Investors are not just supporting football clubs on the pitch, but also based on their financial credentials.
The effect of match performance of publicly-listed clubs on the equity market’s perception of credit risk, the escalation of foreign ownership increasing the global appeal of football, and analysis of how consistent match performance relates to financial credit quality, have all been highlighted in a report by S&P Capital IQ.
The firm created a league table of 17 listed and 27 privately-owned European football teams (the above ranking shows the seven UK teams) based on their credit quality using a proprietary credit tool called the Credit Health anel (CHP). The CHP provides a financial assessment of company financials using 24 financial metrics organised into operational (O), solvency (S) and liquidity (L) to determine an overall fundamental score on a quartile scale: ‘top’, ‘above average’, ‘below average’ and ‘bottom’. The report concluded that match performance affected a club’s financials. While Arsenal (first above; second overall) might never have won the Champion’s League, it has performed consistently for the past 18 years and seen increased revenue from the Emirates Stadium. Arsenal Holdings plc had the highest credit score of ‘bb+’, based on S&P Capital IQ’s CreditModel tool.
Market sentiment also has an effect on football clubs’ credit. At 0.0052% Celtic (second above; third overall) had the lowest Market Signal Probability of Default (PD), making it the least likely of the 17 publicly-listed clubs to default. By contrast, at 0.2% Manchester United (third above; fourth overall) had a higher PD which, the report said, could be market reaction to the team’s decline in form following the departure of coach Sir Alex Ferguson in 2013 and its failure to qualify for this season’s Champion’s League. The club’s credit score came out at ‘bb’. Meanwhile, Manchester City (fourth above; ninth overall) has over recent years been heavily supported by Middle Eastern investors. Since Sheikh Mansour took ownership of the club in 2009, total revenue has increased by 211% from $140m in 2009 to $436m in 2013. It had the second highest net working capital to total assets of the 44 clubs in the study.
As the beautiful game continues to grow, investors will need to have access to detailed assessments of clubs’ financial structures and prospects, as well as the tools to enable them to make better informed decisions
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