Insight: Football vs Stocks

You are at a party and talk with friends about football. After a couple of beers one of your friends brags about how he recently invested in Juventus (BIT:JUVE). Should you take this seriously? Let's take a look at how some stock listed football clubs performed over the years. Investing €100 in Juventus in 2002, would leave you with €6,40 today. Similarly, if you had invested €100 in AS Roma (BIT:ASR) in 2000, you would now have a mere €11,27 left. Even if we look outside the borders of Italy, we see that Celtic (LON:CCP) gave you a solid return of -76,78% over the last 15 years. These are not exactly facts that seem to make football clubs attractive investments. The problem with stock listed football clubs is their business plan. Football clubs rely heavily on sponsoring, merchandise and TV rights and therefore have a hard time increasing their revenues. Besides the lack of a potential growth rate, football clubs often have large debt quantities compared to their equity, making them very vulnerable businesses. It is not surprisingly that England saw a decline from 14 to 7 stock listed football clubs in 5 years time. Another reason why stock listed football clubs are not very attractive, is the uncertain nature of their future cash flows, partly depending on the clubs' performance in leagues and tournaments, which makes it hard to value their stocks. Because investors do not like uncertainty they tend to stay away from these stocks, thus demand is low, causing the price of stocks to stay low. So let's be honest, these companies are fun to invest in if you are a supporter of the club using small amounts only, but it may be actually more fun to spend this money at the bookmakers.