Two, three or four billion euros, what is the true economic value of PSG?

Two, three or four billion euros, what is the true economic value of PSG?

The evaluation of the price of a football club is based on tangible factors and other less tangible factors. This can lead to a distortion between the value of an asset and its final price, while the value of PSG is estimated at 2 to 4 billion euros.

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The economic value of PSG is all the more questionable because the club could open its capital (F. Faugère/L’Équipe).

 

How much is Paris Saint-Germain worth? A little more than 4 billion euros, as its president Nasser al-Khelaïfi claims? 3 billion, according to estimates by Forbes magazine at the start of the 2022-23 season? Or 2.1 billion euros, according to Football by Football Benchmark?

 

It’s hard to put a fair price on it, but there is at least one certainty: the 2022 French champions are now worth far more than the 70 million Qatar Sports Investments paid to acquire Colony Capital in 2011.
The Paris club has risen into the top 10 largest sports franchises in the world over the past decade and has experienced rapid growth.

 

“There is no real ‘value,’ even for a company,” says Henri Philippe, a partner at Accuracy, a corporate finance advisory firm.
An asset is worth what it will bring in the future. The future is not necessarily the same for a seller and a buyer, and fundamentally the
The future is not necessarily the same for a seller and a buyer, and when we talk about the future, we are basically talking about uncertainty and therefore risk. But fortunately we have
But fortunately we have some valuation guidance, ideas on how to determine a theoretical value.”

 

 

“There is no simple calculation. It depends a lot on who you are and who you are dealing with.”

 

A specialist in sports economics

 

For example, there is a financial formula, but it is not specific to football clubs. According to this formula, the value is 1 to 1.25 times the turnover, which gives the value of the company. To determine the value of the capital, you need to subtract the debt. “But there is no simple calculation,” says a specialist in this type of case. It depends a lot on who you are and who you are dealing with.”

 

“Valuing an asset means defining its ability to generate a regular income. In reality, we have fewer tools
Romain Le Théo, partner in charge of valuation teams at Eight Advisory, a finance, operations and strategy consulting firm.

 

For this, there is indeed the calculation of multiples, i.e., multiplying sales or Ebitda (earnings before interest, tax, depreciation and amortisation) by X. The consideration of multiples can be based either on valuations of listed companies or on past transactions. There are also several methods, including the Markham method (method developed by Dr. Tom Markham in a study of Premier League club valuations between 2012 and August 2015. It gives the operating rate of the stadium as well as the wage bill, which is often the largest expense of a club). This is a particular case for football.”

 

“In France, for a payroll of 100 you have one player, in Germany you have three. This problem of competitiveness is a brake.”

 

A specialist in sports economics.

 

Recent large departures from clubs such as Olympique Lyonnais and AC Milan have been studied on the basis that club size also affects asset values. The size of the club also influences the choice of multiplier. PSG’s multiplier should be between 2.5 and 4. If we apply it to the club’s revenues (about 800 million euros this season), its value would be approximately between 2.5 and 3 billion euros.

 

“The economic model counts, whether a club makes or loses money does not have the same economic value,” says an expert in this field.
An investor will be interested in the development prospects, in what concerns the brand. If it’s a premium brand, how big is the club? PSG is premium and international, it is the capital club of a big country.

Add to that the dynamics of the market in which the club is developing, France with its advantages (stable country, a DNCG that prevents bankruptcies and crazy investors), but also its disadvantages, namely an unfavourable social policy. In France there is one player for 100 employees, in Germany there are three. This problem of competitiveness is an obstacle. To compete with Bayern, a French club has to pay almost three times as much.

 

Two final elements come into play. An investor may have an interest in taking a stake in or buying a football club because of the synergies it can create with its other activities. The last element, according to Le Théo and Philippe, is more of an intangible or even irrational part, namely “pleasure buying.” An investor pays more than the value associated with the financial performance because he buys a story, a celebrity, a rare product. A football club is certainly one of them.

Copyright F. Faugère - L'Équipe

Romain

Le Théo

Partner

Strategic Valuation & Modeling

Eight Advisory Paris

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