Re: Football's Magic Money Tree
Posted: Mon Apr 12, 2021 4:57 pm
That podcast from Unofficial Partner was previewed by the Unofficial Partner Newsletter - specifically this
Reframing football valuations
Football clubs feel undervalued by the financial markets, and are trying to reposition themselves as an asset class.
Riddle me this:
(HT to The Fat Gladiator Investment Club for this comparison)
Pinterest has 458m users - Market Cap $52.8bn approx
TikTok has 689m users - Market Cap $100bn+
Man Utd has 1.1billion followers/fans - Market Cap $2.8bn
Five possible conclusions:
According to Sportico, the average price of an #NBA franchise is $2billion, with the spread running from $1.35bn for the New Orleans Pelicans to the New York Knicks at $5.42bn. The LA Lakers are third in the list at $4.4bn. The valuation data for NFL and MLB teams tells a similar story.
All the pieces matter
If 4) above is the answer, it explains all the other parts of the sports business conversation: the rush to buy elite sports teams; the SPAC boom; the private equity interest; the obsession with first party fan data; and more broadly, the shift in the world view of team investors away from traditional football club ownership and toward defining clubs as digital content publishers and e-commerce vehicles.
Low ceilings and rusty frames
The financial markets still largely frame football clubs as a media and advertising product.
So the basis of valuations are metrics such as media rights income predictions, stadium capacities, merchandise sales, sponsorship income.
And each of these has a natural ceiling.
Whereas, to extend the comparison made above, the market’s valuation of Pinterest and TikTok have no such ceiling.
They are limited only by what they can extract from each user over the course of their relationship - ARPU.
Lucas von Cranach gives a brilliant analysis:
Then, later.
What are football clubs becoming? Buzzfeed or Amazon?
What’s the model being followed here? And has that changed?
For the last few years, it’s become common for sports team owners and execs to refer to their clubs as media companies.
The can often imply a publishing business model, which assumes the role of content is to sell advertising and sponsorship, either directly or via broadcast rights. See the ceiling caveats above.
Again, the steer from the money markets has not helped.
Go back a few years and the market valuations of the big dogs of digital publishing were stratospheric. That was then however, and the last few years haven’t been kind to Vice, Buzzfeed, HuffPo et al.
Meanwhile, football clubs have spent fortunes tooling up to be media businesses.
Lucas von Cranach says Buzzfeed is the wrong model.
Reframing football valuations
Football clubs feel undervalued by the financial markets, and are trying to reposition themselves as an asset class.
Riddle me this:
(HT to The Fat Gladiator Investment Club for this comparison)
Pinterest has 458m users - Market Cap $52.8bn approx
TikTok has 689m users - Market Cap $100bn+
Man Utd has 1.1billion followers/fans - Market Cap $2.8bn
Five possible conclusions:
- 1. The market doesn't believe Utd’s fan numbers.
- 2. And/or they don’t believe Utd will be able to turn those fans in to users, in the Silicon Valley sense of that term, measured by ARPU (Average Revenue Per User).
- 3. The market’s wrong, and Pinterest/TikTok are massively overvalued
- 4. The market’s wrong, and Man Utd is massively undervalued.
- 5. Both 3. and 4. are true.
According to Sportico, the average price of an #NBA franchise is $2billion, with the spread running from $1.35bn for the New Orleans Pelicans to the New York Knicks at $5.42bn. The LA Lakers are third in the list at $4.4bn. The valuation data for NFL and MLB teams tells a similar story.
All the pieces matter
If 4) above is the answer, it explains all the other parts of the sports business conversation: the rush to buy elite sports teams; the SPAC boom; the private equity interest; the obsession with first party fan data; and more broadly, the shift in the world view of team investors away from traditional football club ownership and toward defining clubs as digital content publishers and e-commerce vehicles.
Low ceilings and rusty frames
The financial markets still largely frame football clubs as a media and advertising product.
So the basis of valuations are metrics such as media rights income predictions, stadium capacities, merchandise sales, sponsorship income.
And each of these has a natural ceiling.
Whereas, to extend the comparison made above, the market’s valuation of Pinterest and TikTok have no such ceiling.
They are limited only by what they can extract from each user over the course of their relationship - ARPU.
Lucas von Cranach gives a brilliant analysis:
The value of the company is the user base times monthly active user value.There are two ways to look at it. One is to have a user base of engaged customers. And that's how you value companies like Spotify, Twitter, YouTube, TikTok, Instagram, et cetera. And the value of the company in the first period doesn't lay in the typical financial model, with discounted cashflow, revenue multiple or EBITDAR multiple. The value lays in the number of engaged customers. And then you put a user multiple behind it.
That is a platform business. That’s what we’re doing at OneFootball. And that's why, our investors are for example Union Square Ventures, who were the first investors in Twitter, Foursquare and Tumblr, and in other companies which have a user-multiple focus.
Then, later.
This leads to another question.TikTok has 500 million users, owned and operated, direct access, and is now valued at a hundred billion.
Manchester United claims to have between 400 and 600 million fans - but disclaimer, they don’t know who they are - and is valued at less than 3 billion.
Institutional investors understand the value of direct access to customers is higher than revenue, because if you have a customer and there's a natural fit to do business with that customer who comes back every day, then that is massively valuable in digital.
The ones who will win from what Apple and Google do are the ones who have first party data.
What are football clubs becoming? Buzzfeed or Amazon?
What’s the model being followed here? And has that changed?
For the last few years, it’s become common for sports team owners and execs to refer to their clubs as media companies.
The can often imply a publishing business model, which assumes the role of content is to sell advertising and sponsorship, either directly or via broadcast rights. See the ceiling caveats above.
Again, the steer from the money markets has not helped.
Go back a few years and the market valuations of the big dogs of digital publishing were stratospheric. That was then however, and the last few years haven’t been kind to Vice, Buzzfeed, HuffPo et al.
Meanwhile, football clubs have spent fortunes tooling up to be media businesses.
Lucas von Cranach says Buzzfeed is the wrong model.
Cranach: There were loads of businesses like Buzzfeed, Huffington Post, Vice, Copa 90, who from my perspective, were more content production and creation companies with social media reach than they were platforms, because they didn't have access to customers.
They had channels on social media and then they went out and said, ‘We reached 500 million people, but actually with this disclaimer, we don't know them. And we don't know if we reached them’.