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03 December 2023

Football is more than just a game

By Martin Baker

It's not often that perusing the sports pages of the newspaper stimulates philosophical rumination on the role of value in investment. But the stories surrounding the English Premier League club Manchester City ineluctably lead in this direction.

Manchester City is owned by the Abu Dhabi United Group for Investment and Development (Adug) and has made an offer of £100 million (Dh541m) – or substantially more, depending on which piece of newspaper speculation you prefer – for Kaka, a Brazilian midfielder who plays for the giant Italian club, AC Milan. The offer also, allegedly, includes a hefty remuneration package for the player himself of £500,000 per week.

There has been much furore surrounding the proposed deal, which has been the lead sporting story – and sometimes simply the lead story – in media organisations around the world. And this is where the answer to the question, asked in many languages across the globe, of how this deal can possibly have any value for the people making it. In terms of the prize money available, clearly, there's nothing to be gained. Manchester City are struggling against relegation from the Premiership, and have been booted out of the FA Cup by Nottingham Forest, a team towards the bottom of the Coca-Cola Championship, the next team down.

The short-term financial picture doesn't look too good, either, when you think about the impact of having a player on the books who's earning such an enormous sum. The other players will argue, quite reasonably, that they could do with a wage rise too.

So where's the value? Simple: you're reading it. By making such a thrillingly audacious and lavish bid, Adug has acquired a global reputation and a brand image far stronger than an equivalent sum spent on marketing. I opine regularly – and I hope not too tediously – on the benefits and the dangers of globalism, and someone at Adug clearly understands how to play this game.

English Premier League football is, with the possible exception of that diverse and hybrid creature known as Hollywood, the biggest brand in the global leisure industry. Well, Adug has stuck its flag in the ground and announced itself as a player on this global stage with attendant publicity that money could not buy. In fact, given the immensity and intensity of the media coverage already, it almost doesn't matter whether or not Manchester City succeeds in acquiring Kaka. In terms of media profile, brand image and marketing, it's already a case of "job done".

But there's another form of value in football investment to which I've already drawn readers' attention. I think the lesson really does need to be learned, and at the risk of repeating myself, I refer to an earlier piece in this space:

"A Coca-Cola Championship club would cost a fraction of a Premiership club… A smart investor who wants the fun of promotion and of being adored by a loyal fan base – and who is big, wise and brave enough to take a smaller club and make it big – will win all round. Right now, the Championship has quoted clubs such as Charlton Athletic and Preston North End. I think both clubs are a fantastic investment opportunity, particularly Preston North End."

I may have got the Charlton Athletic bit slightly wrong. The club is adrift at the bottom of the Coca-Cola Championship, and seems likely to be relegated. But – and now I risk sounding like a brokers' "buy" note – Preston North End looks like extraordinary value for money. Sitting sixth in its league, in the play-off positions for a place in next season's Premiership, this team has beaten all three of the teams in first, second and third positions. It has excellent amenities, as football fans who saw the internationally broadcast English FA Cup tie between Preston North End and Liverpool in early January may have noticed.

Here's an excerpt from a very perceptive article in The Liverpool Post, written just after the game. The writer, Andy Proudfoot, is making a point about tradition and how to treat spectators (customer relations is the business analysis, I suppose), but his arguments speaks to the quality of this venerable, club:

"DON'T believe what you read in the papers – Preston taught us a lesson last Saturday.

"Admittedly not on the pitch… but in how to treat spectators, and their own history, with respect and prove that comfortable facilities can still be provided even when resources are thin.

"Deepdale has been completely rebuilt in the past 15 years, yet they've managed to retain the sense of history surrounding the oldest professional football site in the world while producing a smart, modern stadium perfectly sized for their league status.

"In naming the stands after club legends, including one of our own [Bill Shankly], they've shown the footballing soul of the club is never to be lost, the seat mosaics built into three of them providing fitting, attractive tributes to their heroes rather than sponsors' logos… No wonder the National Football Museum is housed on the site."

The stadium, incidentally, holds just under 24,000. If you look at the other numbers, it makes you wonder about how we price things in this world. Quoted on AIM, the UK's second stock market, the company has issued 3.3 million shares, priced at £1.10. My maths tells me this means it has a market capitalisation of about £3.6m. It has debts of some £8.8m, notably to Guild Ventures, an investment company owned by wealthy UK entrepreneur, Trevor Hemmings. Any buyer would have to convince Hemmings, a life-long fan of the club, that there was a serious, long-term interest in the place.

The club trades at a loss of about £1m a year, by my reckoning, but occasionally turns a profit by selling players. So what would it cost to acquire? I reckon anyone willing to put up £12m for the equity and debt, and offer to double that with investment in players and training facilities (the ground is newly finished and state-of-the-art) would have a club with a real chance of playing in the big league next year. Throw in the costs of a few trips and dinners to satisfy Mr Hemmings' concerns, and for £25m you'd have a compact, exciting venture all set and ready to go. And, while I absolutely see the point of the very bold Manchester City move for Kaka, the whole club would cost less than Kaka's annual wages.

- Martin Baker is a journalist, author and commentator on international business affairs