2006 football brands

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Foreword

Marketing directors often struggle to explain the value of the brands under their control in terms the CEO and investors want to hear. While measures of brand awareness, preference and market share are useful up to a point, they are really only indicators along a path that should lead logically to the impact the brand has on shareholder value. It's notoriously difficult to ask for a larger share of the company's working capital without being able to articulate your argument in financial terms. So, the challenge facing us is that if tangible assets like stadiums and equipment can be assessed, valued and the impact on business value fixed with some accuracy, it just makes plain sense to try and do the same for a company's intangible assets. Doing so enables brands to be managed in a more financially robust way via traditional cost: benefit analyses, for example. This approach suddenly makes long-term investment decisions about future promotional expenditure, and the host of other activities that combine to build brand value, much more likely to succeed. This report attempts to kindle awareness for this type of approach by using publicly available information to value European football club brands. We hope that the report not only provides a snapshot of the healthiest European football brands, but also that it continues to ignite an informed debate about what really matters - brand equity driving business performance. We hope you enjoy this year’s report and welcome any feedback ([email protected])

David Haigh Group CEO, Brand Finance

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Most Valuable European Football Club Brands 2006 The table on the following page represents Brand Finance’s calculation of the 20 most valuable European football club brands of 2005.

This is the second year running that Brand Finance has produced a list of the most valuable European football club brands. As with last year, Brand Finance used the ‘royalty relief’ approach to perform the valuation. This is an intuitively simple approach that assumes a company does not own its own brand and calculates how much it would need to pay in order to license it from a third party. The present value of that stream of (hypothetical) royalty payments represents the value of the brand. We used the ‘royalty relief’ methodology for two reasons – firstly, it is the valuation methodology that is favoured by the tax authorities and the courts because it calculates brand values by reference to documented, third-party transactions; and secondly, because it can be performed on the basis of publicly available financial information. This method of valuing the top European club brands also ensures our results are directly comparable year on year. It should be noted that when Brand Finance conducts a full valuation as part of a client project we are able to access timely internal sources of financial and market data. This enables a much more detailed analysis of brand value by segment, geography or product line for example, which provides greater insight into where the pockets of value creation (or destruction) lie within the organisation.

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Most Valuable European Football Club Brands (All figures are in £millions)

2004 2005 BRAND BRAND VALUE

2005 (£m) TOTAL

REVENUE (£m)

2005 COMMERCIAL REVENUE (%)

2005 BROADCASTING

REVENUE (%)

2005 MATCHDAY REVENUE

(%)

ßRANDßETA®RATING

2 1 Real Madrid 218 186 45% 32% 23% AA

1 2 Manchester United 197 166 29% 29% 42% AA

6 3 Juventus 175 155 36% 54% 10% AA-

5 4 Barcelona 169 140 30% 38% 32% AA

3 5 AC Milan 157 158 25% 59% 16% AA-

9 6 Liverpool 156 122 31% 42% 27% AA

4 7 Bayern Munich 146 128 62% 23% 15% A+

7 8 Chelsea 137 149 25% 37% 38% BBB+

8 9 Arsenal 115 116 26% 42% 32% A

10 10 Inter Milan 85 120 22% 58% 20% BBB

14 11 Tottenham 52 71 34% 36% 30% BB

11 12 Newcastle United 51 87 27% 32% 41% B+

13 13 Schalke 04 46 66 59% 17% 24% BB-

12 14 AS Roma 46 89 21% 58% 21% BB-

18 15 Manchester City 35 61 32% 43% 25% B+

19 16 Celtic 34 63 23% 27% 50% BB+

- 17 Everton 32 60 20% 49% 31% B+

- 18 Valencia 32 57 19% 52% 28% BB

- 19 Olympique Lyonnais 30 63 29% 49% 22% BB-

16 20 Lazio 29 56 29% 53% 17% B+

Data Sources: Brand Finance, the February 2006, Deloitte Football Money League Report, Bloomberg data, annual reports and press releases.

For the purposes of this report, brand value is calculated as associated goodwill, together with other marketing intangible assets and intellectual property rights.

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The Top Ten

1. Real Madrid

2005 Commercial Revenue (%) 45%

2005 Broadcasting Revenue (%) 32%

2005 Matchday Revenue (%) 23%

Total Revenue £186m

Trademark Value 2005 £218m

ßrandßeta® Rating AA

Despite shortcomings in La Liga and alleged disharmony amongst the squad, the Real Madrid brand tops the ‘Most Valuable European Club Brand’ index with a financial value of £218m. However, the resignation of former President Florentino Perez, who invested heavily in the ‘Galactico’ strategy of recruiting the most marketable names (and faces) in football, coupled with another early exit from the UEFA Champions League, means significant changes may occur at the club in 2006-2007. The commercial appeal of such a celebrity-studded team may mean a temporary reprieve in sustaining its position at the top of the table, with another year of soaring sponsorship revenues and shirt sales. However ongoing popularity, both in Europe and Asia, is unquestionably driven by match results, particularly in the UEFA Champions League. Both sponsors and overseas fans – who are more likely to be fickle with their club affections and patronage – demand consistent success.

