Category Archives: Sports business

Multichoice Group Spinoff and Listing

On February 27 Multichoice listed on the Johannesburg Stock Exchange, in a spinoff move by its parent company Naspers. The listing is expected to unlock value for Naspers shareholders and create an empowered African entertainment pay-TV business with strong financials and no debt to deliver returns for its shareholders.

The new company called Multichoice Group includes MultiChoice South Africa, MultiChoice Africa, Showmax and Irdeto a digital security company. It serves 13.5 million households around Africa and had a trading profit of R6.1 billion last year. Naspers itself has $20 billion revenue, and owns 31.2% of Chinese giant Tencent and large stakes in other e-commerce firms in Russia (Mail.Ru) and India (MakeMyTrip).

In 2006 Naspers facilitated the sale of a 20% stake in Multichoice South Africa to investors in a black economic empowerment program initiative and about 90,000 individual and companies bought the shares through a vehicle called Phuthuma Nathi (PN) that now owns 25% of Multichoice South Africa.  Over the years, PN’s shareholders are estimated to have got 17 times return on their investment through capital growth (from R10 per share to R130) and dividend payments.

In the listing, an additional 5% of Multichoice South Africa will go to Phuthuma Nathi at no cost and thereafter, Naspers will facilitate the exchange of a quarter of PN’s shareholding in Multichoice SA for shares in Multichoice Group.
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Similarly, in Kenya, the Group has implemented a transfer of 30% of the shares held by the Group in GOtv Kenya to a qualifying local nominee (whilst maintaining the beneficial interest in the stake) in order to comply with local ownership requirements.

Ten years ago, Multichoice’s Dstv regained the English premier league soccer rights they had briefly lost to GTV.

Kenya’s Sportpesa joins the world of Formula One sponsorship

Today in Canada, sports betting company Sportpesa was unveiled as the title sponsor of the Racing Point Formula One team in its latest international sponsorship venture.

Others sponsors of the team are Bombardier, JCB, BWT and team officials also announced there was room for more sponsors to push the team forward to better performances on track during the season that begins in March 2019 in Australia. The team’s drivers said their realistic aim for the year was for fourth place in the constructor’s championship (i.e. behind the perennial top three teams – Mercedes, Ferrari, Red Bull), to get some podium finishes, and perhaps even a race win.

Racing point is the former Force India team that ran into financial difficulties during the 2018 season. The Force India team had its best performances in 2016 and 2017 when it finished fourth in the formula one standings.

This also ends an unfortunate joke era when the newly-elected governor for Machakos, Alfred Mutua, unveiled his dream for a formula one track in his county, back in 2013.

The RaceFans site which broke the story last month reported that SportPesa is understood to be paying $8 million (i.e. ~Kshs 800 million) for its first year followed by $10 million in 2020 and a further $12 million if they remain for 2021.

Bankers Predict the World Cup – 2018 Edition

The 2018 World Cup is now in its semi-final stage. Let’s look at how some banks made their picks to win the tournament.

Who was Predicted to Win the 2018 World Cup?

  • Germany:  Was picked by UBS (Germany has a 24% chance of winning football’s ultimate prize, followed closely by Brazil and Spain, who respectively have a 19.8% and 16.1% chance).
  • Brazil: Picked by Goldman Sachs (Brazil to defeat Germany).
  • France/Spain: Picked by Nomura (France and Spain to meet in the final).
  • Spain: Picked by ING.

Here is a good write-up of the Goldman Sachs picks and a summary of some of the different bank forecasts.

The teams in the semi-final today are England, Croatia, France, and Belgium. With both of its initial finalist picks now out of the competition, Goldman Sachs has revised its model and …With Brazil now out of the world cup, Belgium is at the top of our probability table with a 32.6% chance of lifting the trophy, closely followed by France (29.8%). Similarly, our model’s modal projection is for Belgium to defeat France and England en route to winning the tournament….

Look back at the 2006 World Cup banker predictions.

The finances behind the World Cup 2026 hosting decision

This week FIFA announced its decision that the 2026 World Cup would be held in the Americas, and jointly hosted by the United States, Canada, and Mexico, who defeated a competing bid from Morocco in North Africa.

The 2026 tournament will be an expanded tournament, that will feature 48 countries and a total of 80 matches, a significant increase from the 2018 tournament which also began in Russia this week and which features 32 teams and 64 matches scheduled. The 2026 matches in the  Americas will be split with 10 in Canada, 10 in Mexico, and 60 in the USA, including every game from the quarter-finals onwards.

FIFA also published the report of their analysis of the bids leading to the decision on the World Cup award. FIFA reports that costs of hosting the event will be higher than the current one in Russia because of the increased number of matches, and that they expect over $2 billion revenue from the 2026 tournament which will be supported by strong hospitality sales and an expanded global TV audience. FIFA World Cups have four main revenue streams – media, marketing, ticketing, and hospitality.

