How do you value a football club?

There has been a lot made of how much Bill Kenwright wants to sell Everton Football Club for, but how do you put a value on a football club, asks NSNO Editor Simon Paul.

Kenwright has never come out and given his valuation of Everton, something he has been heavily criticised for, but something he is probably correct to do in some circumstances.

When you’re selling a house, you have a rough estimate of how much other similar houses in the area have sold for, but yours is special, you’ve spent a long time making it the perfect home, so obviously yours is worth that little bit extra.  So, you put it on the market at around £10,000 more than the average price for your street, initially hoping to get the full amount.  After a few viewings, you realise that although people like what you’ve done with the place, they’re not soft, so they’re not going to pay the full price, and after refusing the first few offers that were £15k below your asking price, you start to haggle, eventually getting around £10k below your starting price.  It’s still a good price for the house, but not what you wanted.

Unlike selling a house, Bill Kenwright is under no pressure to name his price in public.  And he would be foolish to do so. If he “boxes clever” and names a price higher than most people’s valuation in order to get the actual price, he will be barracked for wanting too much money, yet if he names the actual price the club is being sold for, then he won’t get it, as potential buyers will expect to be able to haggle down from that initial price.  It’s a no-win situation, he either loses face, or he loses money, so instead he keeps quiet.

Houses are easy to value though, roughly.  You look around the street, you see what other houses have sold for, and if your house is in a similar condition, you’ll get close to that amount when you sell.

Football clubs are a very different beast.

They are a business for a start, and not a traditionally profitable one.  How many clubs run at a profit in the Premier League?  4?  5?  If you apply a business valuation to most football clubs, comparing assets to debts, coupled with potential revenue streams, then you’ll find many have a nominal value at best.  If you valued Manchester City purely as a business during their first billionaire takeover, was it worth the near £100m it was sold for?  They didn’t own their stadium outright, they had an ageing squad which included Danny Mills, Paul Dickov and Trevor Sinclair, and Stuart Pearce was in charge.  Their debt stood at over £60m.  Were they really worth more than Everton are today?

So you look around and you compare the market, not the meerkat, which apparently upsets them so is important to remember.  You look at what other football clubs have sold for, maybe those in your neighbourhood (or division) and you look at your own club to see how you compare.

Our (official) debt is lower than Manchester City’s stood in 2006.  Part of our debt is secured on our stadium, so if cleared, we own our stadium outright.  And we have one of the best managers in the Premier League at the helm, overseeing the development of some of the hottest English talent in Jack Rodwell and Ross Barkley.

Everton have a large and widespread fanbase, and if it’s not bigger than Manchester City’s in 2006, then it is at least comparable.  We have a much prouder history than the Manchester club, and are still the fourth most successful club in English football despite having won nothing for the last 12 years.  Our status as the longest serving top-flight team will also serve as a badge of honour to any Chairman of Everton Football Club.

We also have to consider that six years have passed, and, probably because of Manchester City’s subsequent £210m takeover in 2008, the market value of football clubs has risen significantly.  When Liverpool were taken over  they were subject to bids of up to £500m.  The market value of football clubs continues to rise, and that includes Everton.

Bill Kenwright has always maintained he is merely a custodian of the club, waiting until he finds the right buyer to take us forward, and a large number of fans believe he should be selling for much less than either of the above deals.  It has been said that he should sell for the value he paid for his shares.  However, in order to keep hold of his position as “custodian” he has had to involve other parties.  John Woods owns around 20% of the shareholding, as does Robert Earl (by name at least) so there we have three parties who all want a return on their investment.

Only Bill Kenwright has said anything about selling the club, publicly, so what makes anyone feel the others would be happy to sell for their original purchase price?  In fact, what makes anyone think Bill Kenwright would sell for that price?  If you bought a house in the 1960′s for £5,000 which was now worth a hundred times that, would you sell it for £10k?

Robert Earl was brought in to replace Paul Gregg, who was sold on the initial idea of being able to profit from the King’s Dock.  Robert Earl, or whoever financed his purchase, was brought in on the idea of being able to profit from Kirkby.  Gregg was backed into a corner until he was just desperate to get his money back.  Earl, or his backers, aren’t in quite so much of a weakened position.  He will want a return on his investment, and let’s face it, who can blame him?

The asking price being rumoured, as it has never come from any of the major shareholders themselves, is £150m to buy control of Everton Football Club.

When you look at what Kenwright and his board paid for their shares, that represents a tidy profit.  And when you look at the pure business model of valuing a football club, based on assets and debts, then it represents a laughable figure.  But when you look at what other takeovers have been valued at recently, then ir represents a fair price.  Only Blackburn, which was sold for around £44m (£23m cash, £21m taking over of debt) have been sold for less when you look at clubs hoping to be compared with Everton, but would we want Venky’s in charge at Goodison Park?  They are no better than Bill Kenwright, who ploughed all available resources into buying the club, forgetting that once you own it, you need to invest and improve.  An asking price of £150m won’t put off the billionaire we all want, but it will send the likes of Venky’s running for cover.  Is that a bad thing?