According to the 2016 report from Forbes, the world’s most valuable football clubs are Real Madrid (current value of USD36.5 bil with revenue of USD694 mil) and Barcelona (current value of USD3.56 bil with revenue of USD675 mil). Manchester United comes in third, followed by Bayern Munich and other Premier League clubs rounding up the Top Ten.
Although recent lists have Man United climbing back to the top, for instance a KPMG study that takes “enterprise value” into account (which includes broadcasting, merchandising, and commercial operations), the two Spanish clubs still stand out very strongly from the rest. In terms of indebtedness, both Real Madrid and Barcelona have very low debt as percentage of its value (around 2-3% only), compared to Man United which is highly geared at 24%. In fact, it carries the highest debt in the Top Ten according to Forbes.
So what do the two Spanish giants have in common?
Unlike most football clubs, Real Madrid and Barcelona are completely owned and run by their loyal fans! These fans, known as “socios” are club supporters. They form an assembly of members that govern the club and elect its president. This is just like what you expect from a fan club. These “socios” literally number in the dozens of thousands. They pay an annual membership fee that provides them with perks such as discounted season tickets and merchandise, free access to stadium tours, meet-and-greets, and open training passes.
Despite the ownership structure, it may be surprising to some that both these clubs are extremely well-run, very profitable, and richly capitalized. In fact, they stand on par if not better than their well-heeled English cousins. They are often known for poaching star players with ridiculous amounts of money. Unlike a public company which has to give out dividends to shareholders on regular basis and meet market expectations, all profits stay within the club which makes it a more stable, driven, long-term focused, and productive business entity.
It is even more impressive if you look at their credentials. Real Madrid has won 11 European Cups, 32 La Liga Trophies, and 19 Copa Del Rey; while Barcelona holds 5 European Cups, 24 La Liga Trophies and 28 Copa Del Rey. Combined, they have conquered 56 out of 85 available La Liga titles. They take up almost 50% of all TV money available to Spanish clubs!
Note: Man United is owned by the public, by virtue of it being listed on the NYSE. It is not owned exclusively by fans. Five years on after listing, its share price performance has been underwhelming. It even lost USD1 bil in value at one point this year due to its failures on the pitch.
What can we learn from this ownership model?
The success of a football club is not just a function of the manager, calibre of players, and right factors of field and weather. The fans who become co-owners of the club are the fourth dimension to this success story. They feel involved, are passionate, and have a sense of ownership. This creates a “social value” for the club. The club as a whole coalesces together and becomes a community with a higher purpose than just individual investor interests.
There are intrinsic challenges of being privately owned by fans. They are not able to raise capital from shares, and have to rely solely on incomes generated from the club. Supporters argue that this makes them even more prudent and accountable. Also, less prone to financial excesses and massive debt burdens like the public listed clubs do.
It is worth noting that the German Bundesliga has a hybrid model of the Spanish La Liga. It adopts a 50+1 rule, giving the majority of club shares to fans. The rest is to be purchased by investors. This gives fans a direct involvement in how the club is run and financially managed while still being open to outside investments as well.
Influence investing – the new breed of entrepreneurship
This “socio” ownership of football clubs represent a new breed of venture building for entrepreneurs. It is what I call “influence investing”. Founders and investors with common influence come together and enlarge their circle of influence collectively. They all share the same business vision and purpose. They ally their influences to grow the investments through their passionate support, expansive networks, and positive word-of-mouth. Rather than a typical annual general meeting (AGM) for shareholders, it could be a communion of fan club members.
This will be an Owners Circle, just like our namesake.