Monday, April 13, 2009

The most valuable soccer teams


The world's richest clubs are prospering despite the global recession.


The financial crisis has yet to derail the world's most valuable soccer teams. Our calculations show the top 25 teams are now worth, on average, $597 million, 8% more than the previous year.
These clubs posted operating income (in the sense of earnings before interest, taxes, depreciation and amortization) of $42 million during the 2007-2008 season, 20% more than the top 25 clubs earned the previous year. There are now five clubs (Manchester United, Real Madrid, Arsenal, Bayern Munich and Liverpool) worth at least $1 billion. Only the National Football League has more billion-dollar teams (19).


"The value [of European soccer] is still there," says sports banker Robert J. Tilliss, founder of Inner Circle Sports. "The demand from broadcasters and sponsors has continued to rise."


One reason most top clubs have continued to see revenue increases and post strong profits is that they have lucrative multi-year broadcasting and sponsorship deals that have not been affected by the recession.


BSkyB, owned by News Corp. ( NWS - news - people ), and Setanta pay out roughly $1.8 billion a year for Premier League rights. Arsenal, Liverpool and Schalke 04 have multi-year deals with Emirates, Carlsberg and Gazprom that pay these clubs over $15 million a season.


More than half of the 20 clubs with the highest revenue signed current uniform sponsors within the last two years. The deals are good through 2013, on average, protecting teams' biggest source of sponsorship revenue (along with stadium-naming rights).


On the broadcast side, German, English and the top Spanish clubs all have deals in place through 2014, with French rights due for renegotiation in 2012 and Italy set to return to centrally sold rights in 2010, according to a report by the Sports Business Group at Deloitte.


Burnished by that relative stability and by the sport's growing popularity throughout China and Southeast Asia, big-ticket investors have continued to pour money into England's Premier league. The biggest splash in the last year: The sale of Manchester City to Sheikh Mansour Bin Zayed Al Nahyan for nearly $385 million.


If anything demonstrates the value premium Premier League clubs enjoy it is Man City selling for a multiple of revenue (2.4 times) in line with our estimates for Bayern Munich and Real Madrid. Man City does not own City of Manchester Stadium, where it plays, and despite settlement of its debts and huge spending on players (nearly $150 million) by the Sheikh, we estimate he overpaid by 25% for a money-losing toy.


With its capitalistic bent, European soccer rewards the best-performing clubs with higher broadcasting revenue. Leading the charge is the world's most valuable sports franchise: England's Manchester United, worth $1.87 billion.


With $160 million in operating income, ManU was also the most profitable team. A big assist: $68 million in Champions League distributions after winning Europe's top competition last year.


The real value in ManU is its Old Trafford stadium (capacity: 76,000--27% bigger than the next-biggest in England). With star strikers Wayne Rooney and Cristiano Ronaldo keeping the stadium packed, Old Trafford raked in over $200 million in ticket and concessions revenue last season, more than any other team.


The second spot went to Spanish heavyweight Real Madrid, worth $1.35 billion. The team has continued to shine on the pitch despite the departure of superstars David Beckham, Zidane and Ronaldo during the past two years.


The Whites ended the 2007-2008 campaign as the highest-scoring (84 goals) and the least-scored-upon (36) team in its league and set a new La Liga record by notching 85 points, 18 more than third-place Barcelona. The second season of a $1.4 billion rights deal with broadcast partner Mediapro generated $576 million in revenue for the team, more than any other sports franchise.
Clubs with piles of debt have not been immune to the credit crunch. English football authorities, in particular, have sounded alarms about more than $4.5 billion of debt on the books of Premier League teams. Liverpool, the third-most valuable U.K. team, had roughly $600 million of debt outstanding at fiscal year-end in June 2008 thanks to a $314 million leveraged buyout by American businessmen Thomas O. Hicks and George Gillett.


A looming deadline to repay or refinance a related bank loan arrives in July, and should credit markets remain tight through the summer, the owners could be faced with a choice between default and selling the club at a discount.


Falling out of the top 25 were Spanish club Valencia and England's West Ham United, which, despite middle-of-the-pack finishes in recent years, has been limited by its diminutive Boleyn Ground stadium with room for just 35,647 fans. Spain's Valencia has suffered from a massive debt load used to finance player costs and a new 75,000-seat stadium that could add 50% to the former stadium's capacity at a time when the team has struggled to finish in the top half of Spain's Primera Liga.


Rejoining the list this season was Scotland's Glasgow Rangers, and joining for the first time was VfB Stuttgart from Germany. Dark horse Stuttgart won Germany's Bundesliga championship in '07, qualifying it for the Champions League last year--a windfall allowing for plans to improve its Mercedes-Benz Arena.


As for Scottish Premier League team, the 'Gers had an historic run to the UEFA Cup final against Russian side Zenit St. Petersburg. Improvements to home field Ibrox Park have followed and could mean bigger profits down the road.

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