Payment for going up is big incentive
Traditional wisdom tends to view investing in a football club as a matter of the heart ruling the head. EADT business editor Duncan Brodie explains why a more seriously-minded investor might just be attracted to Ipswich TownMANY football clubs have found benefactors in the form of wealthy fans who are prepared to spend their money on chasing a dream of competing with the “big boys” on the pitch, without any real expectation of a financial return on the investment.
Traditional wisdom tends to view investing in a football club as a matter of the heart ruling the head. EADT business editor Duncan Brodie explains why a more seriously-minded investor might just be attracted to Ipswich Town
MANY football clubs have found benefactors in the form of wealthy fans who are prepared to spend their money on chasing a dream of competing with the “big boys” on the pitch, without any real expectation of a financial return on the investment.
But why would a hard-nosed hedge fund (a broad term which covers a vast range of investment strategies) or any other commercially-minded investor consider putting money into a club which has just finished 14th in the Championship?
The answer lies chiefly in the vast riches which now await any club which manages to claw its way into the top tier of English football, the FA Premiership.
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The television rights - about to become more lucrative than ever under a new deal - combined with the merchandising and sponsorship opportunities (oh yes, and the sale of match tickets to the fans) offer an attractive potential return to investors if they can secure promotion for a reasonable outlay.
One factor which could help to generate interest in Ipswich Town is the club's Portman Road ground which is already well up to Premiership standard; no need for millions of pounds to be sunk into bricks and mortar rather than transfer fees and players' wages.
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Another positive factor, strangely, could be the fact that the freehold of the ground is owned not by the club but by the borough council. The very fact which would deter an asset stripper from buying the club - because, essentially, there is not much to strip - means that an investor keen to improve the team will not have to find such a large sum to buy the club in the first place.
Based on the number of shares currently in issue and share price of £20, the rate at which loan notes were being converted into shares last year, an investor could theoretically - through the issue of new shares already authorised but not currently allocated - secure a controlling stake in the club for perhaps £4million.
There is, however, the question of the club's debt of around £36million, relating chiefly to the construction of two new stands and a substantial investment in players which backfired badly with the club's relegation from the Premiership in 2002.
Even this, however, may offer an opportunity for an investor. The prospect of the club repaying such a sum outside of the Premiership is remote. On the other hand, the prospect of achieving promotion without a substantial investment is also not encouraging, particularly with freshly relegated clubs from the Premiership about to receive even bigger “parachute” payments to soften the blow under the new TV deal.
The financial institutions to which the club owes the bulk of its debt may be open to an offer and be prepared to write-off part of the debt in return for a cash payment of a scale they would otherwise be unlikely to receive for as long as the club remains in the Championship.
The gamble for the investor, of course, lies in then achieving Premiership status while for fans the downside is the possibility of a commercial buyer's focus being more on getting into the Premiership than in staying in it.
The priority, were promotion to be achieved, could be to sell the club at a profit rather than to invest further in the squad as would a benefactor seeking glory rather than gain. Then again, after a second successive finish in the bottom half of the table, Town fans might settle for that.