The valuation of English football clubs has been under the spotlight recently as Roman Abramovich has been forced to sell Chelsea after the UK government froze his assets over his links to Vladimir Putin.
And there are a plethora of investors lining up to pay top dollar for the west London club.
With bids rumoured to be more than US$2.5bn in some cases, and a Deutsch Bank note saying US$2.24bn Manchester United is currently cheap, why are these clubs so expensive, and where do potential investors see further value?
Broadcast revenue is king
For all the top six clubs, broadcast revenue is the money-maker.
Conrad Wiacek, head of sports analysis at GlobalData, adds “the rise of valuation in sports clubs in general, whether that be NBA, NFL or football, is based around media rights.”
Broadcast revenue accounted for nearly half of the revenue of the top six clubs, Manchester United, Manchester City, Arsenal, Chelsea, Liverpool, and Tottenham in the last full season that was uninterrupted by Covid.
Current broadcast deals, both domestically and globally, bring in about £10.3bn to the Premier League clubs.
Compare that to La Liga, which bought in about £1.16bn from broadcast rights.
50% of the £10.3bn is split equally among all 20 clubs, 25% goes towards the costs involved in hosting the cameras and ensuring the stadiums are fit and proper for broadcast, and the final 25% is awarded on merit.
Direct-to-consumer, the next step for football broadcasting?
As previously mentioned, broadcast revenue is the largest stream of income for football clubs.
It has been rumoured in the past that England's top division may adopt a direct-to-consumer streaming service, similar to the NBA.
This step would skip out broadcasters entirely and could potentially allow the big clubs to make more money by selling directly to their fans, an appealing idea for investors.
According to Wiacek however, there exists a “naivety” at the top six clubs if they believe this would be boost revenue and help their valuation.
“You can possibly get six hours of live content a week from a football club, what are you going to do with the rest of the time?”
“The NBA has successfully built a direct-to-consumer platform because they play 82 games a year, and there’s at least one game every day from September through to the play-offs in June.”
“Then you look at the time-zone difference. You could be in the West Coast and watch an East Coast game in the early evening, and a West Coast game later.”
Wiacek also mentions the current quality, and cost, that goes into broadcasting, with companies such as Sky Sports and BT Sports paying millions to offer the best service.
That is something that would have to be paid for by the clubs, or the Premier League, and could take years and cost millions to get to the same level as some of the current broadcasting giants.
American owners see value in the ‘American-isation’ of football?
A consortium led by Todd Boehly, an American businessman, is one of the front runners to take over Chelsea.
Last season, the top six attempted to join a breakaway European Super League, led by the American owners of Manchester United, Liverpool and Arsenal.
The league would’ve been a closed shop, with no relegation or promotion and a guaranteed place, and therefore guaranteed revenue, similar to virtually all the American team sports.
That idea of a closed shop, according to Wiacek, is what makes “American sports appealing to investors.”
American investors, Wiacek argues, don’t like the idea of relegation as it fails to protect what is essentially an asset in their eyes.
So, while American owners may try to make the sport more American-like, the subsequent uproar and fall-out of the European Super League, which saw the owners walk away with their tails between the legs, suggests that ambition will struggle to take off in the UK, and the footballing world in general (outside of the states.)