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Tottenham could build another new stadium after private equity takeover
The Tottenham Hotspur Stadium is money-printing machine but it cannot provide exponential financial growth forever.
Spurs got a remarkable deal on the stadium, borrowing the bulk of the construction costs at fixed interest rates that are unheard of in the current economic climate.
Tottenham have since seen annual matchday income almost triple to £118m at the last count, while commercial income has risen even more steeply to record levels.
The 62,850-seater stadium has catapulted Spurs’ brand to global attention and is being used by Daniel Levy as the central selling point in his search for minority investment.
Levy values Tottenham at around £3.75bn and has commissioned the Rothschild bank to help find potential new shareholders, with a 10-20 per cent stake sale on the cards.
But for an investor to view Spurs as a good investment, they would need to believe that the business is not only going to be profitable in the medium to long term but by an order of magnitude.
An investor could quite easily put their money in the S&P 500, which has had an average 7.5 per cent compound rate for many years, an make a huge return. Can Spurs deliver value quicker than that?
To explore Tottenham’s financial situation, TBR Football spoke exclusively to Liverpool University football finance lecturer and Price of Football author Kieran Maguire.
- READ MORE: Arsenal predicted XI for the North London derby as Mikel Arteta makes Raheem Sterling call
The Chelsea takeover and its impact on Daniel Levy’s search for investment
Eyebrows were raised earlier this week when it emerged that the co-owners of Chelsea, who are currently battling for control in the boardroom, think the club has appreciated in value since the takeover in 2022.
Analysts had also previously suggested that a £3.75bn valuation for Tottenham seemed unrealistic, but does Clearlake and Todd Boehy’s appraisal of Chelsea put that into perspective?
“Chelsea were acquired for around five times annual revenue,” said Maguire.
“Jim Ratcliffe’s acquisition of Man United meanwhile was based on a revenue multiplier with a factor of seven.
“If this was applied to Spurs, who had revenue of £550m in 2022-23, the £3.75bn price being discussed does not look overly excessive given that Spurs have such tight cost control.
“They also don’t have to go and pay many bonuses for winning trophies.
“Put all those together and they are an appealing franchise. The infrastructure costs have already been incurred. They have borrowed at very favourable rates.
“They also have a global fanbase who want to come the stadium to see Son and other stars. This all attracts investors.”
The future of watching Spurs
One area investors repeatedly refer to when asked where there is untapped value in football is in the overseas fanbase, with a technological solution needed to better monetise them.
Spurs have huge fanbases in South Korea and, increasingly, the United States but are unable to extract value from them because of their geography beyond perhaps merchandise sales.
Augmented or shared reality experiences – such as the viral Cosm centre, which will air the North London derby on Saturday – are one way that owners hope to realise this potential.
Cosm has links to both Tottenham and Arsenal and has just raised £190m to open new venues, and Maguire thinks the immersive experience could evolve to see mini stadiums built worldwide.
“There is no doubt that investors and American investors in particular are very bullish about the utilisation of the metaverse to expand the fan experience.
“The mantra is: ‘we can’t get enough fans in the stadium, so can we get more stadiums to fans?’
“This can be one of two ways. For one, the creation of purpose-built stadiums that hold thousands of fans that can consume the product as if they were at the Tottenham Hotspur Stadium.
“Anyone who has seen the ABBA Voyage show knows avatars can be very realistic and the technology is getting better all the time.
“That is one way the product can be consumed. Private equity is certainly willing to back this venture. But it’s high-risk, high-return.
“From an owner’s point of view, you don’t need to pay matchday costs to the same extent. As well as having a stadium in North London, you can have these venues in Melbourne, Milan and Miami.
“You could have 20 stadiums dotted around the world each holding each holding 12-20,000 and all of a sudden you’ve got 250,000 people paying top dollar to watch matches take place.
“After Spurs against Arsenal, you could have other big matches and you can effectively just treat the venues as you would a cinema.
“From an investment point of view, it’s very attractive.
“The other way to approach this is to use a virtual reality approach and have an immersive experience using a headset.
“That is probably not as attractive as what Cosm are offering, which is a shared experience. And everyone knows that these things are better as shared experiences.”
Tottenham, the Nike deal, and rising prices for fans
Commercial revenue has been the big-ticket item for Spurs in recent years and is projected to hit £250m when they release their 2023-24 accounts.
Their single biggest partnership is with kit supplier Nike, who pay a reported £30m per season.
That is lower than some other clubs, but Daniel Levy has previously stressed that this is because of the structure of the deal and the decision to retain merchandising rights.
Recently, it emerged that Nike is set to raise prices significantly, which will likely affect the commission that Spurs receive from the deal.
“Football clubs get two potential commissions every time a piece of merchandise is sold,” said Maguire.
“If it is sold at a normal retailer like JD Sports, they are probably on something like 7-10 per cent.
“If the product is sold at the Spurs megastore, they get a retail share and that is likely to be somewhere in the region of 20-25 per cent of the sale price.
“So a lot depends on where the products are sold That’s why Spurs have invested such a significant amount in their new stadium to provide a very attractive consumer experience.
“This lightens wallets at a faster rate and also guarantees Spurs a higher cut of every Nike merchandise unit sold.”