How Do You Calculate the Market Value of a Football Club?

The process of buying and selling a football club is no different from every other business transaction. The ‘object’ in question is its valuation, and how much pecuniary interest is attached to a football club is dependent on an array of factors. However, the actual value of a football club is largely down to the respective skills of the seller to inflate the price, and the buyer to reduce it as much as possible. 

Howbeit, with football now a multi-billion enterprise, oligarchs and institutional investors, sovereign funds, and loads of billionaires now venturing into the grand scenery of the beautiful game, there has to be some valuation model by which existing participants can at least on paper justify to themselves and to relevant stakeholders the price to be paid for acquiring a football club. 

These valuations are dependent on a few factors which we will be dissecting in this piece.

The Multivariate Model

The most preferred method of valuation among sports financial experts and enthusiasts. Unlike the other models by which football clubs are valued, this model considers the set club’s assets, debts, ability to control costs, and profitability. Specifically, this model developed by Mark Markham (a business at Sports Interactive and the makers of the popular Football Manager game), uses three major components when considering the value of a football club. These main components are (i) revenues, (ii) players/transaction fees cost, and (iii) assets owned by clubs.

Revenue

Revenue includes the cash generated in a financial year. The underlying principle is that a football club’s ability to make money in the future determines its valuation. Adding net assets to revenues helps determine the club’s current and future cash generation capability; it is, thus, the backbone of this valuation model.

Revenue generation capacity depends on three important factors:

• The League, with its revenue streams and player salary cap
• Stadium capacity, sponsorship, and advertising
• Marketing, including corporate presence and demographic catchment area

A club’s major source of revenue ranges from Commercial revenue, Broadcasting/ TV rights, and its matchday revenue.

Commercial Revenue 

Over time football clubs have monetized their global brand through sponsorship & retail partnerships, merchandising, apparel, and product licensing. Cash inflow generated from these channels are largely controlled by the club and, hence, adds to the valuation of the club.

The football financial year of 2022 saw Man City generate an estimated $766 Million from sponsorship and success across all competitions. Which was the most of any football club in Europe.

Broadcasting/TV Rights

This is derived from the global television rights related to country-specific leagues (Premier League, Ligue 1, La Liga, Serie A, and Bundesliga), UEFA club, and other competitions. In addition, certain clubs earn from their wholly owned global television channels. Man City also topped the log for most revenue generated from broadcasting in 2022. 

Matchday Revenue

This is a function of the number of games played at the club’s stadium, size and occupancy, and prices of tickets. A significant driver of revenue under this category is the number of home games played at the club’s stadium. According to the 2022 edition of the Deloitte Football Money League, which covers the 2019/20 and 2020/21 seasons, with earnings totaling €126.4m, Barcelona is the football club that earned the most money from matchday revenue. an amount that accounted for 18% of their revenue, despite the Covid pandemic. 

Player/Transaction Fee Costs

In recent years, the transfer fees paid by football clubs to acquire the services of players has skyrocketed. In August 2017, PSG bought Neymar for a staggering €222 million from Barcelona-the transfer record till date. Valuing a player accurately is a difficult task. Football clubs value players based on either historical cost, replacement cost or market-based cost. Players are valued based on their status in the squad, position, league they are playing in, age, talent, and fame. Recently, clubs including Ajax, Benfica, and Borussia Dortmund have made fortunes from the transfers of players. Revenues made from these sales have been used to develop their clubs, which has further increased their overall valuation.

Major Asset Owned – Football Stadium

A club-owned stadium generally means an opportunity to generate additional revenues. Apart from matchday ticket sales, football stadiums also earn from hospitality ticket sales, concerts and other events, naming rights, food and beverages sales, and stadium tours. All these also contribute to the valuation of a football club.

Top five largest European club-owned football stadiums:

Top 10 most valuable clubs in the world 

It has to be said that successful academies also impact club valuations. A highly successful academy that provides players for the first team, reduces the need to acquire players from elsewhere. This reduces the amortization cost to the business, seeing a corresponding increase in the value of the club.

Taking a cue from an expert in football finance, Dan Plumey. In his interview with the BBC, he opined that a club’s actual value can only be determined when the valuation takes into account the current club’s position, its fan base, and how well it sellout its stadium, any valuation model that takes these factors into consideration will not be far away from the correct value of a football club.