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Tuesday, March 26, 2013

Valuation of Premiership Clubs

An interesting academic research paper, which puts forward a methodology for valuing premier league football clubs has created great interest amongst Everton fans following recent press coverage.

The paper has been produced by football finance expert Tom Markham, someone who has an impeccable pedigree; Tom’s a qualified accountant and a former foreign exchange trader with an MBA in Football Industries from the University of Liverpool, has collaborated on projects with national associations, clubs, agencies and sports consultancies. About to complete a PhD in Football Finance at Henley Business School’s ICMA Centre, his new research reveals a reliable valuation model, universally applicable to Premier League clubs.

Rather than read the headlines which inevitably concentrates on the more sensational aspects, that West Bromwich Albion are worth more than Everton will have shocked many of an Everton persuasion, we at KEIOC recommend that you download the study in full as it contains some excellent research. You can download Tom Markham’s paper here.

The methodology put forward in this paper is called the Markham Multivariate Model [MMM] which  is defined as:

Club Valuation = [Revenue + Assets] x [Net Profit +Revenue] x [Stadium Capacity %] + [Wages Ratio %]


We'd encourage everyone to download Everton's latest accounts, here, and see if you arrive at the figure the chart in the paper indicates is the value of Everton FC, £112,300,000. It should be mentioned at this juncture that there is a good reason why academics don’t buy football clubs; business and academia are two different worlds. A person owning the Titanic, which was built for £5m over a century ago, wanting to sell it for £400m, which is based on a theoretical value calculated using the future revenue derived from just about every person on the planet wanting to visit a museum containing the Titanic, isn’t going to get any offers because there are some obvious flaws that the calculation fails to accommodate, and like the Titanic, Everton is registered in Liverpool.

Undoubtedly, as an attempt to produce a more universally acceptable methodology for placing a value on premiership football clubs, the MMM derived figure, as stated in the paper, appear to offer a far more accurate estimation than existing flawed methodologies such as the highly subjective Forbes valuation or the equally inaccurate broker valuation method which is characterised by a statement made by Dr Keith Harris of the collapsed UK broker Seymour Pierce who stated in an uncharacteristic moment of lucidity, “a club is only worth what somebody is prepared to pay for it” [Harris 2012] or not pay for it [KEIOC 2013].

Keith Harris, who valued Everton in the region of £150m and was described by Simon Jordan as a man who delivered the square root of nothing, will be forever remembered by Evertonians as the person who, according to chairman Bill Kenwright, introduced an individual to Everton who, having conducted due diligence, was being chased by the chairman to complete the sale of the club when it was discovered he was a conman living in a Singapore [depending on which version the chairman is reiterating at the time] bedsit, after which Keith Harris paid the cost of the diligence.

Other methods, which the MMM appears to be superior to,  include the fire sale principles of the bankruptcy valuation model, the equally unsuitable Market Capitalization method, unsuitable due to most football clubs not being listed and the widely used Discounted Cashflow Model [DCF] which has an obvious flaw in that the vast majority of clubs are loss making. Everton’s ability to generate cash has been severely limited in recent years with their EBITDA in something one can only describe as freefall, from £9m in 2008 it’s now minus £6m in the latest accounts which begs the question how did someone like Keith Wyness manage it?

On the back of the quite ludicrous assertion by Everton’s PR Paul Tyrrell, on the Stan Collymore show, that our current owners are now looking for £125m for the club, a club that they paid just under £22m for thirteen years ago, KEIOC have been undertaking our own valuation exercise and whilst it in no way purports to be an academic work of the magnitude of Tom Markham’s excellent attempt to produce a universal methodology to value premier league clubs, it will offer a tailor made answer as to why nobody has bought the club even though it's apparently been for sale since the moment those that Bill Kenwright speaks on behalf of bought the club from Peter Johnson.

Indeed, KEIOC would be mortified by any potential owner who was willing to offer the current owners asking price, or anything like that value as it would confirm their total lack of acumen and the likely long term outcome such a sale would bring by the people who have confirmed on more than one occasion what they’re actually interested in despite the rhetoric the chairman offers to prove otherwise.

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