Author Topic: We're worth 385m  (Read 19785 times)

Offline Jack Slater

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Re: We're worth 385m
« Reply #160 on: April 27, 2012, 07:57:54 am »

Forbes' lists are no more reliable than Hello's guesses about whether Celebrity A is dating Celebrity B.

They're both based on info which is in the public domain and may be reliable (published accounts; published paparazzi photos), but also on  info which is in the public domain and may be unreliable  (statements by press agents, and other people with vested interests).

Nobody should be misled into thinking that Forbes has actually undertaken some reliable expert analysis.  Their valuation of LFC during H&G's time was close to the amount which Hicks told everybody that the club was worth, and a long way away from the amount which anyone was prepared to offer when the club was on the market for over a year.



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Re: We're worth 385m
« Reply #161 on: April 27, 2012, 08:06:34 am »
That's right Jack, and this post from Johnny C from the time of the protests is worth highlighting again.

(note:  if you don't want to read through all this just scroll to the 3 parts in red)
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Ladies & Gentlemen... Meine Damen und Herren ~


Meet Peter J. Schwartz, Paul Maidment and Michael K. Ozanian.
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Schwartz..............Maidment..............Ozanian
(click)....................(click)....................(click)
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These guys are the researcher and two editors at Forbes who came up with that $822M valuation (515M) of LFC.  You know... that same valuation that Hicks is using in his argument to block the sale of the club.

I should start out by saying that these guys are journalists, they aren't professional investors or bankers or consultants, and even then some of their "journalism" is down right EMBARRASSINGLY BAD.  So for them to even be attempting to come up with expected "valuations" of clubs (let alone publishing those expected "valuations") is a little preposterous.

Judging from their backgrounds, Schwartz likely did the grunt work crunching numbers, Ozanian signed off on the valuations, while Maidment probably just slapped his name on there because he was Executive Editor of Forbes.com.


I am an institutional investor.  I trade equities all day here in NYC and I do so by understanding a company's fundamentals.  I've been doing it for a number of years.  And one thing that I can tell you is that determining "Valuation" is more Art than Science.


I'll give you an example of what I mean by that :
  • Company ABC and Company XYZ are in the same industry
  • Same revenues
  • Same profitability
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All things being equal, you would think that both these companies would have the same value.

Wrong.

It turns out that Company ABC has a valuation of 900M and Company XYZ is valued at 300M.


Why the big 3X difference in valuation if the numbers and the make-up for both companies are the same ?
Why is Company ABC trading at triple the price-to-sales ratio ?
Why is Company ABC trading at triple the price-to-earnings ratio ?


This is where the "Art" comes in...
  • It turns out that Company ABC has a killer management team, while Company XYZ's are bottom of the barrel
  • It also turns out that Company ABC can pay their debts, while Company XYZ can't
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"Okay", you say... "I get that Company ABC should have a higher valuation because of those factors, but why is it a 3X difference?  Why not 2X?  Why not 1.5X?"
Great Question !  And that is EXACTLY one of the places where these Forbes guys screwed up.  They have no concept for the "Art".  They don't know how to determine the valuation multiple.


At the beginning of the Forbes article, this is what they say about how they are determining these valuations :
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So what does that highlighted part mean ?
It means that they are coming up with their "valuations" based off of the clubs' revenues.  They are looking at what the club did in revenues in the previous year, multiplying it by some number and coming up with their current valuation.


Sounds simple enough... So what number did they pick to multiply the revenues by ?  (pardon my crude chart)
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How the heck did Forbes come up with a 2.7 price-to-sales multiple for Liverpool ?
Well at the beginning of the article they did say "Our team values are calculated using revenue multiples based on historical transactions."  Okay fair enough.  So let's go back and look at the most recent "historical transaction" for Liverpool.  Let's see what revenue multiple Hicks & GG valued the club at in pre-world-wide recession 2007 when they purchased this fine club, which I remind you had basically zero debt at the time.


