Friday, August 11, 2023
Author: Stuart Lucas
For many football fans, owning shares in your team isn’t really about getting a financial return. They’re passion purchases. They’re about forging a deeper connection with your club and feeling like you have a stake in its success.
It’s a similar story with sporting debentures. Despite the upfront cost, debentures are about guaranteeing your bum on a seat without the waiting list or the queues.
And yet, they are assets. Club shares aren’t just a novelty piece of memorabilia and debentures aren’t just fancy season tickets. Their values fluctuate, they can – in theory at least – be sold and cashed in. And while most owners bought them as a fan rather than an investor, further down the line, they may well want to realise the value in them – but this isn’t always an option.
Debentures vs Shares
While both debentures and shares are an asset class associated with sports, they are markedly different things. When a fan purchases shares in an unlisted club (as opposed to a publicly listed club like Manchester United or Juventus), they become a minority shareholder and those shares can then be liquidated via sale on a secondary market (such as Asset Match) or if the club exits via takeover or IPO.
Debentures, on the other hand, allow the holder to secure highly desirable access such as football season tickets or international tournaments by bypassing the usual channels and queue. They are then valid for a set period of time – in some cases, well over a century. Debentures are typically released by teams or stadiums to help raise capital for a specific project. Arsenal debentures, for example, were issued in 1993 to help with the cost of redeveloping Highbury, while Wimbledon’s All England Club recently has released debentures for both Centre Court and No.1 court to help pay for new roofs.
On-field performance drives debenture value
What makes debentures such a fascinating asset is that their value is driven almost exclusively by the quality of the sport on show. Take Arsenal. As a proud Spurs fan, it pains me to admit it, but they looked the real deal last year. As a result, at Asset Match, we’ve seen a huge surge in interest for Arsenal debentures as fans look to bypass the season ticket waiting list. When the club issued its Category A debentures in 1993, they cost £1,500. We’ve recently seen them fetch £12,500. That’s an appreciation of over 400%. For context, the total shareholder return on the FTSE 100 over the last 20 years was 279% and you wouldn’t have had a front row seat to Arsenal’s Invincibles going a season without losing – a sight, even from the comfort of my sofa, I wish I had been spared.
Considering the returns now available, we’re also getting much more interest from debenture owners looking to cash in – in that instance, we’ll organise a sale where interested parties can make an offer – with some Arsenal debentures now being listed with a reserve price of £21,000. It’s a similar story with Wimbledon debentures where the “Raducanu effect” has meant 2022 debentures on No.1 court cost £46,000 – £15,000 more expensive than the previous issue.
Club shares driven by off-the-pitch success
In contrast, the prices of shares in football clubs tend to be more impacted by off-the-pitch commercial activity and lucrative on-the-pitch success, such as a promotion or participation in European competition. Take Arsenal’s north London rivals Tottenham Hotspur. The club began using the Asset Match platform for share auctions in March 2016. Its first auction priced shares at an average of 165.5 pence. Fast forward to September of that year, when the club had qualified for the UEFA Champions League for the first time in five years and the average price was 190p. As the club became a Champions League mainstay, prices steadily increased, hovering around the 240p mark until May 2019 when they began to regularly fetch 265p or 270p.
Now, what happened in late 2019? Yes, the club were Champions League finalists but more importantly from a pricing point of view, the brand new, state-of-the-art Tottenham Hotspur Stadium opened its doors for the first time. While footballing fortunes have been mixed for Spurs since the move, the commercial power of the stadium has never been in doubt. The pandemic undoubtedly had an impact and share prices dropped to an average of 186.4p between the summer of 2020 and the end of 2022. But since the world reopened, the club has raked in record revenues thanks to increased gate numbers and highly lucrative sporting and music events and the average price since then has been 210.8p. Once the stadium’s naming rights have been sold, which is reportedly set to bring in an additional £200 million over ten years, I expect that price to climb further up. If the club’s owners do eventually sell, those shareholders (myself included) would hope to make a good return.
Some fans, however, will want to cash in their shares sooner than that. When it was announced last year that UK energy bills could be surging to as much as £5,000 a year, we saw a number of users on the platform look to cash in a similar amount of shares. As a result, we had a number of very happy and relieved Spurs fans calling us up to say thank you after selling their shares.
Blurring the lines between fan and investor
The counterpoint to all this, of course, is that for those approaching these assets as an investor first, regardless of whether they’re a fan or not, there’s the potential to tap into a large amount of underlying value. The appreciation of debentures is there for all to see, but the returns on club equity are harder to quantify. However, if you look at the current sale prices being touted for Premier League clubs and compare them with current share prices, it’s clear there are discounts available. Tottenham Hotspur, for example, is trading at a £500 million market cap, but there’s talk of bids of over £2.5 billion. Details of the offer are still yet to be officially confirmed, so it is impossible to be definitive, but it is indicative of a healthy discount on offer.
Whatever the reason for buying and selling shares or a debenture, it’s essential that there are routes for the liquidity to be released and capital recycled. Sports teams and businesses talk a good game about community and family, but don’t always allow asset holders to access cash when they really need it. Backing up these words with actions feels like an open goal that shouldn’t be missed.