PERSONAL FINANCE: Use your head - not your heart.
The recent heavily-publicised takeover of Manchester United Football Club by the American businessman Malcolm Glazer offers a salutary lesson for small shareholders in sports clubs.
The apparent ease by which this hardnosed and experienced businessman has pushed aside the small investors in Britain's most successful football club has shown the vulnerability of the small shareholder in the world of sport.
An investment decision should always be made with the head, not with the heart.
Mixing your loyalty to your favourite football team with an investment decision should be avoided at all costs.
In the 1990s when the Premier League was formed a number of football clubs were turned into public limited companies enabling fans to purchase shares in their beloved club. Indeed the fund management group, Singer and Friendlander launched a unit trust investing in the shares of listed football clubs and even appointed the ex-Liverpool player and television pundit Alan Hansen to the board as an adviser.
The market for football shares was more volatile than West Bromwich Albion's league position and in only a few years the fund was wound up as many football club share values nosedived.
Malcolm Glazer and his advisers cleverly built up their stake in Manchester United, first of all getting to 51 per cent and then the ultimate figure of 75 per cent to gain complete control of the business. Small shareholders with a minority shareholding in instances like this are powerless to prevent control passing to the majority shareholder.
Remarkably shares in Aston Villa benefited from the interest in Manchester United reaching a 52 week high. The Birmingham club has been prudently managed by chairman Doug Ellis and has very little debt. However, Villa shareholders and fans have first hand experience of the frustrations of investing in a company where one person calls all.
Even with a businessman as shrewd as Ellis avoiding the potentially fatal temptation to overspend in the search for club glory, Aston Villa has still failed to avoid the dramatic decline in the football shares market.
Investigative journalist Tom Bower in his book Broken Dreams - Vanity, Greed and the Souring of British Football published two years ago provided a damning indictment of the way money has corrupted Britain's main sport.
He summarized club football's entry into the world of the stock market as the erosion of the old rules protecting football clubs as a focus of local communities with clubs being sold to the highest bidder as has happened so tellingly with Manchester United.
Club supporters may have a sense of well-being owning shares but the real winners have been those running football clubs.
'Astute chairman had, after secretly accumulating shares bought a generation earlier by loyal fans and retained by ignorant widows, floated their clubs for enormous profit,' wrote Bower.
Manchester United's Martin Edwards at Manchester United and Newcastle United's Sir John Hall made vast sums after floatation while in the West Midlands at Aston Villa Doug Ellis also made a fortune.
'The major shareholder was Ellis himself, who had bought a 47 per cent stake in Aston Villa in 1982 for pounds 425,000 and kept 33 per cent of the shares on floatation in 1997, valuing his stake at the time at pounds 42 million,' recalled Bower in his book.
Even Ellis could not prevent the value of his shares dropping dramatically to pounds 4.3 million by the end of 2002 but it is the small shareholder who has been the real victim of the fashionable trend to buy football club shares.
Many clubs that floated inthe heady boom era in the early 1990s are now worth a fraction of their original floatation price.
After being floated at pounds 11 in 1997, Aston Villa shares had dropped to 296p by August last year. It was similar story with Newcastle United priced at 42p at that time after being 135p seven years earlier. Celtic shares last year were seen dropping to around 61p compared to 280p six years previously.
Chelsea have been among the clubs that have delisted offering further evidence that buying shares in football clubs has never been a wise financial investment for the general public.
Any investments in a sporting institution should be viewed as a donation with a possible reward, not a serious investment decision. It may well enable you to attend the annual general meeting and buy your shirt in the club shop at a discount but it is no place to invest your time and savings Trevor Law is a director with Montpelier Group (Europe), the privately-owned independent financial advisers based outside Barston near Solihull. E mail: TILaw@montpeliergroup.com
Aston Villa may have avoided a heavy debt burden under the chairmanship of veteran Doug Ellis but they have still been a victim of the slump in football club share prices
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|Publication:||The Birmingham Post (England)|
|Date:||Jun 4, 2005|
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