Monday, August 20, 2007

The takeover question

The opaque statement that Charlton's board were exploring 'strategic options', has naturally led to all sorts of unfounded rumours concerning Nigerian princes and Russian oligarchs.

Whilst I suspect any new owner (if any) is likely to live closer to Port Talbot than Port Harcourt, the statement has at least provided the catalyst for an inevitable debate over Charlton's future, particularly in light of feverish takeover activity elsewhere.

Readers of this blog will be aware of my scepticism regarding the permanence of the current euphoria surrounding English football. Rather than view it as firm evidence of the unique attractiveness of football club assets, I saw it instead in the context of the crazed liquidity-fuelled global bubble that whipped up the valuations of virtually every asset, and yet is now being unravelled at a terrifying and perhaps unprecedented speed.

The issuance of the statement on the same day that the FTSE 100 suffered an enormous 4%+ fall, had a certain poetic feel to it. It's too early to suggest the club has missed the boat, but the aggressive assumptions upon which money is lent are now being questioned with supreme (and much welcomed) diligence. We'll probably need a cash buyer, and right now 'cash is king.' It is not unreasonable in my view to suggest that the debt-fuelled Manchester United deal of 2005 would not have been completed in this new risk-aware environment, at least not on the terms agreed. Charlton Athletic? No chance.

It's important to note that Richard Murray and his fellow directors owe the club nothing. They have regularly supported the club via equity and debt financings, and at least until last season, steered the club majestically. They are perfectly entitled to realise their investment should they wish to, and whilst we must hope they would only sell to an enlightened buyer, they are certainly under no obligation to do so.

In what other (until recently) listed business are the directors expected to fund deficits personally, rather than through traditional capital market transactions? Similarly, once I've finished banging my head against a wall listening to yet another 6-0-6 caller ask, "..when are the board going to show some ambition?", it's only fair surely to accept that those same members of the board might one day have had enough. As the statement implies however, they may still have the stomach for more investment themselves, we'll see.

The board may conclude that the club needs a new ambitious owner who can afford to help us compete, perhaps not with the true big boys of the Premiership, but at least with the next tranche. The problem with this conclusion is that we were never truly competing before the sudden influx of new capital into football, and we're not competing now. Big ça change. I'm in no particular hurry to switch my allegiance.

More interestingly, if you share my view that football is an inherently money-losing proposition (due to the influence of players, and the vagaries of results) then there is a not insignificant chance that many of the big-spending clubs might simply implode, and their owners sell up at a hefty loss. Charlton overtook the likes of Leeds, Forest and Sheffield Wednesday simply by standing still....what chance West Ham, Newcastle and Villa? Assets fluctuate in value; debts are real. Slow and steady wins the race (though Iain Dowie doesn't help).

Take a look at the clubs which have enjoyed material investment on an ongoing basis. Some have clearly seen their fortunes improve, and that success must be due in a large part to that investment. Amongst the current Premiership clubs, Chelsea, Reading, Wigan, Fulham, 'Boro and Blackburn stand out in this regard. However in each case, their stability (indeed existence) would be firmly in question in the event that the current owners refused to maintain current funding levels, or their form suddenly dipped.

Moreover, in the case of Chelsea for example, there is only a handful of people that could maintain that level of ongoing deficit-funding (and Abramovich happens to be one of them). If that is what is required to 'compete' in the Premiership, then I'd prefer we didn't enter the game.

And the 'hobby' argument (ownership is a mere leisure activity) does not wash very well with me. Billionaires don't think like that, and I've been 'fortunate' enough to meet a few (Any of them interested in Charlton? - Ed.). The pleasure from a yacht or country mansion is immediate; football requires patience (as even Abramovich has found out). Today's new black is tomorrow's grey.

More reassuringly, there are a few clubs (Everton, Bolton and Arsenal spring to mind) who have achieved considerable success (both relative and absolute) without the benefit of a (very) wealthy owner. The old virtues of loyalty, hard work, sensible decision-making and a solid youth set-up have worked wonders for them, just as they did for Charlton (and frankly still do so in large part). Let's stick with that strategic option.

Provided any new owners go down this route, most fans will be supportive. Then again, who (other than an existing wealthy fan) is likely to be interested in investing on these terms? Even well-run clubs end up experiencing the 'prune juice' effect (what goes in, goes straight back out).

When I look at the world, I see so many bubbles I probably ought to be a West Ham fan (...and there's another bubble - Ed.). The current craze for football clubs looks just like another one ready to go pop, and all this talk about 'competing' just leaves me cold. I want Charlton to do well within reason, but I also want it to exist. There's every likelihood I'll go to my grave without seeing us win a major trophy, yet I bet I won't want to exchange the losing memories for anything.


At 8:34 AM, Blogger Wyn Grant said...

I think that what your argument overlooks is that what many of these owners are purchasing is prestige and, in the case of Russians, political insurance. Markets go up and down but that doesn't affect the number of seriously rich people in the world and there are more of them all the time. People have been saying for years that the football bubble is going to burst and it hasn't. Charlton is also a good property buy. Any new owner would want to look at our property assets. Do we really need all that land at Sparrows Lane?


Post a Comment

<< Home