Emotions are a funny old game.
We may do all we can to exclude them from our investment process, here on The Value Perspective, and yet clearly they are an integral part of football.
That being so, what is the value investing take on buying into listed football clubs?
Seeing as the quarter-finals of the Champions League kick off shortly – and especially given certain events in the previous round – it is a timely question.
Before we go any further, we'd like to state we are not recommending to invest in or divest from Juventus in any way, it is being used purely to illustrate a point. We also freely admit we are about to impose a narrative on recent events – something we have often cautioned against in the past, once even in the footballing context of the supposed dangers of a 2-0 lead.
Still, as you will see, we are doing so in a very precise way and for a good cause so, caveat duly offered, take a look at the following graph of the recent share price moves of Italian football giant Juventus.
6 month share price of Juventus
Source: LSE as at 05-Apr-2019
Past performance is not a guide to future performance and may not be repeated.
Let’s now consider some key dates in the race to win this season’s Champions League over the last six months – the first two being 27 November 2018, when Juventus sealed their place in the last 16 with a game to spare after beating Valencia 1-0 at home; and 17 December 2018, when the club drew Atletico Madrid, one of the competition’s tougher teams over the last five or six years, in the round of 16.
As you can see, investors did not react in any obvious way, perhaps – and we merely raise the possibility – because there were more general market concerns at the end of last year.
Furthermore, you might reasonably add, the club is almost two-thirds owned by a company controlled by the Agnelli industrial dynasty, which would dampen price volatility – and, anyway, why would anyone think football matches moved markets?
At which point, we would draw your attention to two further dates – 20 February 2019, when Juventus lost 2-0 away to Atletico in the first leg of their round-of-16 tie; and 12 March 2019 when, courtesy of a Cristiano Ronaldo hat-trick, they progressed to the quarter-final stage, which will see them pitted against Real Madrid’s youthful conquerors Ajax.
The day after the first tie was lost, the share price fell more than 10% from €1.45 to €1.29 while, within a few minutes of the market opening on the morning after the 3-2 aggregate victory was confirmed, the share price bounced back 21% from €1.22 to €1.50 before ending the day at €1.44.
At that highpoint, the club’s market capitalisation (the share price multiplied by the amount of shares issued) was roughly €1.5bn meaning Ronaldo’s hat-trick had ostensibly added €200m of value.
Can a hat-trick be worth €200m?
Can that really be what happened?
As we say, there are no guarantees – and investors did not seem unduly bothered one way or the other after Juventus were drawn against Ajax on 15 March or Ronaldo injured himself while on international duty with Portugal 10 days later.
Even so, the price moves of 21 February and 13 March do seem very time-specific reactions to very time-specific events.
In which case, this is another example of the madness of markets because how much money can we say for sure is at stake here?
Well, according to European football’s governing body UEFA, having already picked up €9.5m from qualifying for the round of 16, Juventus has now guaranteed itself another €10.5m by qualifying for the quarter-final.
Yet even with the potential of a respective €12m, €15m and €4m for making it through to the semi-final and final and winning the Champions League, that is still only a fifth of the €200m that was added to Juventus’s market capitalisation the morning after beating Atletico.
To return to our opening question – yes, we would consider buying into a football club through the same objective basis we weigh up any other investment.
As for emotion, though, we’ll save that for cheering on our favourite teams.
All stock mentions are for illustrative purposes only and not a recommendation to buy or sell.