Um…who’s crazy now?
Buttonwood reports on the emergence of new, exotic asset classes such as…the football transfer market. Ie essentially providing venture capital for the development of new football players:
The football idea involves providing money to second-tier clubs (not Chelsea or Arsenal) to buy stakes in younger players. The fund then reaps a share of the rewards when the player is sold later in his career (footballers generally become more valuable as they approach their mid-20s). Why should clubs agree to this? Because they are usually short of money and can buy new players only by selling existing ones. By creating shares in their footballers, clubs can realise some of the equity in their human assets, without damaging the prospects of the team.
Sports as alternative or exotic beta? Sure.
March 6th, 2007 at 2:16 pm
Sean,
Whats your opinion on the current West Ham player ownership issue. Where a external company (technically) hold the rights (shares) to 2 players.
March 8th, 2007 at 8:29 pm
Sean,
Under exisiting FA Rules, third-party ownership of a player is illegal, as West Ham are just about to find out.
Not too long ago, QPR fans were providing a fund to pay the wages of Danny Shittu - although they didn’t own a stake in the player himself, and therefore were not compensated when Shittu was sold on to Watford in the Summer.
FIFA itself is sanguine about 3rd Party ownership - in some cases it is the only way poorer clubs can hold onto and develop a player. However, with West Ham just about to be punished for the Tevez/Mascherano deal and with AFC Wimbledon just docked 18 points(!) for fielding an ineligible player, football is likely to be very uncomfortable with this proposal for some time to come.
Neither is the election of Michel Platini to the chair of UEFA likely to help this one along.
March 11th, 2007 at 5:58 pm
Interesting. I don’t really follow football and so was unaware of the West Ham situation and the FA Rules prohibiting third-party ownership of a player. I was trying to figure out why such a rule would have been written but couldn’t come up with anything substantive. Would be curious to learn the historical reasoning underlying this rule.
Sports teams (and companies in other industries) traditionally held all their assets on balance sheet. A couple of decades ago, a trend to remove real estate assets from many (most?) corporate balance sheets got its start (helped by innovations and growth in the market for real estate securitization…)
I think we will see a continuation and expansion of this trend as companies continue to focus on optimizing their capital structure and focus on their area of operational excellence. In the case of a football team for instance this could be a focus on player selection and/or coaching and/or marketing. The assets - stadium, players - could be financed externally (rules permitting.)
Obviously I’m willing to stand corrected but this particular FA rule looks an anathema and I can’t figure out why the game wouldn’t be better off if outside sources of capital could fund players and player development.
July 3rd, 2007 at 12:23 am
This past Wednesday the Wall Street Journal had an article about Content Partners, a firm which is beginning to offer musicians and actors the opportunity to securitize their future royalties in exchange for a lump sum payyment. Essentially they are making the Bowie bond concept more mainstream, hoping to profit on the unwillingness for actors to accept volitile future earnings. Yet another alternative asset class!
July 5th, 2007 at 9:00 am
Third party ownership has been happening for years. At my club - Watford FC we signed Danny Webber from Man. U. a few years back and investors paid the fee and wages and received the transfer fee when he left. Sir Elton John paid the fee and wages for Paul Devlin. It’s been happening at other clubs as well but with friends of the clubs involved.
The idea of genuine third party ownership sounds pretty dodgy to me.
The problem idea of outside capital being involved in player ownership is that it leads to the possibility of undue influence being brought to bear on the players. Think agent/principal issues in financial markets and apply to football and away you go…