2. Manchester United







Following a turbulent year for the Manchester club both on and off the pitch, MUFC drop to second place in this year’s brand value index. A disappointing UEFA Champions League run, combined with Chelsea’s robust consistency in the Premiership has meant an underwhelming season for the team that has dominated English football since the inception of the Premiership. Despite vocal protests from certain quarters, the Glazer takeover has not yet had a significant impact on the club’s commercial revenues, either in match day attendance, season ticket applications, broadcasting income or in the lucrative overseas merchandising markets. However, due to the size of the debt package taken on in order to acquire the club (estimated at £265-275m), there are concerns amongst fan groups about the measures that will be required to service both the debt and its interest repayments.

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3. Juventus






ßrandßeta® Rating AA-

Another successful domestic season – currently standing eight points clear in Serie A – the Old Lady of Turin continues to consolidate its position towards the top of the brand value index. With an increase in broadcasting deals, high-profile popular players like Del Piero and Veira (a recent transfer from Arsenal FC) help the marketability of the Juventus brand both in Italy and overseas.

4. Barcelona







Despite being many neutral fans’ choice for the UEFA Champions League and a second consecutive la Liga title, Barcelona has not yet fully translated its brand appeal (an AA rating) to revenues and brand value. Traditionally the club, owned by the 134,000 ‘socios’/ members, has never allowed a shirt sponsor, which has a detrimental impact on its commercial income. Whilst Barcelona’s stadium has a capacity of 98,600, the average ticket price is significantly lower than in the Premiership and Serie A, meaning the team struggles to take full financial advantage of its capacity superiority.

5. AC Milan






ßrandßeta® Rating AA-

Another successful UEFA Champions League run, coupled with a blend of established stars – Schevchenko, Maldini and emerging talent, like Kaka – means the Rossoneri retain their position in the top five. Both Milan teams benefit from Italian teams’ right to negotiate individual broadcasting deals, as opposed to the Premiership which groups teams together, thereby splitting the money more evenly.

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6. Liverpool







A memorable victory in last year’s UEFA Champions League final has re-ignited Liverpool’s international appeal, particularly when combined with its impressive pedigree in Europe, meaning the club’s brand receives a ‘AA’ rating.

7. Bayern Münich






ßrandßeta® Rating A+

Bayern Munich is the only German club in the top 10 ‘Most Valuable European Football Club Brands’. Its brand value is attributable to a combination of high (and soon to be increased) matchday revenues, broadcast deals and corporate sponsorships. However, international appeal is some way behind teams from the Premiership and La Liga, due largely to lower profile broadcasting deals in the Far East. The potential departure of Michael Ballack will also have a detrimental impact of the brand’s appeal, both nationally and overseas.

8. Chelsea






ßrandßeta® Rating BBB+

Chelsea is seemingly on track to cruise to another Premiership title, but Jose Mourinho, Chelsea’s outspoken manager, is a polarising force in forming perceptions of the Chelsea FC brand. Chelsea’s unrivalled financial firepower has led to eye-wateringly expensive forays into the transfer market, but increased revenues from sponsorship and matchday sources have marginally tempered this outlay. The club also signed an 8-year sponsorship deal with adidas worth approximately £96m which who have greater international capabilities and economies of scale than former sponsor Umbro.

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Knocked out by Barcelona in the UEFA Champions League, another Premiership title seems well within reach. However, Chelsea’s style of play and consistently negative UK press coverage – particularly focusing on Mourinho and the club’s CEO, the ex-Manchester United Peter Kenyon - has meant that the Chelsea brand is significantly less appealing than the more established teams - BBB+ - and it still has some way to go in order to turn neutral overseas fans into paying customers.

9. Arsenal






ßrandßeta® Rating A

A season of transition in the Premiership, punctuated by flashes of brilliance in the UEFA Champions League, typifies Arsenal and its brand in 2005-2006. The club’s imminent move to the new Emirates stadium will ensure higher matchday revenues, but its brand appeal is hugely dependent on Thierry Henry’s decision whether to stay on at the club. As a result, the Arsenal brand receives an ‘A’ rating.