The bids were judged on three measures of compliance assessment (submission of all documents such as agreements with host cities, stadiums, training sites, and airports), risk assessment (cost and revenue projection, and human rights impacts) and a technical evaluation  of infrastructural and commercial components (stadiums team & referee facilities,  accommodation, medical care, and transport).  FIFA also considered all the host city populations, altitude, time zones, and temperature and humidity in July when the tournament would be played.  Also, FIFA notes that only small proportion of soccer fans have an opportunity to attend a World Cup in person, with the vast majority following on TV – so an important measure is now for host countries to demonstrate capabilities and plans for first-class information technology, telecommunications, and an international broadcast center.

USA: 23 cities were included in the original US bid, and 16 will be used. The US benefited from having existing infrastructure, with all the stadiums proposed by the Canadian Soccer Association, Mexican Football Association, and the United States Soccer Federation already fully built and ready. The FIFA evaluation found that transport systems were excellent, but dependent on air transport, except on the U.S. East Coast where road and rail were also realistic options. Overall, transport was judged “fair to good” in 11 cities, but the infrastructure for transporting large crowds to and from stadiums was insufficient in 5 others. In the US bid, 11 of the proposed 23 stadiums have artificial turf, but they had committed to having natural grass for the tournament. All the cities  have enough accommodation for both organizers and players, but are limited in “in Los Angeles, Washington D.C. and Mexico City due to a relative shortage of top-tier hotels in the vicinity of those cities’ stadiums.” FIFA estimates it would cost them $1.92 billion to host the tournament in the US. 

Morocco: The bid to host the 2026 tournament was tied to an ongoing government plan to use sports to drive national unity and cohesion and would play a key role in accelerating the country’s economic development and that this would extend to non-sports infrastructure.  All guarantees and hosting agreements were submitted and compliance and in accordance with the FIFA template and the Morocco government gave undertakings that all 12 cities would have stadium infrastructure and sufficient accommodation for the towns. They also guaranteed that 13,838 rooms in university residences would be converted to 3 and 4-star hotels by investing $20,000 to $20,000 per room for conversion. Accommodation would also extend to cruise ships berthed in Morocco.

Morocco proposed 12 host cities with two stadiums each in Marrakesh and Casablanca. Casablanca would serve as the main airport, with Marrakesh as the second, and there would be ten airports available for international access with and connectivity Morocco’s proximity to Europe and the country’s ability to handle huge numbers of tourists during the peak summer season shows its capability to cope – such as the Tangier Med Port which has traffic levels of 3 million visitors in 2017.  There was also high-speed rail transport between Tangier area with Rabat, Casablanca, and Marrakesh, there are 18 trains per day between Casablanca and Fez and they also proposed a new rail line between Marrakesh and Agadir that would be completed by 2025.

Morocco proposed World Cup venues

But FIFA judged that of the 14 stadiums proposed by the Morocco 2026 bid, nine are still to be built. Also for Morocco only 2 (Agadir and Grand Stade de Marrakech) of the 14 stadiums have accommodation that meets or exceed the minimum requirements for general accommodation, and FIFA’s formula is 5, 4, and 3-star hotels located within a two-hour drive to the venues. They also knock off 20% of the top capacity number to get a realistic measure of the rooms

FIFA also found that hosting the tournament would place a lot of pressure on Casablanca airport to act as the main international gateway and hub for domestic flights .. between them, Casablanca and Marrakesh airports are forecast to handle a total of around 24 million passengers (15 million and 9 million respectively) per year by 2026. The other airports are expected to handle another 13-15 million passengers between them, bringing the total to around 40 million. These numbers alone are below the threshold of 60 million .. and would not meet FIFA’s minimum requirements..  While Morocco has announced 25 new bus rapid transit (BRT) systems and various new tramways, it was not clear (to FIFA) if they would be ready by 2026 (FIFA: Out of the 14 stadiums proposed, only seven (the Casablanca Stadium, Agadir, El Jadida, Oujda, Rabat, Tangier and Tétouan) would appear to have clear and viable transport concepts and accessibility options)

Morocco was projected to raise $690 million from tickets and $380 million from hospitality and the report estimates that organizing the World Cup contest in Morocco would cost FIFA $1.82 billion mainly comprising payments for commercial (including TV operations), administration, services (including IT) and team services.

Summary: Morocco is in the 2018 World Cup, unlike the USA. While the world is polarized now,   there have been a few comments endorsing the American win, with the assurance that, in 2026, President Donald Trump will not be in office, even if he wins re-election in two years time. But with the 2022 tournament set for Qatar, it would be a tall challenge to have the 2026 tournament in the immediate vicinity, and though Morocco is on a different continent than Qatar (the report cites a FIFA rule that continents where tournament are being staged i.e Europe (Russia) and Asia (Qatar) were not eligible to bid  for hosting, Morocco’s geographical proximity and similar circumstances to Qatar were probably swaying qualitative factors in the final decision.

Also see this old guide to Casablanca, Morocco.