In 2007, Hicks & GG bought Liverpool for 219M.  In the 2005/06 season Liverpool had revenues of 122M.  That's a price-to-sales multiple of 1.8X.  1.8X ?!?  That's a long LONG way from the 2.7X multiplier that the Forbes guys just used.

So if Forbes was really basing their multiples on "historical transactions" they would have used a 1.8X price-to-sales multiple.
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Let's see what Forbes' valuation would have been if they used that 1.8X price-to-sales multiple that Hicks & GG used in 2007 when they purchased the club:
  • (LFC 08/09 Revenue)  X  (price-to-sales multiple)  =  Valuation
  • ($304M)  X  ( 1.8 )  =  Valuation
  • $547M  =  Valuation
  • or converted to pounds 340M
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And remember that 1.8X multiple was used for a Liverpool club that had ZERO debt at the time, and we just came up with a number that puts the club at 340M.  Also remember that 2007 was before any world-wide recession.  It was before half of the EU was bankrupt.

Tack on the current debt and the fact that the club structure can't pay the debt let alone even the interest payments and do you think that multiple should get bigger or smaller ?  That's right, smaller.


So it definitely shouldn't be 1.8X.  That's too high given the debt, let alone the economy.  Should it be 1.5X or 1.2X or even 0.9 ?
  • A 1.5X price-to-sales ratio gets us to a 285M valuation.
  • A 1.2X price-to-sales ratio gets us to a 225M valuation.
  • A 0.9X price-to-sales ratio gets us to a 170M valuation.
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I don't know what the right valuation should be (I haven't done the exercise yet)
But the takeaways for us should be :
  • Henry's NESV offer of 300M does not under value the club.  If anything it OVER values it by a considerable amount.
  • These Forbes guys did some bad bad really bad work.
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Okay, so it's bad enough that they screwed up the "Art" when it comes to determining the multiple...But what is inexcusable is that Forbes didn't even value these clubs using the same criteria...

i.e. Forbes forgot to include DEBT in their valuation for some clubs, but included it for others.
  • Guess which club Forbes didn't consider the debt when placing a value on it....  You got it.  Liverpool.
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Here's the fine print from that Forbes article :
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That's just DUMB. Take a look at their valuation table and see what I mean.

Normally when you are going to compare things you measure them like-for-like.  You don't compare apples to oranges.  But that's exactly what Schwartz, Maidment & Ozanian did.

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Offline KennyDaggers

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Re: We're worth 385m
« Reply #163 on: April 28, 2012, 02:29:27 pm »
The debt is not really relevant to this discussion.

If I own a house worth 100k and don't have a mortgage and the fella next door owns an equivalent house but has a mortgage for 95k, it doesn't mean one iota of difference to the houses. It just means I get more than the other owner when I sell, we still own homes worth the same amount.

It shows how far behind we have slipped that there worth 1 billion more than us, hopefully FSG can start bridging that gap, trophy wins should help.

Offline Skidder.

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Re: We're worth 385m
« Reply #164 on: April 28, 2012, 06:39:22 pm »
http://en.wikipedia.org/wiki/Forbes'_list_of_the_most_valuable_football_clubs

I think looking back over how our market valuation has varied over the past few seasons, make a lot of the guff in this thread meaningless drivel.

Anyone questioning the values of these tables needs to go and take a long hard few years in a business course.
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Offline SeanAxion

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Re: We're worth 385m
« Reply #165 on: April 28, 2012, 08:42:15 pm »
http://en.wikipedia.org/wiki/Forbes'_list_of_the_most_valuable_football_clubs

I think looking back over how our market valuation has varied over the past few seasons, make a lot of the guff in this thread meaningless drivel.

Anyone questioning the values of these tables needs to go and take a long hard few years in a business course.

Ha ha- the tables do show how little these things actually mean.

Special mentions go to West Ham being the 23rd richest club in world football back in 2007, and Everton consistently making the top 25 up until 2010- yes the same Everton who have not had a pot to piss in for god knows how long.