10. Inter Milan






ßrandßeta® Rating BBB

The third largest club in Italy, Inter’s growth struggles due to sharing the San Siro stadium with its more successful neighbours, AC Milan. Despite having an exciting and free-scoring strike force, a continuing presence in the UEFA Champions League, its position in Serie A means it is still lagging behind Milan and Juventus as the most appealing Italian clubs.

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How the rankings were compiled? The Brand Finance Index of ‘The Most Valuable European Football Club Brands’ was compiled using publicly available information regarding market share, market growth and company financials. Brand value was derived using a ‘relief from royalty rate’ method that values brands according to the cost of re-licensing them from a hypothetical third party. Brand Finance plc has a particular expertise in determining royalty rates for commercial and valuation purposes. The rankings were complied using data from the February 2006, Deloitte Football Money League Report, Bloomberg, annual reports and press releases. What is ßrandßeta® analysis? ‘ßrandßeta®’ analysis is a benchmarking study of the strength, risk and future potential of a brand relative to its competitor set. It is conceptually similar to a credit rating, which companies are awarded based on their strength, risk and future potential. It serves the following purposes:

• Quantifies the strength and performance of the brand being valued • Provides an indication of the risk attached to future earnings of the brand, and

can be used in the determination of an appropriate discount rate for valuation purposes

• Provides basis for value-based brand tracking, by measuring performance The analysis typically uses 8 to 10 measures, which include perceptual, behavioural and performance measures. For the purposes of the most valuable European Football club brands the measures included; recent and historical success in domestic and European competitions, commercial coverage, transfer fees and commercial income as a percentage of total revenue.

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A snapshot of the top ten brands by ßrandßeta® Rating

Brand ßrandßeta®

Rating (2005) ßrandßeta®

Rating (2004) 1 Real Madrid AA A+ 2 Manchester United AA AA 3 Barcelona AA A 4 Liverpool AA BBB- 5 Juventus AA- BB+ 6 AC Milan AA- A+ 7 Bayern Munich A+ BBB 8 Arsenal A BBB 9 Chelsea BBB+ BB+ 10 Inter Milan BBB BBB

Brand Ratings Definitions

Rating Definition AAA Extremely strong AA Very strong A Strong

BBB Average BB Under-performing B Weak

CCC Very weak CC Extremely weak C Failing

The ratings from AA to CCC can be altered by including a plus (+) or minus (-) sign to show their more detailed positioning in comparison with the general rating groups.

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About the Authors David Haigh is the founder and chief executive of Brand Finance plc and is one of the worlds most experienced and widely published brand measurement and valuation experts. David is a qualified Chartered Accountant, a Fellow of the Institute of Chartered Accountants in England and Wales, a Fellow of the UK CIM, a Member of the Institute of Public Relations, the UK Academy of Expert Witnesses, the Licensing Executive Society, and the Society of Share and Business Valuers. Prior to founding Brand Finance in 1996, David was Managing Director of Publicis Dialogue, Finance Director of the advertising agency WCRS & Partners, and Director of the brand valuation practice at Interbrand. He is the author of four books on the contribution of marketing to corporate performance and is a frequent speaker at business schools and conferences.

David Haigh ● Group CEO ● +44 208 607 0300 ● [email protected] James Park has a degree in English Literature and a postgraduate Business Studies diploma from Oxford Business School. After graduating, he worked for the BBC World Service in Ghana before moving back to the UK to join a leading marcoms agency. James has a Professional Diploma from the Chartered Institute of Marketing and is an independent member of the Faculty of Corporate Finance. Since joining Brand Finance, James has worked on brand valuation and due diligence projects for a number of clients for purposes such as marketing strategy, M&A activity, corporate litigation, private equity and securitisation across territories including the UK, US, Singapore and Hong Kong.

James Park ● Senior Consultant ● +44 208 607 0300 ● [email protected]

Brand Finance plc Brand Finance is an independent consultancy focused on the management and valuation of brands and of branded businesses. Since 1996, Brand Finance has performed over 250 brand valuations with an aggregate value of over C$150 billion. The valuations have been in support of a variety of business needs – technical valuations for accounting, tax and legal purposes; valuations in support of commercial transactions (acquisitions, divestitures, licensing and joint ventures) involving different forms of intellectual property; and valuations as part of a wider mandate to deliver value-based marketing strategy and tracking. Brand Finance is headquartered in London and has offices in Toronto, New York, São Paolo, Barcelona, Madrid, Amsterdam, Paris, Bangalore, Singapore, Hong Kong and Sydney.

www.brandfinance.com (Front cover image reprinted with permission from adidas-Salomon AG)

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www.brandfinance.com

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2006 football brands

Documents

brand values

brand equity

european club brands

measures of brand awareness

brand finances calculation

business value

present value

shareholder value