Arsenal Football AGM

Yesterday, Arsenal Holdings, parent of Arsenal Football Club held their annual general meeting (AGM) at Emirates Stadium, London. There were news reports about some tense moments and here a full recap of the AGM

Here’s a peek at their latest 67-page annual report (PDF)  for the year ended, 31 May 2017.

For 2017, Arsenal income was £432 million (up from £353M the year before) and this comprised £100 million from match day revenue (26 home games had average ticket sales of 59,886 attendees), £198M from broadcasting, £90M from ‘commercial’, £26M from retail and £7M from player trading.

Group profit before tax was £44M in 2017 up from £3M and the tax charge for the year was £9 million up from £1.2M. This was at a tax rate of 19.86% and this will go down to 17% from April 2020.

Arsenal Assets and Achievements in the last 5 years.

Over five years, turnover has gone from £280M to £424M and profit after tax from £4.9 million to £35.2M. Over the same period, net assets have gone from £302M to £363 M and fixed assets are now £618M (up from £572M in 2016)

Operating expenses were £371M including £199 million on staff, £79M on other, expenses and £77M on amortization of players, (the increased amortization charge is a direct result of a record level of investment into the Club’s playing resources). Led by the acquisitions of Granit Xhaka, Shkodran Mustafi and Lucas Perez the Club invested £113.9 million in acquiring new players and to a lesser extent extending the contracts of certain existing players, for example Hector Bellerin).

Arsenal staff payments totaled £199M in 2017 to 695 employees who comprised 75 players, 117 training staff (the development of our own players through our academy remains a priority for our football club), 395 administration staff and 112 ground staff.

In 2017 Arsenal paid £111M for players compared to £66M the year before and received £9M (compared to £12M in 2016). The Club was fully compliant with the Premier League’s wage cap/short-term cost control regulations – The ratio of total wage bill to football revenues was reduced to 47.2% (2016 – 55.7%).

Arsenal directors earned £25,000 per year, but the total payment to directors was £3M with I. Gazidis (CEO – £2.6 million) and K. J. Friar (Club Managing Director – £664,000) earning the bulk, as one director, Lord Harris of Peckham, waived his director’s fee and donated it to charity. The accounts were audited by Deloitte who also earned £25,000 for this report.

The report lists highlight of the year;  how they did in tournaments, a win percentage of 63% (up from 52%,) and names individual players, goal scorers, and some transfers (we secured Sead Kolasinac and Alexandre Lacazette, our two primary targets for this transfer window)

Risks: These include the adverse impact of competing in the UEFA Europa League (they missed out on the 2017/18 Champion league), which is forecast to be £20 million. The full financial impact will depend on a number of factors including the actual progress made in the competition, as this impacts both performance and market pool distributions from UEFA. The Club has previously fully self-insured against a season’s participation in the UEFA Europa League within its cash reserves. Another risk highlighted in the annual report is from BREXIT – the Group is monitoring the impact of the UK’s decision to leave the European Union. This weaker pound against the Euro has already made it more costly for them to get players from the European Union, but that the greatest risk is from an economic downtown in Britain which will affect their revenue from broadcasting and sponsorships.

Finances: Arsenal has approximately £200 million of debt most of which is long-term and which mature in over 5 years. For 2017, the fixed bonds were at 5.8% and the floating ones at 7.0%. As part of its bond covenants, Arsenal has to maintain a certain amount of cash in the bank – and had £103 million in 2017 (compared to £117 million in 2016). They owe £47 million from recent player transfers. Finance charges in the year were £14M, which included bond repayments of £11M. Arsenal has exposure to the Euro and the US dollar on currencies and uses interest rate swaps for its bonds.

Subsidiaries & Investments: The Arsenal group has about 20 subsidiaries in which they own 100% of and which are used to manage areas like property development, retail operations, ladies football, stadium operations, and data management. Arsenal has also invested £20 million in a company that runs the club’s portal – Arsenal.com has 25 million unique visits a year; the club has 10 million Twitter followers with 9.6 million others on Instagram.

Partnerships: Their main partnerships are with Puma and Emirates. During the year, there was an increase in commercial revenues of £10.3 million, driven primarily by secondary partnerships. There’s no mention of deals in Kenya, which may include Sportpesa and Wadi Degla.

Edit: On November 17, Arsenal welcomed WorldRemit as its first-ever official online money transfer partner. The partnership will support WorldRemit’s growth ambitions by helping them reach Arsenal’s 74 million followers on their official social media channels and 185 supporters’ clubs worldwide.

For Investors:

  • Over a five-year period, earnings per share have gone from £78 to £567 per share. There are 62,217 shares issued.
  • The ultimate parent of Arsenal is KSE UK (which owns 67.05%) which is wholly-owned and controlled by E.S. Kroenke.
  • The directors do not recommend the payment of a dividend for the year (2016 – £Nil).
  • See this on buying shares in Arsenal football club.