“I’m a Manchester United supporter and I found the idea of buying stock in the club really novel,” said Hsu, the 36-year-old assistant English professor at Vassar College in Poughkeepsie, NY, in the US.
The club’s public debut gave millions of footie fans a chance to experience what it feels like to “own a piece the club they support," Hsu said. “I’ve always been fascinated by how we find and forge our allegiances, particularly at a time when clubs like Man United aspire for global reach.”
Almost two years since — and despite the club’s poor performance both on the pitch and on the stock exchange (it’s trading at $17.50 per share) — Hsu still holds 20 shares for their “aspirational significance to United supporters.”
While few expect to retire on the returns from a sports franchise investment, buying a full or fractional ownership can give fans a way to invest in the sports they love.
If you are looking to buy a stake in your favourite team, here’s what you need to know:
What to buy
Today, buyers have a myriad of leagues, divisions, teams and their geographic locations to choose from.
With the world’s eyes fixed on the FIFA World Cup in Brazil, which starts 12 June, it’s hard not to see football franchises as attractive assets. Though buying opportunities are shrinking in the sport's established markets — dominated by the English Premier League in the UK and the UEFA Champions League in continental Europe — they are exploding in Asia, where newly minted football clubs, such as Bengaluru FC and Kerala Blasters FC in India and Wuhan Zall FC in China, are surging in popularity, drawing buyers both from within the region and beyond.
What to look for
The market for sports franchises isn’t liquid. In other words, they are not easy to buy or sell. So a thorough vetting process is critical to avoid mistakes. Make your investment decision with your head and not just your heart, says Matt Perry, president of National Sports Services, a Kansas-based firm specialising in sales and acquisition of baseball franchises.
“Due diligence involves [reviewing] confidentiality agreements, franchise valuation, performance history of the team, stadium condition, historical operating financials, market evaluation and league information,” he said.
The acquisition market for major league clubs operates on word-of-mouth leads, said Dhruv Ratra, chief executive officer of Dubai-based Anglian Holdings, which co-owns Danish first-division football club FC Vestsjælland and Shillong Lajong FC, a professional football club that plays in I-League, India’s top football league. “Nearly all clubs have front offices, (but) given the demographics of club owners and investors, they probably can make connections through other business channels,” he said.
Either way, the checklist for scrutiny stays unchanged.
Don’t ignore the values and objectives of the club. They can impact the way the club is run.
“It’s important to understand how the club operates, engages with its fan base and interacts with sponsors,” said Ratra. “The success or failure of a club correlates quite closely to how it performs on the field and how it interacts with its off-pitch partners.”
How much it costs
When it comes to ace European football clubs, there is no typical investment. The total worth of individual franchises can range. Borussia Dortmund goes for 461m euro ($599m), while a stake in Arsenal costs about £877m. ($1.3bn).
America’s biggest professional football league, Major League Soccer, has been expanding and was recently joined by new franchises such as New York City FC (worth $100m) and the David Beckham-led Miami club (worth $25m).
In India, the valuations are tantalisingly lower, at around $20m for an I-League team and less for a club in the 2nd Division. This has enabled many Indian franchises to dangle ownership stakes at “deep discounts” to woo foreign and expatriate investors. Investment in the country’s I-League teams typically includes a $500,000 franchise fee and $1.67m annually in operational expenses, said Neel Shah, director of strategy for Libero Sports, a New Delhi-based football consultancy.
“The rationale is, an investment into an I-League team would eventually lead to a significant return given that you’re purchasing future value at a discounted rate,” added Shah, a former employee of MLS in New York.
Comparatively, a recent Forbes magazine report pegged the average Major League Baseball team’s worth at $811m. Those on the magazine’s list of priciest teams, including the New York Yankees ($2.5bn) and LA Dodgers ($2bn), are in the same range as the world’s richest football clubs (Manchester United, $2.8bn) and top-tier National Hockey League franchises (Toronto Maple Leaf, $1.15bn).
Minor league baseball teams are more humbly priced, within the $5m to $30m bracket.
Still seems a bit rich? Perry points to “independent professional baseball teams, in the range of $500,000 to several million dollars,” as less-expensive options.
It doesn’t stop there, however. Owners must pony up money to cover ongoing costs.
Anand Krishnan, executive chairman of FidelisWorld, a UAE-based group that in 2011 paid 50m rupees (just under $1m) for a 70% stake in United Sikkim FC, an I-League 2nd Division franchise, said he spends $1m annually to fund, “nutrition, travel, hotel stay, games, administrative staff, coaches’ and players’ pay.” Buyers may also be required to contribute to budgets for stadium lease and operations, sales and marketing, concessions, merchandising, ticketing, community and media relations.
“Hopefully,” said Perry, “a team is cash-flow positive so investors don’t have to provide ongoing capital for operations.”
How teams grow in value
Sports teams can appreciate in value in many ways. Performance, for one, is key. “Most leagues around the world have multiple divisions,” said Ratra. “Once a club moves up a division, they are automatically guaranteed additional TV and match revenues, which draw new sponsors and a larger fan base. This in turn increases the value of the club.”
Other contributing factors include “supply and demand, a lengthy operating history, qualified ownership and management, and better facilities,” Perry said.
These factors serve as a screen to keep out opportunistic buyers hoping to strike it rich with a quick flip. “Leagues may not approve a transaction if they sense the prospective purchaser isn’t committed for the long term,” Perry said.
The element of unpredictability further winnows down the field.
“Unlike industries where it’s somewhat easier to project and plan for outcomes, sports isn’t predictable,” said Ratra. “Injuries and off-days play a huge role in determining outcomes.”
Get in the game to feed your passion not your bank account, Shah urged.
“If you’re looking to secure a quick investment return, everything will fall apart quickly,” he asserted.
If profit is your primary motive, consider buying stocks of publicly traded professional teams. Or park your capital in funds that invest in sport rather than individual franchises, said Krishnan who also heads a private equity fund, FW Sports Investment Fund, with stakes in businesses that provide technological and logistical support for sporting events worldwide.
“These businesses are like any other business, they make money whether teams win or lose,” he said.