Kevin Keegan, manager of super-glamorous football team Newcastle United, was forced to resign in January, not by outraged fans or lacklustre performance, but by a new force in the game: investment bankers. Keegan had quietly agreed with his board to quit in May. However, Newcastle was preparing a stock exchange flotation and its bankers insisted the information had to be in the prospectus. Such a bombshell, it was realized, would have destabilized the float. Keegan took an early bath.
The shock resignation highlights the volatile relationship between city dealers, the football clubs they have just discovered to be spectacular investments, and the clubs' often emotional fans. Newcastle went into mourning when Keegan quit.
City analysts are more hard-headed. "Management is important to the City as well as to the fan. Not many people would say that Newcastle have come off the worse for this," says Nick Knight, UK equity strategist at Nomura. Newcastle quickly appointed as manager Kenny Dalglish, a previous leader of championship winners Liverpool and Blackburn Rovers.
British football is now a £1 billion to £2 billion sector of the UK share market with dedicated analysts and a bewildering variety of investment vehicles, including publicly-quoted and off-market shares, funds dedicated to football and sports investments, and warrants on individual football stocks. "Leading football clubs used to be owned by a few local businessmen," says Knight. "In 10 years time, they'll be back in private hands, only this time corporate hands." He predicts the first major corporate take-over of a British football club is six to 12 months away. "In the meantime, ordinary investors can have fun and make money."
Likely buyers might be brand-conscious or sports-related giants like McDonald's, Nike or Coca-Cola. Recently, Nike paid $400 million to sponsor the Brazil national football team for 10 years at a time when Manchester United's share price valued the entire business at a mere £400 million. "Those companies would love to acquire the client loyalty of football clubs," says Michael Goldman, a South African born Chelsea fan and managing director of the Momentum Group, which runs an offshore diversified sports investment fund. He points out that Scottish & Newcastle, the brewer which sponsors Newcastle United, has dramatically increased exports of its brown ale, and profits, since the club signed England's top forward Alan Shearer, for £15 million.
Football stocks have outstripped an already strongly performing UK equity market tenfold since 1993. "It's been a case of straight undervaluation," says Goldman. Now more football clubs are run by business professionals keen to exploit their strong brands through merchandizing and to extract revenue from pay-per-view television. Goldman stills sees opportunities. He likes Manchester City as an investment, not for its woeful play. Relegated, but still with strong gates, the club is worth £17 million. "One day they'll be back in the premiership. You can't tell me they're worth one twenty-fifth of Manchester United."
But a tremor ran through the market when publicly-quoted shares in second division club Millwall were suspended and administrators were appointed. As strong clubs thrive, the weak will suffer. Stock-picking is important. Peter Lee