Financial analysts are concerned about developing accurate valuations, following recent plans by some Nigerian professional football clubs to list their shares on the Over-The-Counter (OTC) exchange.
Nigerian football clubs, including Enyimba, Kano Pillars Shooting Stars, Enugu Rangers, MFM, Wikki Tourists, Gombe United, and El-Kanemi Warriors, have been nominated by the League Management Company (LMC) Limited to list on the NASD OTC Securities Exchange.
The League Management Company (LMC) Limited nominated these eight clubs to serve as pilots, preparatory to the full listing of all interested football clubs. Already, the LMC has invited issuing houses in the country which can act as financial advisers to these football clubs to express interest.
While many investment analysts who spoke to BusinessDay on the development, see it as a positive, they noted the need to have an accurate valuation for the clubs.
Sports, particularly football, they said, is now a big and thriving industry in Europe and it is fast emerging in some other parts of the world, including developing regions like Asia.
However, Nigerian football is still run as a social affair of the state and philanthropists, with little or no consideration to the economics of the game, which is a key element that is required for success.
Renown sports analyst, Godwin Dudu Orumen, told BusinessDay that the plan to list these clubs is the right way to go and would help drive investors into Nigerian football.
“With the right metrics, investors will invest in the clubs. It will definitely have a domino effect on these clubs, as the clubs will have enough resources to meet their financial obligations.
“Of the 20 teams in the Nigeria Professional Football League (NPFL), about 18 are owned by state governments and that is not the way to do sports business today. That is why many of the clubs are not doing well”, he noted.
Orumen further observed that from the day Roman Abramovich invested in Chelsea Football Club, other Chinese and American investors have invested in clubs in the English Premier League and it has boosted the financial strength of those clubs.
Speaking on the proper valuation for the clubs ahead of their listings, Orumen said: “Before going to the stock exchange, there must have been some financial and legal advice and such advice must have included a benchmark for which they will be listed.”
He warned that commentators should not press the panic botton, that if the move is properly carried out, Nigerian football is in for a big transformation.
“It is for investors to decide. One thing is to go to the stock market, it’s not every stock that sells for the same price, if you give me an investment portfolio, I will access it. If you go to the stock exchange, and you see MFM FC, Enugu Rangers listed, you look at what the books are saying and decide to buy the one that suits your interest”, the sport analysts said.
He advised that sports loving Nigerians should embrace it as it the best way to grow our football. “It is the way to go, if we want Nigerian football to grow. The era of relying on government is over. “Former governor, Orji Kalu invested in Enyimba FC, and since he left office, the club has gone down. Let us have structures and institutional arrangements where these companies start and grow as big as other listed companies,” Orumen added.
Investment analysts who spoke to BusinessDay identified that a major challenge of the sport sector is funding, adding that no private investor or corporate will fund a sport without being convinced of the prospect of achieving the primary objective of such investment, even if it is a Corporate Social Responsibility (CSR) initiative.
Abiola Rasaq, head of investor relations at United Bank for Africa Plc told BusinessDay that the listing initiative for Nigerian Football Clubs is a first step towards proper institutionalisation of the Nigerian Football League and “it will better position the local football league to attract the much needed investment. It should also give more visibility to the game and hopefully enhance public interest and participation, which is crucial for the full monetisation of the game.”
Speaking on the valuation of the NPFL Clubs, Rasaq said, “it is a blend of science and art, like any other asset or company valuation.
“This listing is a welcome development and should be encouraged. Albeit, it is not the solution to the notable challenges of sport and in particular, football in the country but at least it is a step towards ticking one of the relevant boxes and should thus be encouraged with hope of consolidating on this listing to solve some of the underlying challenges to the game and overall sport development in the country”, Rasaq said.
“Interestingly, valuation of sports is perhaps even more subjective because the social assets involved are highly unpredictable, thus putting less degree of confidence on any projection that is made into the future.
“But of course, despite the subjectivity, projections still have to be made for the purpose of the valuation because the price of the asset today is a discounted value of the future cash flows that are expected from the assets over the useful life or into the foreseeable future.
“This is why valuation is always a debate and perhaps the market is the best jury to determine an asset’s price at every point in time, even when the inefficiency of the market is always a subject of concern in determining the intrinsic value of an asset.
“Depending on the liquidity and other circumstances surrounding the secondary trading of the counter in the NASD, after the listing, the market should gradually correct any inefficiency in the price discovery at the point of listing, either through a gain or loss of value, post-listing”, Rasaq said.
He noted that the benefits of full monetisation of sports go beyond the leisure or tourism and hospitality sector, “it is highly integrated to media and the consumer goods sector. You can imagine the potential endorsements, adverts, kits and accessories that come with a thriving sport industry.
“Interestingly, if well managed, a thriving sport industry of course helps reduce social tension and directly or indirectly creates jobs and adds to the country’s economic output. It gets the youths engaged in some productive activity that reduces the social pressure,” the analysts said.
Felix Awogu, General Manager, SuperSport West Africa, said the move is good but doubts if the clubs have the proper financial valuation to attract investors upon their listing on stock market.
Awogu raised critical points, which include: facilities, image branding, financials and players’ valuations, which must be considered before the clubs can attract investors into the stock market.
“It is great, but it all depends on the financial valuations of these clubs; you have to quantify the valuations of these clubs before you start listing them on the stock market. The LMC should do a proper assessment of the brand image of the clubs and the financial analysis to avoid collapse of their stock. It is not every company that goes to the stock market that is a success story”, he said.
“The LMC needs to look at the value of the brand. It is a lot of work, proper financial analysis and positions, but it is not something to rush into. How do you value these products, like MFM FC, second year in the Nigeria Professional Football League, what is the value and the followership and return on investment on those currently investing on those clubs?” Awogu asked.
Speaking further on if the move would drive investors to the Nigerian league, he said, “Are these clubs attractive enough for investors? We need to build the right image for the clubs. Am not sure the clubs are really ready; none of these clubs have come out with their financial statements in the last two years. Unlike a club like Manchester United that boasts of Old Trafford and players’ with high brand perception, Nigerian clubs do not have similar leverage.
Sewa Wusu, Head, Research and Investment Advisory, SCM Capital Limited, told BusinessDay that financial experts in their valuation of these clubs should adopt the discounted cash flow method, while considering cash flows from ticketing, advertisement and project. “What is key is the issue of cash flow. Football generates a lot of cash flow that can be discounted to know the true value of the clubs,” he said.
“For the NASD to attract such listing, it is a good development. What is also very important is that sport (football) is a big business. It is a positive development in the history of Nigeria. With this arrangement, it will now assist most of the clubs to extend ownership to interested investors, which gives them the opportunity to grow. This can help to develop our football and take it to a higher level in Africa,” Wusu said.
Joe Erico, former Super Eagles Assistant Coach, is skeptical about how the clubs financial valuations will be arrived at, but agreed that it is important to attract investments into the clubs.
Iheanyi Nwachukwu & Anthony Nlebem
