Forbes recently published its list of the Top 20 Football Clubs by valuation. Topping the list were familiar names Bayern Munich, Barcelona, Arsenal, Real Madrid, and Manchester United. The ranking paints a rosy picture of the soccer world with at least 9 clubs commanding valuations of more than $500m and 15 out of the 20 clubs having positive income numbers. The world of football is not in such dire straits after all, look at all the money!
Not so fast…why don’t we take a closer look at some things.
1. Current Value (est. by Forbes) – as noted in the footer, “value of team based on past transactions and current stadium deals”. Which means that the last price the club was bought at is the baseline, plus however much the stadium and land cost.
As we have seen owners buying football clubs for ridiculous valuations, it would seem equally ridiculous to base a current valuation off of that previous instance of temporary insanity. And stadium values? I suspect that there is not really an efficient market for football stadia as it would be hard to imagine Bayern Munich moving to Old Trafford should the need for a better stadium deal arise.
2. Debt / Value – What happens when you divide by an inflated value? Everything looks better and its time to buy more C.Ronaldos!
3. Operating Income – again as noted in the footer, “Earnings before interest, taxes, depreciation and amortization, player trading and disposal of player registrations.”
Let’s read that again with the useless bits removed. “Earnings before interest, *, * and *, player trading and disposal of player registrations.” So this list evaluates the economic health of clubs before you take into account the three largest, most important categories of financial activities they engage in. Seems to be some important omissions there Forbes.
Forbes in general seems to love playing fast and loose with the numbers in their list featurettes (ex. the Forbes rich list, almost all people’s net worths are estimated or contributed *COUGH* DONALD TRUMP by the person in question). And understandably so, the lists are huge readership drivers, it is almost inevitable that just having a populated list by print deadline is favored over accuracy. Not that they aren’t entertaining…let’s just not take them for indicating anything realistic about the state of the economic football world.
The Soccer CEO 
[…] makes the state of the game seem rosy — with 15 of them having positive income numbers! Too bad the list just extends Forbes’ reputation as a shill for the superrich — not even taking “into account the three largest, most important categories of […]
There’s nothing wrong with using EBITDA as continuing operating income, but to use “debt/value” as your measure of leverage is ridiculous. Debt/book value maybe, or better yet debt/EBITDA. On that measure, United at 6x debt/EBITDA look overly leveraged, while Liverpool at 10x look far worse.
Be nice to have EBITDA/interest as well.
EBITDA is appropriate in certain instances, I would argue that football is one of the industries where EBITDA should be avoided like the plague. The costs of financing a club are always tremendous compared to the value of the club
itself and should always be taken into account IMO. Thanks for the comment 🙂
Glad to have read this post as it puts the valuation Forbes “calculates” into perspective.
[…] to grow proportionally with revenue (and have a large impact on club valuation despite what Forbes may say). Structured player transfers typically involve spreading out or deferring payments completely to […]
[…] that this peek into the valuation black box is even vaguer than the last time I wrote about the Forbes list. Unfortunately, the exact model is going to remain a mystery barring […]