How to value a football club using the method of multiples?


The method of multiples (or comparables) is a financial engineering technique for estimating the value of a company. It consists of the application of a multiplier coefficient to a financial aggregate (net result, EBITDA, operating income, etc.) to obtain an initial estimate of the company studied. It is based on a sector-based approach with a multiplier coefficient which is notably calculated according to past transactions in the sector or stock market valuations.

A commonly used method in professional football despite its limitations

Seemingly simple to understand and apply, the method of multiples is very popular in professional football. Many investors and selling owners use the method of multiples – by applying a multiplier to the turnover – to set a first price. By using turnover as a financial aggregate, sellers circumvent certain problems – including that of regularly posting a negative result making it impossible to apply the DCF method – to make their first estimate.

“Usually, we make our first estimate using the method of multiples. For a very simple reason: in the majority of cases, shareholders set their price beforehand and they seek above all to obtain confirmation from the mandated firm,” explains a financial expert who has worked on several transactions within French professional football. .

However, there are many limits to the application of the method of multiples to professional football clubs. While investors tend to apply their multiplier coefficient to a result – gross operating surplus, pre-tax result, net result, etc. – the world of football has become accustomed to using turnover as a reference aggregate. . And there is no consensus in the sector on the consideration of revenue from the sale of players in the scope of calculation.

“Normally, Private Equity funds tend to reason on EBITDA multiples. In football, multiples of income are used and it is a much riskier method. We are more in the operation of Venture Capital. Because income can fluctuate a lot from one season to another because of the sporting classification, the participation or not in a European competition… ”explains another financial expert accustomed to transactions in the football world.

Another major problem: on which accounting year should the multiplier be applied? “The right method is to normalize the income of the professional club analyzed over ten seasons. The history gives a real snapshot of the club’s performance. This makes it possible to reduce the influence of very good and bad seasons in the calculation,” continues our expert.

Finally, the last difficulty and not the least: finance professionals generally rely on several hundred transactions or listed companies to best define the multiplier to be applied. However, in professional football – and in professional sport in general – very few clubs are listed on the stock exchange. And the information circulating on past transactions is not always accessible or reliable. Hence the complexity of the exercise.

Example of calculation of the multiplier coefficient

Despite the many limitations associated with the method of multiples, we sought to define a multiplier applicable to professional football from a sample of clubs listed on the stock exchange. The four clubs in the sample are teams playing the leading roles in their respective championships and regularly competing in the Champions League. To carry out this exercise, we took into account the share price, the market capitalization and the share of free float in the share capital to determine a company value. Then we calculated a ratio based on turnover excluding transfers recorded during the 2018-19 season, the last season not impacted by the health crisis.

Even if this exercise has many limits, we obtain for the different clubs a multiplier coefficient between 1.15 and 1.90. A range that corresponds to the coefficients applied in the French professional football industry, according to our experts interviewed. “For a Ligue 1 club, we generally apply a multiple of between 1 and 1.25. We can nevertheless go up to 1.5 if there is really competition on the file” enlightens us one of the two experts questioned.

The coefficient is nevertheless higher for Manchester United (3.3). A consensus is shared in the sector concerning a “premium” granted to the very big brands of world sport. In addition, Manchester United plays in the Premier League, the most powerful European championship from an economic point of view. Factors that may explain this higher ratio.

To go further 👇

The method of multiples – The key notion

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