Soccer Star Factory Joins String of Flops With Shelved IPO

Club Brugge SA’s run at defying the historical trend of stock market underperformance from Europe’s listed teams has stalled before the opening whistle.

Chairman Bart Verhaeghe was betting that Club Brugge’s buy low, sell high approach to player management would help draw investors to a market where its peers have struggled to keep pace with leading benchmarks.

But the top professional club in Belgium shelved its Brussels IPO on Thursday, citing market conditions. Club Brugge had set a price range of 17.50 euros to 22.50 euros per share, which gave it a value of 229 million euros ($270 million) at the mid-point. Trading in the stock was scheduled to begin on or around March 26.

“We regret this, but we look to the future with an open mind,” Verhaeghe said in a statement.

While Club Brugge could still decide to proceed with a listing at a later date, the setback adds another page to the chequered history of the world’s most popular sport in the public markets. An index of listed European soccer clubs compiled by Bloomberg has fallen 0.58% over the last three years, compared with a 15% rise in the Stoxx Europe 600.

The reason for the sector’s sluggishness lies in part with the stratospheric sums that clubs now pay to build and bankroll squads that can keep them competitive in the modern game -- outgoings that often exceed revenue from media, match days and merchandise.

“Investors invariably lose money in sports teams because there is often poor cost control as clubs chase talent,” said Kieran Maguire, a lecturer in soccer finance at the University of Liverpool.

It is exactly this chase that could set Club Brugge apart. Adopting a data-driven approach to spotting and nurturing talent when it is young and cheap, the Belgian team is happy to sell its best players on to elite clubs for big money. Its regular participation in top European soccer competitions has provided a shop window for prized assets and recent deals involving Brazilian attacker Wesley Moraes and Zimbabwean midfielder Marvelous Nakamba saw it rake in millions of euros in profit.

Soccer Star Factory Joins String of Flops With Shelved IPO

For now, it looks like investors will need more convincing.

The Covid-19 pandemic has dented a willingness among clubs to write big checks for players. Even extravagant spenders Manchester City F.C. and Paris Saint-Germain F.C., both backed by oil-rich Arab states, adopted a frugal stance in the latest transfer window.

“We have certainly seen greater adoption of a ‘try before buy’ approach from bigger clubs seeking to take players on loan before making substantial player purchases,” said Sam Boor, a senior manager in Deloitte’s Sports Business Group. “A business model overly-reliant on transfer fees to drive profitability does come with challenges, given how much it has the potential to vary season by season.”

In its IPO prospectus last week, Club Brugge said that its operating income was considerably dependent on the ability to develop talented players and then sell them on for a capital gain. Club Brugge generated operating income of 119.6 million euros in the year ended June 30, 2020, 41% of which came from player disposals.

“The club has a strong track record of transfers, completing on average eight outgoing transfers per year over the last five seasons,” Bob Madou, Club Brugge’s chief business officer, said in a statement responding to Bloomberg queries this week. “Covid has impacted overall volumes for the sector, but where transfers have taken place the price does not appear to have been impacted.”

Even before Covid, history offered a cautionary tale for investors in soccer stocks, especially during a club’s first year in the public markets. Of the 10 largest clubs to have listed, more than half saw their share prices plummet by double-digit percentages in year one, data compiled by Bloomberg show.

Soccer Star Factory Joins String of Flops With Shelved IPO

The 1990s and early 2000s saw a number of established European names launch IPOs at a time when the game’s globalization at club level was taking hold. While some, notably the U.K.’s Manchester United F.C. and Italy’s Juventus FC, continue to trade today, others like Newcastle United F.C. have moved back into private ownership.

“Going public was something of a trend in the 1990s, but many of the clubs that did so went private again after they performed badly on the stock market,” said Maguire. “They weren’t making sufficient returns from an investor perspective to justify the listing and compliance costs.”

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