On 23 May 2024, we hosted 120 industry leaders in sport and media from Europe and the US at Roland Garros stadium in Paris, ahead of the French open. Expert panellists discussed pressing trends in the sport sector, including investment and the commercialisation of sport. Here are some of the key learnings from these discussions. 

In recent years, the valuation gap between sports clubs in the United States and Europe has continued to widen significantly. US sports clubs boast valuations that often exceed ten plus times their revenue, while their European counterparts lag behind with typical multiples of four to six times revenue (with a further sharp difference observed in Europe between the 'top 5' clubs in one of the core European leagues (Spain, Germany, Italy, and France) and the rest). This disparity can be attributed to several key factors that influence the market dynamics on both sides of the Atlantic. 

Investment in infrastructure and revenue generation

One of the primary drivers of higher valuations in the US is the substantial investment in infrastructure and the revenue-generating capacity of stadiums. American sports venues are designed to maximize income not only from sporting events but also from a variety of non-sporting activities. Concerts, conferences, and other events provide additional revenue streams, enhancing the overall profitability, versatility and income-generating capacity of the clubs. That said, Europe is catching up with a raft of state-of-the-art stadiums completed or under development, including iconic venues such as the Bernabeu (Real Madrid), Camp Nou (FC Barcelona), Metropolitano Stadium (Atletico Madrid) and the Tottenham Hotspurs stadium, among others. 

Premium packages and hospitality

In the US, high-end premium and hospitality packages significantly boost competition-day revenues. The willingness of American fans to pay top dollar for these exclusive experiences contrasts sharply with the situation in Europe. By contrast, pressure from European fanbases keeps ticket prices and premium packages more affordable, reflecting a cultural emphasis on accessibility, community engagement and sports as a social impact venture.

Investment in facilities and 'extending the gates'

Linked to the topic of modernising infrastructure, both US and European clubs are expected to continue investing in their facilities and leveraging the economic concept of 'extending the gates'. This involves creating new revenue streams by maximizing the footprint and versatility of stadiums and surrounding areas. In addition, we are seeing a lot of investment in the 'fan experience', where the aim of the game is to extend the stay (and spend) in and around the stadium on match days. Enhancements in infrastructure can provide substantial long-term financial benefits, contributing to overall club revenue and valuations. 

Media broadcasting deals

Media broadcasting deals are another area driving valuations, with leagues constantly looking to improve overall deal packages to boost year-on-year revenue, visibility, and audience engagement. 

 Market diversity and cultural factors

The diversity of sports in the US market, with strong followings for basketball, NFL, and other sports, contrasts with Europe's football-centric focus. Additionally, European sports clubs are often deeply intertwined with local culture and heritage. Many operate as not-for-profit community assets, bankrolled by families or personalities, which limits their commercial potential compared to the more business-oriented American clubs. In addition, the limited pool of US sprots clubs versus the sheer volume of clubs in Europe is another driving factor, which contributes to a heightened risk of uncertainty and relegation risk (and consequently, financing risk) in Europe.

Economic vs. control rights

Investors in US sports clubs typically enjoy significant economic rights without substantial control or influence over club operations. This structure, driven by league governance rules, contrasts with Europe, where investors often seek both economic and control rights. The recent Manchester United deal with INEOS, where the management of running the football club's operations (as well as board seats at the plc and football club levels) was entrusted to INEOS against a 25% minority equity stake and $300 million investment, may indicate a shift in this trend.

Volatility and risk

European club valuations are also subject to higher volatility due to the risks associated with relegation and the ongoing debate around parachute payments and the 'yo-yo' phenomenon. This ping-pong effect can cause significant fluctuations in club value (sometimes even in the midst of a potential deal under evaluation or being negotiated) adding an element of uncertainty for investors.

Multi-club ownership (MCO)

Multi-club ownership continues to gain traction as a strategy for developing athlete talent and acquiring players cost-effectively. By creating an environment conducive to athlete development, the MCO model can optimize the performance and financial returns of clubs under shared ownership, whilst also affording clubs expedient solutions across their assets.

The enduring value of live content

Despite the ordinary industry challenges in securing the 'most attractive' media broadcasting and distribution rights, live sports content remains highly valuable. The unique, unscripted nature of live sports events continues to attract viewers willing to pay for this raw content. Traditional TV remains the primary broadcasting channel, even as streaming services and sports betting companies explore limited live content options.

Growing focus on women's sport

Women's sports are experiencing increased coverage and support, reflecting broader societal trends towards gender equality. The Paris 2024 Olympic Games featured equal numbers of male and female participants for the first time, signalling a historic move towards parity. This shift is also evident in broadcasting, with greater equality among male and female hosts and presenters.

Collaborations and data science in sport

Collaborations among leagues and the use of data science are becoming increasingly important in the sports industry. League governing bodies play a crucial role in managing sports data, particularly for lower-to-mid-tier leagues. Effective data management can enhance performance analysis, fan engagement, and overall league competitiveness.

Conclusion

The valuation differential between US and European sports clubs highlights significant differences in market dynamics, cultural factors, and investment strategies. As both regions continue to evolve, investments in infrastructure, multi-club ownership, and the enduring appeal of live content will shape the future landscape of sports club valuations across both continents.