UEFA Champions League Revenue Drives the Big Movers in Latest S&P Capital IQ® Credit Football League
New issue of S&P Capital IQ’s Credit Football League report tracks the changing finances of 44 of football’s biggest teams, and introduces a new model to assess the credit of some of Europe’s super-clubs
New York and London - 9 July 2015 – Following the end of the European football season, S&P Capital IQ, a leader in multi-asset class research, data and analytics, has released the second issue of its Credit Football League report. A copy of the report, What’s the Score? S&P Capital IQ’s Credit Football League; a Season On and Lessons Learned can be found here.
In this series of reports, S&P Capital IQ explores the challenges and complex nature of assessing credit risk through the prism of football clubs. With the continued evolution of clubs from sporting institutions to business ones, S&P Capital IQ uses its proprietary peer ranking methodology, Credit Health Panel® (CHP), and other credit risk models to assess football clubs as corporations.
S&P Capital IQ uses a series of quantitative credit models to understand the financial credit risks of football clubs. These models, used by the firm’s clients to evaluate corporate and counterparty credit risk, give an insight into the varying financial standing of Europe’s top football clubs.
Following the inaugural report, published in October 2014, this issue reassesses the credit and financial risks of 44 of Europe’s biggest clubs, and explains the sporting and financial reasons behind their moves up and down the virtual league table. Using its proprietary CHP model, S&P Capital IQ ranks the clubs, on a relative basis, using 24 financial metrics that are categorised into Operational, Solvency and Liquidity panels to determine an overall fundamental score on a quartile scale: ‘Top’, ‘Above Average’, ‘Below Average’ and ‘Bottom’.
Ajax and Arsenal retain their top spots in the league, with German giants Bayern Munich and 2014 Premier League winners Manchester City joining them in the top four. The UEFA Champions League tournament drove the finances of many of this year’s big movers up and down the table. For example, Roma moved up twelve places thanks to their qualification for Europe’s biggest competition last year, while Manchester United’s rocky on-pitch performance in the 2014 season, which saw them finish seventh in the Premier League, caused them to fall five places in S&P Capital IQ’s virtual league.
“Although the game of football has remained relatively constant over the last century, the business of football has changed dramatically, and the financial health of a modern football club is now as much a consideration for its owners and investors as its performance on the pitch.” comments Pavle Sabic, Director, Credit Market Development at S&P Capital IQ. “With our Credit Football League report’s second issue, our existing and newly introduced methodologies provide investors with a set of essential signals to monitor credit strength in all of Europe’s major football clubs, and an exclusive insight into how they are affected by events during the football season.”
The Reporting Gap
In this edition of the report, S&P Capital IQ has also used a new proprietary model, ‘Probability of Default Fundamentals’ (PDFN), which uses both business and financial risk metrics to determine a club’s probability of default. This model was designed by S&P Capital IQ to help its clients overcome one of the central challenges in assessing the risk of privately owned corporations – the reporting gap.
Given that there is no uniform reporting system for private corporations in particular jurisdictions, financial assessments often need to be made based on limited financial reporting. S&P Capital IQ therefore developed PDFN in order to make robust assessments based on the criteria available. Where the reporting gap is concerned, football clubs are no different to other private corporations.
While there is enough financial data reported by the 44 clubs in the Credit Football League to use the Credit Health Panel model, some clubs do not disclose enough information for CHP to be applicable. In these cases, the proprietary PDFN model is used to assess the clubs’ credit risk. To demonstrate the effectiveness of this model, S&P Capital IQ has applied it to a number of football clubs – those most requested by the report’s global readers.
Using PDFN, S&P Capital IQ has assessed the credit health of some of Europe’s super-clubs; Chelsea FC, FC Barcelona, Real Madrid FC, Liverpool FC, Paris Saint Germain FC and three Latin American clubs.
These ten additional clubs are each given a probability of default percentage which are mapped to credit scores to identify whether they fall into the investment or non-investment grade range*. Nearly all of the clubs assessed are below the investment grade threshold and map to a high yield credit score – meaning that, on the whole, football clubs hold significant credit risk. The only club out of the ten which was found to have a mapped credit score in the investment grade category is this year’s English Premiership winner Chelsea F.C., in part due to the financial cushion provided by its owner’s wealth.
Since a different model has been used to assess these ten clubs, their credit health cannot be directly compared to the 44 teams included in the Credit Football League. Nonetheless, it is a demonstration of how companies can overcome the reporting gap using sophisticated data analytics and modelling.
The report also explores football’s potential and emergence as an investment sector in its own right. As outlined in the report, new markets and products have been launched recently that target football clubs as corporate entities. Meanwhile, the advent of Financial Fair Play regulation, in effect the first piece of legislation aimed at football clubs as financial corporations, rather than sporting entities, has put greater scrutiny than ever before on the financial health of football clubs. S&P Capital’s IQ Credit Football League series is designed to give an evolving analysis of the creditworthiness and financial risks attached to each club in the league.
The data, credit risk metrics and tools used to complete this analysis are available via the Credit Analytics suite on the S&P Capital IQ platform. The proprietary models and their outputs are completely independent from Standard & Poor’s Ratings Services.
*Lower-case nomenclature is used to differentiate S&P Capital IQ credit scores from the credit ratings issued by Standard & Poor’s Ratings Services. This is a quantitative model-based approach and completely separate from credit ratings issued by Standard & Poor’s Ratings Services.
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S&P Capital IQ, a part of McGraw Hill Financial (NYSE:MHFI), is a leading provider of multi-asset class and real time data, research and analytics to institutional investors, investment and commercial banks, investment advisors and wealth managers, corporations and universities around the world. S&P Capital IQ provides a broad suite of capabilities designed to help track performance, generate alpha, and identify new trading and investment ideas, and perform risk analysis and mitigation strategies. Through leading desktop solutions such as the S&P Capital IQ, Global Credit Portal and MarketScope Advisor desktops; enterprise solutions, such as S&P Capital IQ Valuations; and research offerings, including Leveraged Commentary & Data, Global Markets Intelligence, and company and funds research, S&P Capital IQ sharpens financial intelligence into the wisdom today’s investors need. For more information, visit www.spcapitaliq.com.