The valuation is the enterprise value of the club. The valuation includes the debt as there would be an asset matched against it. He will also be looking at the Net Present Value of the club based on future cashflow/profit projections. This is where the new stadium is key. Assuming the new stadium opens and maximises it's potential it could add in excess of £50m per year in profit to the club. Assuming this continued over the medium term (say 10 years) it will have generated in excess of £500m extra than it would before the stadium was built. Yes the debt would need paying off but each year that debt would decrease and the profits and free cashflow would increase accordingly. This is what he is hoping to cash in on if he can't afford to run the club himself. The new stadium is the key as it opens up vast potential for making extra money/profit.
1. NPV based on future cashflows is indeed a good way of valuing an enterprise. But this relies very much on FREE cashflow, cash you can take OUT (as dividends, etc). This is the return you get on your investment. You discount the value down as money received in the future is worth less than money received today (for non-financial people).
2. Tim is no doubt right that you can earn an extra £50M a year from a stadium, as that's what Man United have done. But it means we'd have to follow the same practices - namely steep ticket price increases, ATS for cup games, a 75,000 stadium with no games having discounted tickets, corporate prawn sandwiches by the truckload... We're competing for the same corporate clientele from a smaller geographic catchment area and we wouldn't be discounting tickets if we thought we could sell out all games. So £50M is possible, but tricky.
3. About half of the extra money would be required to pay off capital and interest on the stadium, so wouldn't be free cashflow. Additional cash will be required to pay interest on the loan for buying the club. Fans will insist on money being spent on new players, both transfer fees and salaries. This would further reduce cash which could be taken out. All experience to date shows that the massively increased revenues have ended up in players' and agents' pockets, not with investors. This model would have to be radically changed.
4. If this is the case, then we (at best) remain a breakeven club. Fine for us, as fans, as that's what we want and that's what we've always had. Not what investors want. If we don't make the revenues then there will have to be severe cost-cutting and jettisoning of assets - and we all know the best West Yorkshire example of that scenario... A shared stadium would be a way of reducing this risk, so it's no surprise it hasn't gone away.
5. It's true that the valuation is the enterprise value of the club. If someone is willing to pay £1bn or £1.5bn then that's what it's worth. But I see little financial justification without major overhauls in how the League works. For me it's the "Emperor's new clothes". People will keep on paying more and more for clubs until one day someone says, "Hang on, there's nothing there...!"
