Millions of people love the game of football. Or, what North Americans call soccer. Yet, in April, football headlines in Europe were not about league standings, match results, player transfers, memorable goals or the upcoming Euro2020 (which was delayed by a year due to the pandemic).
Instead, one morning fans woke up to a proposed European Super League that would be financed, in part, by the US-based banking giant JPMorgan Chase (NYSE:JPM). The bank would provide a cash injection of $6 billion (£4.3 billion). On Apr. 19, it was announced that six English clubs would join six others from Europe to form the new league.
JPMorgan had hoped the designated men’s football clubs, which were among the biggest teams, would join the ESL. They’d come from the "Big-Five" leagues in Europe—namely, England, Spain, Italy, Germany and France. However, German and French teams declined early on. Fans and politicians alike made it loud and clear that they would not want (or possibly legally allow) English teams to participate in the new league.
In a matter of days, the project died—at least, for now—as headlines called the move an “own goal.” The Guardian reported that a spokesperson for JPMorgan said the banks would learn from their mistake in misjudging the reaction from various stakeholders.
Given the publicity European football has received in the past several weeks, it is timely to discuss how interested individuals could invest in English and Scottish clubs.
Football Has Suffered Under The Pandemic
For the 2020/21 season, the revenue of the English Premier League (EPL) is expected to be around 6.2 billion euros (or £5.4 billion and US$7.5 billion). Put another way, football is big business.
Operations involve match logistics, ticketing, stadium operations, apparel merchandising and multimedia events. Clubs typically get revenue from three main segments: commercial (sponsorship contracts), media (broadcasting and streaming) as well as the actual match income.
Stephen Morrow of the University of Stirling, UK, and Brian Howieson of the University of Dundee, UK, point out:
"Professional football (soccer) in Europe has changed dramatically in the last two decades or so, in large part due to the escalation of media rights deals. Many professional football clubs are now complex businesses, intrinsically concerned with financial matters. In addition, changes in the ownership structure of clubs, including a trend towards foreign ownership in some countries like England."
Over the past year, we have all seen how different segments of the economy have been affected by the pandemic. Professional sports, especially football, were not spared, either.
Recent research led by Daniel Parnell of the University of Liverpool, UK, highlights that COVID-19 "has opened up the Pandora's box of football's financial fragility ... with club owners, investors, broadcasters and advertisers forced to reconcile the downstream impact of event cancellations and make operational modifications.”
With that information, let’s look at two teams.
1. Celtic FC
The growth in the business of football in England and Scotland has seen several teams become public entities. Aston Villa, Birmingham City, Glasgow Rangers and Tottenham Hotspur can be counted among the clubs that have been publicly traded at some point in the past several years. However, they are all privately owned at this point.
Currently, Glasgow-based Celtic (LON:CCP) is the only team listed on the London Stock Exchange. Readers could be interested to know that the club won the Scottish FA Cup (season 19/20) for the fourth season in a row.
On Apr. 29, CCP shares closed at 125p. So far in 2021, the shares are up about 23%. Its market capitalization stands at £122.7 million (or US$171.2 million).
In mid-February, Celtic released interim results for the six months to Dec. 31. Revenue decreased by 23.7% year-on-year (YoY) to £40.7 million (or $56.8 million). Loss before taxation was £5.9 million (or $8.2 million). In 2019, it had a profit of £24.4 million.
Management said:
“The two key factors that adversely affected our financial results for the period under review were: firstly, reduced gains from player trading as we sought to keep intact our squad this season; and, secondly, the unforeseen and prolonged value destructive impact of COVID-19.”
CCP stock’s P/S and P/B ratios are 2.05 and 2.07, respectively. Given the rapid increase in the share price year-to-date, short-term profit-taking is likely. Interested investors would find better value around $120p or below.
2. Manchester United
Millions of Manchester United (NYSE:MANU) fans have telltale signs that make them true “Reds” such as having United wallpaper and bedding as a child. On match day, they “sing loud, sing proud, win, lose or draw.”
In August 2012, MANU shares started trading on the New York Stock Exchange at an opening price of $14.05. In 2018, they hit a record high of $27.70. YTD, MANU stock is up about 6%, hovering around $17.8. Its market cap stands at $2.9 billion.
In early March, Manchester United announced Q2 results. Revenue came in at £172.8 million ($240.9 million), up 2.6% YoY. Operating profit was £48.5 million (or $67.6 million), up 32.9% YoY.
Management highlighted the “significant shortfall in match-day revenues relative to last year,” but noted:
“The match-day revenue shortfall has, however, been more than offset by broadcasting revenues given the first teams participation in the UEFA Champions League competition. A large portion of UEFA Champions league broadcasting revenues are attributable to the group stages of the competition, which was played in full during the second quarter.”
Manchester United is currently in the second place in the Premier League. It has been eliminated from this year’s UEFA Champions League tournament and is now competing in the Europa League.
As we write on Thursday, Manchester United and AS Roma (MI:ASR)are getting ready to play the first leg of the semi-finals. Villareal and Arsenal are the two other teams racing for the final match that will take place in Gdansk, Poland, on May 26. The results of these games will likely impact Manchester United revenues.
MANU stock’s P/S and P/B ratios stand at 4.97 and 4.16, respectively. The current run-up in price could potentially continue in the near future, too.
Bottom Line
Scottish football player and manager William "Bill" Shankly is credited with saying,
"Some people think football is a matter of life and death. I assure you, it's much more serious than that.”
Millions of loyal fans would concur that they have possibly enjoyed football for as long as they can remember. Some of these fans could possibly consider buying shares of their teams, such as Celtic or Manchester United.
Those investors who are not ready to commit capital to either CCP or MANU shares could consider researching an exchange-traded fund (ETF) that started trading in March 2021. It is called The Roundhill MVP ETF (NYSE:MVP), which gives exposure to the world of professional sports.
Among its holdings, there are several European football clubs. They include MANU as well as Italy’s Juventus (OTCPK:JVTSF) and AS Roma; Germany’s Borussia Dortmund (OTC:BORUF); AFC Ajax (OTC:AFCJF) from the Netherlands; and Turkey’s Fenerbahce Futbol (IS:FENER) and Galatasaray Sportif (IS:GSRAY).