How much is chelsea football club worth ? Chelsea was finally able to get out from under government sanctions placed on the club last season, thanks to Todd Boehly’s takeover in late May 2022. Sanctions were placed on the club due to former owner Roman Abromivich’s connection to Russian president Vladimir Putin. Under the sanctions, Chelsea was restricted in selling tickets, booking special events, and negotiating and signing player contracts. Despite the restrictions, fans were welcomed back to Stamford Bridge, which led to an increase in matchday revenue, and total revenue was up nearly 50 million pounds.
Chelsea FC Valued At $3.09 Billion In Sale To Group Led By Todd Boehly
The sale of Chelsea FC by sanctioned Russian billionaire Roman Abramovich to a group led by Todd Boehly, Clearlake Capital, Mark Walter and Hansjoerg Wyss will carry the second-richest price ever paid for a sports team.
Pending regulatory approval, the agreement values the English soccer team at $3.09 billion (using the May 9 exchange rate of £1 to $1.236), second only to the $3.2 billion Joseph Tsai paid for the NBA’s Brooklyn Nets in 2019. (The enterprise values for both deals include the economics of their venues.)
A year ago, Forbes valued Chelsea as the world’s seventh-most-valuable soccer team, worth $3.2 billion (or £2.31 billion, using the April 2, 2021, exchange rate of £1 to $1.383). In other words, the difference between the current purchase price and the Forbes value from 13 months ago in local currency is 8%, slightly less than the rate of inflation in the U.K. over the 12 months through March.
In addition to the $3.09 billion being paid for Chelsea, the incoming owners have committed $2.16 billion in future investments, including the stadiums used by Chelsea’s men’s (Stamford Bridge) and women’s (Kingsmeadow) soccer teams. The $2.16 billion will likely increase the value of Chelsea but should not be part of the “purchase price” because the enterprise value increases only when that investment has been made.
The Chelsea deal is akin to the purchase of the Milwaukee Bucks in 2014, when a group led by Wes Edens and Marc Lasry paid $550 million ($425 million of equity and $125 million of debt) for the NBA team. In addition, they also made a commitment of at least $100 million toward a new arena that was not included in the enterprise value. The Bucks got their new arena and are now worth $1.9 billion.
How Much Is Chelsea Worth?
Various numbers have been put forward for the price of buying Chelsea football club, which was put up for sale by Roman Abramovich for £3bn prior to the UK government freezing his assets.
Lots of bidders came forwards before the deadline of 19th March 2022, and some were close, but did not match, the quoted asking price.
Analysts use a variety of methods to value businesses, so here is an attempt to work out how some of the numbers mentioned in the media would have been calculated.
Does that mean that these figures should be relied upon…valuation is part art, part science, and a lot of salesmanship, so always treat figures with caution.
Method A: Comparative Analysis
If you were trying to value your house, one method is to look at the price charged for similar properties nearby, and then adjust for condition, different number of bedrooms, bigger/smaller garden etc, and the same can be applied to company valuations.
Manchester United are a good comparative company because their shares are quoted on the New York Stock Exchange and so an up to date value can be determined.
In the case of United, the present price is $13.71 per share, and if this is multiplied by the number of shares (approximately 163 million), this gives a total of $2.24bn (£1.70bn) for the company’s equity.
Relating back to a house, its value is usually split between the lender (mortgage holder) and houseowner, and this principle applies to companies too, so the net debt (borrowings less cash) of the company is added to that of the equity element.
Putting the two figures together for Manchester United gives net debt of £495m plus equity of £1.70bn to give a total enterprise value (estimated value of the business as a whole) of £2.195 million.
United had revenue of £494m in 2021 (or could use their £627m in pre-covid 2019) and an EBITDA profit (cash proxy figure) of £91m (£186m in 2019).
Notwithstanding that there are differences in the figures from the different years, the EBITDA valuations can be ignored as Roman Abramovich claimed he did not run Chelsea as a profit making business, and these figures tend to back up that claim.
Having a revenue multiple valuation of somewhere between £1.56bn-£1.93bn seems intuitively in the right ball park, given Chelsea’s smaller stadium and fanbase compared to Manchester United.
A bigger and/or stadium though, which has greater capacity been suggested by some of the interested parties and this may be why some of the bids are higher than £2bn.
Should a new owners acquire Chelsea, they also would pay what is called a ‘control premium’ which is an additional amount over the current market price for a single share, on the grounds that owning 51% or more of the company gives you the right to make strategic and operational decisions.
Markham Multivariate Model (MMM)
A few years ago, Dr Tom Markham created a bespoke valuation method for Premier League football clubs.
Specifically, this method took into consideration elements such as revenue, profit, net assets, wage control and popularity (measure by the proportion of available seats actually sold by the club).
Markham’s thesis put these items together to produce the following:
- ((R+A) x (P +R)/R x W)/C
- Where R = Revenue
- A = Net Assets
- P = Net Profit
- W = Wages/Revenue
- C = Ave attendance/stadium capacity
Adjustments have been made by myself to this model to remove the volatility caused by individual player sales in a single season and replacing it with an average player sale profit over a three year period.
Losses made by a club (such as Chelsea) therefore reduce the value (as losses are negative net profits) which makes sense.
Likely new owners of Chelsea include a few US based franchise owners who might however decide to change the business model and try to make profits, which could mean that the MMM understates what these owners believe to be the long term value of the club.
Putting these figures into Chelsea’s accounts for 2018 and 2019 (the impact of Covid in 2020 and 2021 makes the calculations too unreliable) gives values of £1.61bn and £1.23 respectively.
Discounted Cash Flow
Every potential owner of Chelsea will say they are more interested in the money the club can generate in the future, rather than what was earned in the past under Abramovich, and so discounted cash flows are used as another basis for valuing the business.
No one knows for sure what the future holds in terms of club cash flows, but you can use historic figures and trends, and make assumptions based on them to estimate figures going forwards.
In financial maths we use something called the time value of money, which takes the view that £1 in a years’ time is worth less than £1 today, due to a combination of inflation and uncertainty.
Spreadsheets are used to calculate both the future cash flows and present values of those amounts, using assumptions for a variety of figures and interest rate, and assuming Chelsea continue to qualify for the Champions League and their player trading model (which involves significant sales) is maintained gives a value of £1.497 billion (the spreadsheet is not attached).
Summary
- Looking at the models used gives the following
- Revenue comparables £1.56-£1.93bn
- MMM £1.23-£1.61bn
- DCF £1.50 bn
Therefore anyone bidding £2.5bn-£3bn for Chelsea is assuming that the business has been poorly run historically OR there are substantial untapped revenue sources (SuperLeague Mark II or NFT’s?) or cost savings to be achieved in the future…or the prospective owners simply want a trophy asset and are willing to pay a premium to acquire it.
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