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Invest in sport to achieve your long term financial goals

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Originally written by Scott Longley on What Investment

The latest news from the world of Italian football would suggest that owning a Serie A football club is now – pardon the pun – the best trophy asset going.

In September, the billionaire founder of the Kum & Go gas station and convenience store chain, Kyle Krause bought a majority stake in storied – but not necessarily all that successful nowadays – Serie A club Parma.

This followed buyouts at AS Roma, which was bought by Dan Friedkin in August for a knockdown €591m (negotiated down from €750m off the back of the impact of covid-19 on football in Italy) and the buying of ACF Fiorentina last year by Rocco Commisso for up to $200m.

All these are on top of the deal that saw multi-billion dollar hedge fund Elliot Management snap up AC Milan, taking over the reins at the indebted club from Chinese businessman Li Yonghong in 2018

The reasoning behind each individual acquisition is that investors feel there is money to be made in football and that they will be able to rake in the spoils – assuming, that is, the football agents haven’t got there first.

Given the chatter that is currently surrounding potential talks about a multi-million euro super-league, it is not surprising that many see money in football right now. Although some will say the old joke about the way to make a million pounds in football is start with £100m, it is the case that investor interest in owning a slice of the money-making machines that are Europe’s top leagues is perhaps higher now than when football clubs first took to public listings in London in the late 1990s and early 2000s.

Most of these listings faded away as football clubs again were snapped up by willing global buyers. But after a period in the hands solely of the Glazer family, Manchester United – perhaps the biggest name in world football – is once again available to investors, albeit listed in New York now and not easily accessible.

Except, via the world of investment trusts. One convinced long-term investor in Manchester United is Nick Train of Lindsell Train who includes smallish stakes in United in both the Finsbury Growth and Income Trust and the Lindsell Train Investment Trust. In fact, in the latter trust Manchester United is part of a small number of sports franchises held in the trust, the others being Juventus and World Wrestling Entertainment.

In a market update in mid-November, Train acknowledged that his sporting investments had suffered a challenging year but that he was hopeful that such “trophy assets” as Manchester United would bounce back in investor terms next year.

“There seems to be no loss of underlying fascination for the game, or for the leading global clubs,” he told investors. He pointed to the much-mocked claims made by Manchester United about its social media reach – the club said it had tracked 1.1bn engagement with the franchise on social media.

“There is an understandable kick-back to statistics like the above – that they don’t, of themselves, generate any revenue for the club,” Train admitted. “This is so, but it is wrong to think they do not bring lustre and value to the franchises.”

He went on to mention a recent quote from Sal Galatioto, president of Galatioto Sports Partners, a leading sports finance and advisory business who noted there was still no shortage of multi-billionaires looking to enter the sports business. “The incredible wealth being created in the US and China and around the world by technology means globally-recognised sports franchises will always have meaningful trophy value,” said Train.

But Peter Sleep, senior portfolio manager at 7IM, is not convinced. “I would not personally invest in this area,” he says. “Juventus seems to consistently lose a lot of money and Manchester United’s results are highly variable, dependent on results. I would also say that some of these franchises are pretty illiquid which may not bother a geo-political or long term investor, but might concern other investors.”

Skinning a cat

Of course, there is more than one way to profit from an interest in sport and it comes in the form of the ancillary activity of sports-betting.

Sport and sports-betting go hand-in-hand naturally. But unlike the sports teams and leagues which have seen revenues take a tumble during the conclusion of the heavily covid-19 affected 2019-20 season and the equally (to date) fan-free this season, the gambling companies have had other products to fall back on.

Notably, in their half-year results while there was clearly an impact on sports betting revenue from the suspension of sports during the height of the first wave of the pandemic, online casino and gaming products managed to pick up the slack.

And while retail betting shops and casino and bingo halls have been shuttered for much of this year, the largest listed firms are heavily skewed towards online operations today and came through the worst of the year somewhat unscathed.

One reason for this is the burgeoning interest in sports-betting in the US. The opening up of sports-betting and online gaming on a state-by-state basis is finally opening up opportunities for gaming and betting entities to take advantage of the appetite for gaming – particularly online – across the Atlantic.

Such is the interest stateside that there is now an ETF – handily called BETZ – which focuses on global gambling operators. Closer to home, investors can of course invest in a handful of UK-listed players including GVC (soon to be renamed Entain) and Flutter Entertainment, once Betfair Paddy Power and now also home to leading US sports-betting operator FanDuel.

Sleep again cautions the unwary. “Sports-betting and gaming is not something for ethical investors or the unwary,” he says. “Sports-betting and gaming can be very fraught as this area is heavily regulated and subject to substantial changes as we have seen in places like the UK, the US and Australia recently.”

Taking a risk

But for those that are comfortable with gambling – and after all, investing is but one step closer to respectability than wagering – then there is betting itself.

Except, that we are talking here about an algorithm-based betting system that has been developed by data scientists Mercurius, based in Milan. For a few years now they have been working on a system which takes advantage of the fact that the majority of volumes in sports-betting are recreational but algorithms are getting more popular among professional bettors and syndicates.

“The old system of manual traders no longer exists,” says Lorenzo Malanga, CDO and head of trading at Mercurius. “The behaviour of the market is has been disrupted and more bots are running all the time.”

The inspiration for Mercurius, is not sports-betting but the quant world of hedge funds. As Lorenzo Malanga says, “the playground is the same so like a hedge fund we have come up with trading strategies for sports.”

Mercurius is not only analysing prices; the team have also built programmes which look at the underlying sport and using the findings to help inform its value betting proposition. “We analyse every touch of the ball, every passage of play,” Malanga adds. “We have that information. We can use this objective information to define if a price – or the odds – are interesting or not.”

Mercurius is currently providing its technology to a Swiss asset manager and they will create their first product based on sports betting. The company is also in the process of a further round of funding as it looks to expand the B2B side of its business.

The company offers a TRADR product that is already up-and-running and has achieved a compounded gross return of just under 15% since January 2019. As it points out the global betting market is currently worth around £14.5bn annually, so liquidity is not a problem. “It has the potential to be a massive asset class,” says Malanga. “And it’s uncorrelated to other markets. It’s a true alternative.”

Scott Longley is a freelance journalist.