Why You Shouldn’t Take The Forbes Soccer Valuations Seriously

The 2012 edition of the Forbes Soccer Club Valuations are out. You may recall that I am not a huge fan of them so I thought I’d take a post to cover more in depth why I am incredibly dismissive of this annual list.

Forbes Rankings

Forbes does a number of lists which rank various aspects of the financial world, from the richest people in the world to the most valuable companies, this includes soccer clubs. To do this the magazine throws available financial data, its own research, and some expert opinions into a black box shakes it around and out come values for clubs. Simple enough right? When you look at the ranking the list is populated with familiar names and the order looks about right:

Forbes 20 Most Valuable Soccer Clubs - 2012

Wikipedia has a good compilation of the rest of the Forbes Soccer Club Valuations since 2007. So what’s the problem? Continue reading “Why You Shouldn’t Take The Forbes Soccer Valuations Seriously”

Why You Shouldn’t Take The Forbes Soccer Valuations Seriously

Systemic Risk in the Soccer Economy

“Systemic risk” is a concept which has come to the forefront in the past couple of years as people have searched for the cause of the financial crisis. Post-mortems have focused on the unbelievable level of risk taken on by institutions and the speed with which it was transmitted to others when conditions started to sour. Contrary to theory diversification, rather than mitigating risk, actually contributed to the contagion and amplified the damage. The broader consequences of the crisis have been far too familiar for the past three years and they could have been prevented if regulators were vigilant for the right signs. A similar level of regulatory passiveness currently exists in the soccer economy and it is encouraging the rise of financial risks that pose a serious threat to clubs and their supporters.

What is systemic risk?

Systemic risk refers to the Continue reading “Systemic Risk in the Soccer Economy”

Systemic Risk in the Soccer Economy

Forbes and Football Club Valuations

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.

Forbes and Football Club Valuations