Audiences watching live sport are among the most valuable consumers in the world and football teams tapping into that potential offer the most enticing brands, according to Michael Lindsell.
The co-manager of the five FE Crown-rated Lindsell Train Global Equity fund alongside James Bullock and FE Alpha Manager Nick Train currently owns two football clubs – Juventus and Celtic – in its high conviction portfolio.
Meanwhile. Manchester United – one of the Premier League’s so-called ‘Big Six’ clubs and the richest football club in the world – sits in the LF Lindsell Train UK Equity fund.
The £3.8bn global fund has outperformed since its inception in 2011, with a total return of 205.15 per cent versus the IA Global sector average’s 87.91 per cent and MSCI World benchmark’s 121.06 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
One of the more unusual areas it has been focusing on is football, where the managers have added Italian giant Juventus, and perennial Scottish Premiership champions Celtic.
Lindsell said football clubs have strong customer loyalty, with most people avidly supporting just one team, as well as ubiquity among global consumers.
“The other thing is that you want to draw big and predictable audiences, which platform owners need to do in order to monetise their platform or advertisers need to do to get products in front of consumers,” he said.
“Audiences watching live sport are the most valuable of any out there as football is probably the most entertaining live sport in the world with the biggest backers.
“So, creating wonderful football is worth a lot of money and far more than people are being remunerated for it today.”
Focusing on Juventus, the manager said it has the largest percentage of domestic fans in Italy. Indeed, some 30 per cent of all Italian football fans support the club nicknamed ‘Juve’, according to Lindsell.
“It is also, though, a reflection of their heritage,” he explained. “Juventus are the most well-known, biggest and one of the most long-standing football clubs in Italy and clearly dominates the market in that country.”
In addition to that, while the brand has already got some international appeal, the manager said this should “mushroom over time” as the reach of football continues to spread globally.
Shares in the Italian giant took off in the first half of last year and over the last 12 months rising by 151.61 per cent, as the below chart shows.
Performance of stock over 1yr
Source: Google Finance
Speaking in May, following a sharp rise, co-manager Train said he was not sure why the share price had performed so dramatically.
“This has been a longstanding investment for us and, in hindsight, the shares had done nothing but bobble about, very gently upwards, for five years until 2017,” he wrote in the fund’s factsheet.
However, the club’s valuation, while not far from the multiple at which AC Milan was sold in April last year, is still some way below what Manchester United commands on the New York Stock Exchange.
“Some of the strategic value we saw in Juventus all those years ago, which prompted us to build the holding, has now been captured in today’s higher price. But by no means all of it,” he said.
The other football stock in the global portfolio is Celtic, which despite being a much smaller club commands a huge amount of its domestic market.
“Celtic has that same position in Scotland – a very narrow, niche market where the media revenues are tiny,” Lindsell said.
“But there is a diaspora of potential Celtic supporters from Scottish catholics around the world that follow the club vicariously,” he said. “If ever Celtic were to tap into that supporter base more, or could morph their media rights from just the Scottish Premiership into something bigger, then the revenues of the company could double or triple very quickly.”
While there is nothing to suggest that the club will materially change in the short term, it is now run by businessmen who will likely monetise the club more successfully moving forward, he added.
“So nothing much is going to change with Celtic in terms of the revenues it earns today if it doesn’t change its league structure – and there are no prospects of it doing so as far as I can see,” he said.
“But I wouldn’t be surprised if the agenda from the owners over the very long term is to get things changed. If that was ever a likely event the value of the franchise would be enormous.”
The other team held in the Lindsell Train portfolios is Manchester United, the most recent acquisition by Train in the Lindsell Train UK Equity fund and the Finsbury Growth & Income Trust.
Performance of stock over 1yr
Source: Google Finance
Like Juventus, the stock had a strong 2017, rising by 60.71 per cent over the past 12 months and more than 70 per cent in the calendar year.
Despite the strong performance co-manager Bullock wrote in January’s factsheet that the team remain confident that the shares are set for long-term success.
“In the interests of temperance, remember that on a one-year view performance can be lumpy,” he said.
“We certainly have no precise expectations for 2018. Nevertheless, we still view our holdings as having excellent underlying prospects and still think them undervalued by others.”
Lindsell said Manchester United has the same market position in England as Juventus does in Italy but with a much bigger – indeed possibly the biggest – global brand.
However, not all football brands are equal. While the investment team owns three of the four football stocks available to them they do not own German club Borussia Dortmund as it does not have the same brand characteristics as the others, Lindsell noted.