© Public Domain Pictures
What, I wonder, do the stockbrokered classes do with their money, having sold in May and gone away? The summer season being so liberally punctuated with premier sporting events—the Olympics above all—might they not feel tempted to divert some of their now-liquid assets into a sporting venture, to seek returns where they find entertainment?
For those tempted in this direction, the stock market provides few direct opportunities. Sports clubs such as football teams tend to be private businesses and have good reason to remain so, given that most are entirely unacquainted with the routine drudgery of making profits for their shareholders. Few other businesses, aside from investment banks, routinely pay out 50-60 per cent or more of their revenues as wages and bonuses. (Whether either will be able to carry on like this remains to be seen, since new regulations in football and banking are on the way, though personally I wouldn’t bet against the investment bankers.)
Not surprisingly, businesses that are run solely for the benefit of their employees frequently lose money. In the case of sports clubs this is either because they are small and television rights to their fixtures are worth next to nothing, or because they are big and have become the plaything of a financial potentate. These individuals seem happy to “invest” quite extraordinary sums to make a point and are best left to get on with it. Conspiring to create tax losses for plutocrats is rarely a rewarding venture, unless you’re on the payroll.
So what choices remain? Two spring to mind. The merits of each will depend upon your priorities. So-called sports debentures are relatively common nowadays and can involve a variety of arrangements. Fans of the club might agree to pay a sum in return for tickets to an event for a fixed period—in the case of Wimbledon, this may be one ticket per day to the Centre or Number One courts during the championship fortnight for a five-year period. Some 2,500 holders of the 2011-15 debentures coughed up £27,750 each for guaranteed access along with some extra hospitality.
In other cases, the debenture holder pays rather less, but secures a long-term right to go to the front of the queue to buy season tickets, for example. This may not add up to any kind of financial profit, but I suspect many war-weary stock market investors might find guaranteed access to top quality live sport at least as rewarding as taking a peek at their investment portfolio.
Given that the term “debenture” usually refers to an unsecured loan, you might reasonably wonder whether holders of sports debentures can expect to earn interest income as holders of other sorts of debentures do. The answer is occasionally yes, but the rates are usually unattractive—money is largely beside the point.
For those unable to shake off the idea that it must be possible to profit from an activity that attracts such vast audiences, such rich media rights deals and such extensive merchandising, the best approach is probably the “picks and shovels” strategy often advocated by investors in commodity markets. This works on the principle that there may or may not be oil under that patch of wasteland, but it’s going to require a drilling rig to find out, so invest in a company that sells drilling rigs rather than in one that uses them.
In the world of sport, this means investing in media businesses such as BSkyB, sports fashion brands such as Adidas, Nike or Puma, and even at a pinch the retailers who specialise in distributing these brands such as Sports Direct or JD Sports.
As a sports-agnostic investor, the last approach makes most sense to me. In the five years from June 2006, BSkyB’s income from retail subscribers grew 9.9 per cent a year, and its operating profits by 5 per cent a year even after a heavy programme of investment. Sky’s share price had a great run over those five years too, though it’s now well below the highs of summer 2011.
But even the extensive fallout from the phone hacking scandal cannot obscure the fact that some people continue to make a handsome profit from our enduring appetite for live sport. My guess is that they’ll be doing so long after phone hacking has disappeared from the front pages.