA 0.047 0.109 0.005 0.121 0.061 -0.079 0.302 1.000
(9) GDP 0.116 0.405 0.110 0.079 0.037 -0.092 -0.019 -0.145 1.000
(10) LEVERAGE -0.259 -0.156 -0.499 -0.196 -0.348 -0.024 0.088 0.088 -0.103 1.000
(11) NATHIS 0.527 0.399 0.541 0.225 0.642 0.280 0.036 0.091 -0.066 -0.334 1.000
(12) NATSP 0.374 0.268 0.313 0.061 0.649 0.356 0.071 -0.121 -0.097 -0.281 0.481 1.000
(13) UEFHIS 0.406 0.215 0.471 0.287 0.631 0.293 0.242 0.284 -0.120 -0.300 0.694 0.494 1.000
(14) UEFSP 0.192 0.176 0.082 -0.251 0.438 0.351 0.028 -0.039 -0.113 -0.128 0.313 0.753 0.210 1.000
(15) PLAY 0.796 0.525 0.664 0.273 0.847 0.170 0.019 0.206 -0.077 -0.269 0.601 0.542 0.624 0.305 1.000

36
Table 4. Descriptive statistics

Variable Meaning Mean Sd Min Max

MV* Market Value 417.803 735.343 6.518 4540
MVtoS Market Value to Sales 1.927 1.521 .091 7.953
NP *, † Net Profit 376.22 201.294 55.85 1307.61
BV *, † Book Value 194.616 32.518 72.085 277.108
REV * Revenues 160.622 128.091 10.152 570.857
POP ‡ Market Size 5.082 4.161 .3 17.9
STA Stadium .525 .504 0 1
LEA League 74.116 15.409 50.781 106.998
GDP ⁑ GDP per capita 29.871 4.631 22.21 54.85
LEVERAGE Liabilities to Assets .999 .705 .227 5.016
NATSP Domestic Sport Performance .52 .15 .265 .892
NATHIS Historic Domestic Sport Performance 11.508 10.176 0 39
UEFSP Continental Sport Performance 6.016 9.302 0 33
UEFHIS Continental Historic Sport Performance 4.607 7.749 0 30
PLAY* Squad Value 205.909 179.335 27.2 1010
* In millions of 2019 constant Euros.
†
Scaling to avoid negative values.
‡
In millions of inhabitants.
⁑
In thousands of Euros.
Source: Own elaboration

37
Table 2. Output of the regressions explaining Market Value

(1)
VARIABLES lnmv

lnREV 1.150***
(0.164)
lnNP -0.479
(0.537)
lnBV 0.955**
(0.402)
lnPOP -0.0353
(0.128)
sta 0.0498
(0.212)
lnLEA 1.348**
(0.539)
lnGDP 1.819***
(0.588)
LEVERAGE 0.279
(0.196)
Constant -24.06***
(7.390)
Year dummies Yes
Observations 61
R-squared 0.897
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
 Table 3. Output of the regressions explaining Market-Value-to-Sales

(1) (2) (3)

VARIABLES pricetosales pricetosales pricetosales

NP -0.00333 0.00110 -0.00363

(0.00446) (0.00456) (0.00437)
BV 0.00498*** 0.00524*** 0.00448***
(0.000870) (0.000760) (0.00115)
POP -0.0167 -0.0147 -0.0140
(0.0342) (0.0331) (0.0332)
STA -0.109 -0.0430 -0.114
(0.271) (0.254) (0.274)
LEA 0.0315*** 0.0321*** 0.0283***
(0.0105) (0.00939) (0.0100)
GDP 0.126*** 0.122*** 0.129***
(0.0255) (0.0237) (0.0269)
LEVERAGE 0.459** 0.485** 0.394*
(0.217) (0.200) (0.215)
NATHIS 0.0140
(0.0160)
NATSP 0.0518
(1.143)
UEFHIS 0.0371**
(0.0166)
UEFSP -0.0209
(0.0163)
PLAY 0.00110
(0.00136)
Constant -4.899** -5.636*** -4.247***
(1.801) (1.571) (1.545)

Year dummies Yes Yes Yes

Observations 61 61 61
R-squared 0.840 0.863 0.839
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

2
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