Should you invest in football clubs?

Growing market, but…

Should You Invest In Football Shares?
August 22, 2012  | 9 comments  |  about: MANU, includes: ECJ, GM   

Ever since Tottenham Hotspur listed on the London Stock exchange in 1983, a host of football clubs followed. There is even a football index, the DJ StoXX Football Index. But do they make good investments?

This is a relevant question now that arguably one of the biggest clubs, Manchester United, has just listed on the New York Stock Exchange. So it’s time to kick the business models and see what we got.

At first sight, it seems like big football clubs might provide a good investment opportunity. Football is certainly the biggest sport around, and it has seen an infusion of money from various sources. Money is pouring in from TV rights, merchandising, sponsorship and, increasingly, wealthy owners with near limitless ambitions and means. The latter has given erstwhile provincial clubs like Manchester City and Chelsea a serious shot into the traditional football elite.

What does it take to produce a winning team?
Well, a couple of things. Good players is an obvious requirement. To be able to buy and keep the best players, a club needs money. There is a pretty good correlation between the amount of money that clubs can avail off and the success on the pitch.

But no matter how good the players, a winning team is almost always more than the sum of its parts. That means that the team must have complementary capabilities (requiring a good coach) and be able to coordinate routines. Routines are coordinated behavior not requiring little explicit communication or command.

A team needs to be able to stay together for a long time in order to develop and perfect a repertoire of routines. The coming and going of players is disruptive to the routine building. [Read on here]