Research identifies real cost of stadium ownership

New research at Cass Business School in London estimates that only 16 out of a sample of 92 English football clubs can afford the land they are using for their playing ground and recommends that clubs facing chronic financing problems, should investigate ground-sharing with neighbouring clubs, Soccer Investor reported (7 April). The study was carried out by Tony Key, Professor of Real Estate Finance and Dr Vicki Law at the Real Estate Finance and Investment Group at Cass.

Prof Key and Dr Law have produced a rule for the average attendance a club needs in order to generate enough revenue to justify the balance sheets: land value must be higher than residential land values in each area of the country. In central and greater London for example, where residential land commands upwards of £3 million an acre, a club would need to attract over 60,000 spectators to secure the land from property predators. In regions where land value is under £1 million per acre, 15,000 would secure solvency.

Professor Key and Dr Law created a football grounds database combining accounts data (turnover, debt, value of property on the balance sheet), ground capacity and attendance, the rents clubs could afford to pay as assessed by the Valuation Office Agency, plus estimates of what their grounds cost to redevelop, or what they would be worth if sold off for residential development.

It shows that in 2003 League clubs held £1.1 billion of property assets on their balance sheets, accounting for 90% of their tangible assets. As a typical construction cost of £1200 a seat, their stadia would cost £2 billion to rebuild. To finance that use of capital, they had a gross revenue of £1.5 billion, made a pre-tax operating loss of £213 million and they already had debts of around £1.2 billion.

"Football clubs make money on the land they use usually valuable urban land primarily on match days. That is an awfully light usage of land compared with covering it with houses or shops, for example. On average, football clubs are carrying £73 worth of property assets on their balance sheet for every £100 they make in gross revenue. That's twice as much as the average retailer. Only the hotel industry needs more property to generate a pound in income than football clubs," Professor Key explained.

The research states that clubs could ground-share with other clubs, co-locate with other sports, or build ancillary businesses with music, dining, catering and community facilities. "As pairings, Arsenal and Tottenham, Everton and Liverpool. Aston Villa and Birmingham, Chelsea and Fulham, would generate enough revenue to pay land prices for their grounds well above competing residential development and potentially generate large capital receipts from the sale of one ground," Colin Brady, author of The 90-Minute Manager: Lessons from the Sharp End of Management, commented.

However Prof Brady said clubs lack reliable evidence on the revenues and costs of a range of solutions for their ground sharing problems: "The work on grounds has been one of several studies of the football industry we have done at Cass and this work on the management of grounds is just one of the issues we will be looking at through wider surveys of clubs, as part of a general effort to apply management best-practice to the football industry."