On the ball: when is valuing a football team like valuing a business?

Aaron Hunter, Corporate Transactions Executive. Larking Gowen

As a Norwich City fan, I was recently appalled to see that despite our stunning run of form in mid-January (surely the most representative part of our season so far), the value of the squad has fallen relative to the 20/21 season, according to footballer statistics and market value website Transfermarkt.

Despite effectively being a big spreadsheet and online forum, Transfermarkt is taken pretty seriously; in the last few years, player market values have been referenced in court cases by the financial documents of clubs like Lyon and Porto, and in an interview with the (now former) chairman of FC Barcelona.

Here, in the Corporate Transactions team, we sadly don’t get to value footballers, but we do get to value businesses! In my indignation at the obvious undervaluing of our brave, relegation-avoiding NCFC, I decided to take a closer look at this mysterious measurer of teams and players. As football is big business, I thought it might be fun to go through some examples of where similarities might exist, and where they might not.

Who determines the value?

In the community-led model of Transfermarkt, a player’s value comes out of a moderated discussion of that player by the site’s users, which is then updated a few times a season by a staff member. By contrast, with a business valuation, you’re better off with qualified valuation experts – like us!

There is an interesting similarity, though, while Transfermarkt’s values are often talked about as unshakeable facts, clubs in practice often take a different view; a recent investigation (www.ftm.eu/articles/transfermarkt-volunteers-european-football) found player market values were often quite different from the actual transfer fees paid. This can happen with the sale value of a business too, one buyer might see the assets of the business very differently from another and offer a different price. Like beauty, price is in the eye of the beholder.

What is value based on?

To value a football player, the Transfermarkt community look at a wide range of factors, including age, performance and injuries, as well as the player’s contractual arrangements with their club and their own interest in moving on.

A variety of factors are considered in valuing a business too, but within the framework of one of the methods of business valuation, which focuses on the net assets of the business, on earnings, or on the longer-term cashflows the business will create. Applying a different model will usually result in a different value e.g. think of valuing a major brand like Tesco by the value of their fixed assets alone. This highlights how important it is to use the right method of valuation for the business, and when looking to sell, to find the buyer who sees a business’ highest potential.

How can value be increased?

Naturally, any conversation about value turns to how it can be increased. For a footballer and for a business, value will grow with performance, with reputation, and with demand-side factors like general prices in the market and the number of interested buyers.

The only time I comment on a footballer’s performance is over our coffee on a Monday morning! However, one of the things we do best, as a Corporate Transactions team, is to help a business to get ready for a sale. If you’d like to know some of the things you can do to prepare your business for sale, then read our partner James Lay’s blog Business Sale Readiness Factor #9: Sales and marketing on his LinkedIn page.

Need help?

If you’d like to find out more, please get in touch with Larking Gowen for a confidential discussion about how we might be able to help. You can call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

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