I was chatting football finances on Twitter the other day, and the conversation turned to the value of Spurs — specifically, what impact the new stadium is going to make.
Stories have surfaced now and again in recent years about possible interest in the club, and a valuation of £1 billion has been bandied around. This has generally been dismissed as excessive, and a figure aimed at deterring potential investors. Nonetheless it is widely accepted that the value of Spurs will soar once the new stadium is built.
The question my co-conspirator (who may or may not have been @ztranche) and I were wanting to answer was: what sort of increase in value are we talking about?
Clubs are valued in many ways, most famously by Forbes, but also by standard measures in the investment world such as through cash flow or revenue multiples.
These valuations often serve as poor guides for what a club may fetch when sold, but nonetheless movements up and down the Forbes rankings serve as fodder for the “my club is bigger than yours” pissing contest that football fandom so often comes down to.
In 2013, an academic and soccer nerd, Dr Thomas Markham, proposed a more sophisticated valuation system, the Markham Multivariate Model, which correlates far more closely with the actual price of clubs when sold.
The key is in the word “multivariate” — and yes, in case you are wondering, we are deep into the off-season.
The model uses several variables — revenues, assets, profit, wage ratio and stadium utilization percentage — that better represent the business of football and the differences among clubs.
The formula is as follows:
Dr Markham’s last published rankings in August 2015 valued Spurs at £710 million — comfortably above Liverpool (£537 million), but well behind Arsenal (£1.18 billion).
That figure was based on the 2013/14 accounts, so first I wanted to get an updated value using numbers from the recently published 2014/15 accounts. I don’t have the exact stadium utilization percentage, but it is fair to assume it is somewhere around 99 percent, which most sold-out Premier League stadiums are.
The “current” value of Spurs: £717 million.
The small increase in value reflects moderately increased revenues and a decrease in wage ratio. It seems “about right”, as really the value of Spurs won’t have changed all that much given how static things are while we are stuck at White Hart Lane, and with the TV deal flat in the period.
But what happens once the new stadium is built?
I have done some quick and dirty calculations. There are too many variables to sensibly project what the revenue will be in 2018/19 given soaring TV deals and critical commercial deals to be negotiated. But, with Arsenal having built a similarly sized stadium in a nearby part of North London, there is a very useful proxy for projecting what sort of uplift a new stadium may have for Spurs, were it to open tomorrow.
Arsenal’s revenue increased from £137.2 million to £200.8 million after its move to the Emirates, according to its accounts for the 2006/07 financial year. This is an increase of 46.4 percent.
Revenue mix varies from club to club: Arsenal recorded sizeable income from property development but only increased commercial revenue by £7 million, far below the target of £30 million Spurs have set for commercial revenues associated with the new stadium. But nonetheless this feels a decent starting point, as much of that increase was from rising matchday revenue due to the larger capacity and better corporate facilities.
Applying the same 46.4 percent increase, Spurs revenue would jump from £196.4 million to £287.5 million.
Net assets are interesting. The key is “net” — while Arsenal’s fixed assets soared when the club moved to the Emirates, so did what it owed to creditors. In the two years that covered the final year at Highbury, and the first year at the Emirates, net assets increased by only 8.7 percent. This slightly broader view seems a better gauge as it cuts out year-to-year churn, and I will apply the same increase to Spurs. This would take net assets from £183.0 million to £199.0 million
Arsenal’s profits dipped slightly in the first year at the Emirates (but the club remained profitable). I don’t want to get too involved in guessing what direction Spurs profits will move as it is actually quite a small variable in the calculation, so I’ll keep them the same. Likewise, stadium utilization will remain at 99 percent, if the season ticket waiting list turns out to be an accurate measure of interest, and not some Potemkin justification for the whole project.
I’ll calculate a range for wage ratio: from the current 51.35 percent, to the desired 45 percent (Arsenal got wage ratio down to 46 percent at the lowest point).
So, plugging these variables into the MMM formula, what is the value of Spurs once our shiny new stadium is opened?
My calculation: £968.5 million to £1.105 billion.
As stated, the revenue is hard to project given the changes in the TV deal, meaning that by the time 2018/19 rolls around, this is likely a very conservative estimate. But it shows that the new stadium, right now, would add £250 million to £386 million to the value of the club.
It also shows that the £1 billion figure that is batted around isn’t actually all that optimistic. This simple MMM projection shows it is a good ballpark figure for what ENIC may seek should they chose to cash out once the stadium is built, or as a guide if they seek new investment to help bridge any funding gaps in the project.
A valuation of £968.5 million to £1.105 billion would put Spurs third in the current MMM rankings, and hot on the heels of Arsenal. They still have advantages in commercial revenue, and Spurs have not shown any indication of being able to land the big sponsorship deals to narrow this gap. But it would put Spurs ahead of the two oligarch playthings, Chelsea and Manchester City.
Tottenham Hotspur has been one heck of an investment for Joe Lewis and Daniel Levy, and no doubt quite the ride.
In 2000, when ENIC first bought into Spurs, the deal valued the club at around £60 million. In 2007, when ENIC bought out Alan Sugar’s remaining stake, the deal valued the club at £209.5 million. The club is now valued, by my calculation, at around £717 million, and once the new stadium is complete this should pass the £1 billion mark.
Some may be curious about what this means for Daniel Levy himself? Remember, he owns* 29.41 percent of ENIC, which itself owns 85.55 percent of the shares in the club.
(*The exact wording is, “Daniel Levy and certain members of his family are potential beneficiaries of discretionary trusts which ultimately own 29.41 percent of ENIC’s share capital”)
Actually, I’ll let you do the maths as it feels a bit gauche to be spelling it out. But, put it this way, the new stadium could see the value of his stake increase by something approaching £100 million, which is very nice and is one heck of an incentive to make sure this thing gets built on time and on budget.
I have no idea if ENIC really want to sell — this has always been an investment with an emotional component. But if they do, ENIC will be quids-in once the stadium is built. The value of Spurs is about to soar — and for the first time in a while, this may actually be mirrored by success on the pitch.