Why Premier League clubs will sell-out in 2006-07

English Premier League football club Newcastle United has confirmed it is in talks with US hedge fund Polygon over a possible takeover. Following media speculation, the club issued a statement to the London Stock Exchange to say it had received a potential takeover approach from St James’ Park Group Ltd – a consortium backed by Polygon Global Opportunities Master Fund. Estimates say any deal would reach close to £230 million. The club say no agreement has yet been reached, nor was a takeover inevitable.

“The board of Newcastle confirms that St James' Park Group Limited, a consortium backed by Polygon Global Opportunities Master Fund, is one of the parties that has made an approach to the company regarding a possible offer for Newcastle.The board wishes to reiterate that it has not accepted any proposals for the company from any party nor is any due diligence being conducted on the company,” the statement said, as reported by Reuters.

Foreign ownership of English Premier League clubs is almost certain to increase over the next 12 months, an Independent newspaper investigation by Nick Harris revealed earlier this month Chelsea, Manchester United, Portsmouth, Aston Villa and West Ham are already owned by overseas buyers, but at least another seven clubs could soon join them. Liverpool look likely to be bought by the billionaire ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, while Manchester City is also involved in talks with a potential investor (with a reported price tag of £75 million). Reading's owner, John Madejski, has gone on record as a potential seller and Everton might consider offers.

The Independent revealed that the Premiership's 20 clubs are worth £3.3 billion combined. The most valuable club is Manchester United, which would cost upwards of £923 million to buy today. Arsenal, at £569 million, is rated as the next most valuable, followed by Liverpool, Chelsea, Newcastle and Tottenham.

Keith Harris, chairman of the investment bank Seymour Pierce, has pinpointed why 2006-07 is a selling season like no other. The Premiership's new domestic TV deals, with Sky and Setanta, worth £1.7 billion between 2007 and 2010, are major factors but so is the league's backdrop of financial stability, wage inflation control ("towards a more sensible 50 to 60 percent of turnover") and the Premiership's consistency as a world brand. Harris also cites a global upsurge in hugely wealthy individuals.

"The domestic TV deal was much higher than anyone thought. That underpins the clubs' revenue," Harris told the Independent. "The international rights are also being sold, and the news about BT and Setanta [joining forces to offer games on a pay-per-view basis] shows the appetite going forward. Pay-TV was always driven by movies, entertainment and sport. Now it's sport, and within that, football."

The extra cash from the new TV and sponsorship deals will be huge. The total prize pot now is £1.6 billion over three years, or £25 million per club each season on average, ranging from £17 million (lowest) to more than £30 million (league winners). From next year that will jump to £40 million per club on average. Even the least successful team will see an extra £8 million go straight to the bottom line, while the top clubs will earn £20 million more each year.

"Clearly investors are attracted to the revenue streams, but how we are run is crucial," said Dan Johnson of the Premier League. "No one or two teams hog the broadcasting revenue as they do in Spain or Italy. There's a strong base to build from, and rewards for success." And the Premiership is "well run, it's not so over-reliant on TV like Germany, or on commercial income like in Italy," said Prof Chris Brady, the dean of the Business School at Bournemouth University. "It's easier to buy into places where you can just take out one or two big shareholders, which isn't often the case on the Continent. The growing attraction for Americans is opportunities you can't have in the NFL, where you're not allowed to sell a branded credit card or have ties with bookmakers because you're only allowed to 'do' the sport business. For football, England against other countries is just a better business deal all round."

The Independent asked a panel of experts, brokers, analysts and club insiders how to value a club and the only thing they all agreed on was: "What someone will pay."


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