I’m a season ticket holder at Leicester City and despite having a successful last few years and winning the Premier League in 2016, thankfully my club was not considered to be ‘big’ enough to be included in the horrendously badly conceived idea that is/was the European Super League (ESL).  I may be biased, however I genuinely think Leicester City is one of the best run clubs in Europe and I am proud to support them.  The owners and leadership team aren’t perfect but the relationship they have with the fans and community is unlike any other club I know and there are so many examples of positive engagement.  The lack of engagement with the fans and wider football community by those clubs that signed up to the ESL highlights that the owners of Leicester are the anomaly rather than the norm.  It also got me thinking about a big topic in our industry at present called ESG (environment, social, governance) risk management. Everyone knows about environmental risks, however social and governance risks are often overlooked.  This week’s ESL announcement shows that the lack of understanding of the importance of the S and G part of ESG.

 

ESG is supposedly becoming an important investment factor in Europe (not so much in the US yet), so I was interested to see the share price reaction of those clubs involved in the ESL that are listed.  The English clubs involved in the ESL had clearly not engaged with their local communities or fanbase over the plans (lack of social risk management awareness).  It was also suggested that some Directors of the clubs involved were not aware that the club had agreed to the ESL and the Premier League/FA were also not involved in the discussions (lack of governance risk management awareness).  Would investors consider the lack of social engagement and the clear governance question marks over the ESL?  Or just see the potential boost in revenue?  The answer was clear; Manchester United’s share price rose by 10% and Italy’s Juventus saw their share price rose by 18%.  Even those clubs that weren’t in the ESL saw share prices rise, including Germany’s Borussia Dortmund and Ajax of the Netherlands. 

 

This is quite disappointing in my opinion and shows that ESG isn’t quite as important as some like to hope/think.  Whilst there has been a joyous reaction to the withdrawal of the English clubs from the ESL with many highlighting fan power, it has emphasised the glaring lack of governance in football and that this problem isn’t going away any time soon.  The football authorities, be-it FIFA, UEFA, the FA or the Premier League are there to run football for the good of the sport.  The owners of the ESL clubs, such as Manchester United are there to run their club not football as a whole, which is clearly what they think they need to do to ‘save’ football.  Most of the ESL clubs have since come out and said they need European football to change.  There is a huge lack of information on what they think is actually wrong with European football, unless you take a look at their finances and I suspect this is the big issue. 

 

The pandemic has hit revenues hard and increased debt levels at most of the ESL clubs, for example Manchester United’s net debt rose from $266m to $618m between 2018/19 to 2019/20 (it has cost Manchester United over £1bn in finance, interest and dividends to have the Glazers as owners since their debt-financed take-over in 2005).  The real reason for the ESL is to improve the short-term financial position of the clubs and ensure they can’t be challenged from their cosy position, irrespective of the potential damage to the rest of the sport.  Football governance has to change, it has to improve; it’s like the Wild-West.  The only stakeholders that care about the long-term sustainability of the clubs are the fans.  Therefore, in my opinion the authorities need to enforce a revolution in football club governance and require every club to have a supporters trust to have 51% of voting rights or a ‘golden’ share with the right of veto.  The ownership of the clubs can remain with the owners but supporters have a key role in the major decisions of their clubs.  It won’t fix everything and supporters trusts can still make silly decisions like their owners, however at least the wider community is engaged.  Let’s be clear – this isn’t going to happen.  Owners won’t allow a loss of control of their cash-cow assets, however without reform, the ESL is just the start. 

 

So, I come back to ESG.  For listed clubs like Manchester United and Juventus, investors, whilst most are only minority shareholders, have to do more to make management teams and co-owners responsible for the social and governance risks.  Nick Train is a high profile investor in listed football clubs and his firm has £23.2bn under management as at 31 December 2020 (we don’t invest with Lindsell Train).  I haven’t seen any comments from Mr Train, however this is a real-world test of the importance of ESG and highlights that we’ve still got a long way to go for these risks to be respected by investors. 

Thanks for reading and