The Big Short in women’s football.

Speak no evil, hear no evil, see no evil. 

In today’s world there are some things no one wants to let you say, even if very worthy of debate, and essential to consider for the right decision-making.

 

So never be scared to speak up. 

Today’s Sunday Column looks at one of those, to offer some humble and honest opinion around the most sacred of sport’s cows.

Different to what they will tell you elsewhere, women’s football in Europe looks to be failing. And that is tragic and avoidable, but many will see this opinion, in itself, as adding nothing short of misogynist evil.

It is absolutely not. In the week that professional women’s football in England starts a new journey as a new-co league, the WSL, independent of the English FA, it’s just a natural commentary to what is all around us in plain view, from the perspective of how a cold financier or investor will look at the difference between narrative and hard facts. Especially, in today’s harsher capital markets. 

It is written by someone in that very small group of people who have actually set up such a new league, knowing all the political difficulties that the CEO Nikki Doucet will face.

The plot of the story is a simple one.

Who is going to continue to fund the losses of the female professional game, and why would they do that?

It’s a finance Column, and we always follow the money, because that leads to the truth.

 

Is the “top” in for women’s pro football? 

People think finance is what accountants do, but it’s actually about looking into the future to assess real, not perceived, risk.

From the book Sport’s Perfect Storm

Clues are all around us if we look, and sometimes all of them seem to point at what markets call a change in sentiment, a top, a new trend. Lucid investors see all these datapoints in advance, and use them to position their investments for the best returns. You always make the best money in exactly these moments of change in momentum. 

 

The hard evidence is always visible!

The Global Financial Crisis of 2008 was called an unforeseeable black swan, but it was anything but. The signs were all around, for anyone having a bit of curiosity and paranoia.

They’re not confessing, they’re bragging. 

It was right there that Mark Baum (Steve Carell) decided to “short” mortgages, and their derivatives, called Collateralised Debt Obligations (CDOs), realising what was driving America’s housing market boom. Uncontrolled home loans were sold to people who simply couldn’t afford them, by brokers on juicy commissions with no personal incentives to be prudent. Yes, they were bragging. 

Do people have any idea what they’re buying?

 

Is the asset of women’s football understood?

Do sports investors really have any idea what they are actually buying with women’s football assets, particularly in Europe?

I’m not so sure.

And just like non-performing and delinquent mortgages were a clear neon signpost for real trouble ahead in real estate in 2007, there are similar datapoints in English women’s soccer, and they shouldn’t be ignored. It is a dereliction of duty if they are. 

I called Charlie Methven, an ex-guest on AYNE, to get a better read on all this, and he replied asking if I wanted to take the red pill. 

Of course I took it. 

As a “vision”, this Column has always been optimistic on women’s sport as an investment opportunity. An untapped market of 50% of the world’s population that has largely been ignored, even actively discouraged. So, as the world now changes, it should be inevitable that young girls will participate in, follow, and spend dollars on the female game. The “macro” stands up huge.

“Macro” in investing is the big picture. Your thematic outlook. Like saying today that the world is going AI, and anyone making chips that facilitate all that stuff should do well. 

But the great investors don’t stop at “macro”. Like Mark Baum, they get off their backside and start asking questions about the “micro”. They ask Johnny ShoeShine.

The words of the prophets are always written on the subway walls, or in this case, the training grounds of the WSL Championship.

 

Women’s football isn’t sustainable today.

Charlie Methven is an owner of a football club, Charlton Athletic FC, and therefore is living in the real world, not the Matrix. He has employees to feed, customers to satisfy, shareholders to protect, cash to manage. He certainly doesn’t have the luxury of fighting culture wars.

His podcast episode was one of the most popular ever on AYNE; in style, content and honesty.

Charlie informed me that what he was about to say is a widely-held view in the community of football club owners in their vibrant private WhatsApp group. Especially so, when discussing the WSL second division, called the Championship.

He shows me the P&L account on his women’s team and breaks down the capex investment of £1.5m in a new hybrid pitch and girls’ academy at the Valley. He barely can hide his frustration. 

We at Charlton are massive believers in the importance of women’s and girl’s football – we wouldn’t invest the highest percentage of any men’s football club in its women’s team if that were not the case. But that doesn’t mean that we are supportive in any way of how the FA has set up the women’s professional game, which it has done with characteristic incompetence and lack of nous. By failing to set spending controls in WSL 1, they have inadvertently turned WSL Championship into a pig in a poke. That’s why you are seeing the huge problems at WSL 2 level, because if – as a club – you cannot afford to be in WSL1, then why would you invest fortunes to just participate in WSL2? And the lesson of Bristol City’s short and unhappy tenure in WSL1 has been so well learned in WSL2 that as of now most teams in WSL2 would not want to get promoted to WSL1. That is a ludicrous and totally unnecessary position to get into. Because of Charlton’s huge history in women’s football – former winners of the Women’s FA Cup etc – we are desperate to play in a proper sporting competition, which rewards those who do things the right way. But the way its been set up, WSL doesn’t really exist as an independent entity – it’s just a closed shop for the biggest EPL Men’s clubs.- Charlie Methven

Zero punches pulled there, and the hard evidence seems to be on his side, as club owners like Sheffield and Reading all retreat from future investments. They all saw Bristol City and want no part of that.

En passant, they note that Blackburn women “pro” footballers are getting paid the minimum wage. 

It’s not good, and everyone should be sad and concerned as it simply means less pathways and coaching for our daughters. The three monkeys should drop their hands to see, hear, and shout this truth. No one wants the women’s game to fail; we want it to grow.

 

But it can’t in its current form. 

In terms of the broader health of the women’s professional game, I think we have to be clear that for all its potential, if it were forced to stand on its own two feet – as the rest of professional sport does – it would struggle to stand up. Median genuine WSL 1 revenues – as opposed to transferred revenues from men’s clubs – are akin to a National League or possibly League 2 club. To put it very, very mildly that level of revenue wouldn’t naturally get you to wages which, in some cases, are now rivalling those of men’s Championship players. This needs serious discussion. The future of women’s professional football is too important to brush this under the carpet.- Charlie Methven

Well, all that grabs the attention for sure, but to be a good commentator, and especially a good investor, you need to do your own work, engage your own brain and look for any personal agendas that maybe distort the truth. You look for the hard numbers, revenues and costs. And, especially, the signals all around you. 

One could be forgiven for being seduced by the very positive PR we have all been fed in the last two years. Of stadia filled to the rafters at Arsenal and Barcelona, of Lionesses enthralling the nation, of podcasts full of guests giving it large on the exploding demand and appeal of this booming movement. Hubris even. 

Football did come home, it was just that it was the women who brought it.

Woe betide anyone calling BS on all that, right? 

In the financial markets, when narrative gets ahead of itself, the experienced operators sniff out a bubble. 

Elon, and Tesla, was always a charlatan’s bluff. Shit-coin crypto was always a Ponzi. AI companies are today all looking vastly over-valued. 

“Short sellers” then look for an instrument for the “short”. It was Credit Default Swaps (CDSs) in 2007.  

Brent Johnson, a very astute American macro investor managing serious money, and another ex-guest of AYNE, once asked me the best way to short the coming Perfect Storm in sports. He absolutely bought that “macro” thesis, and was looking for the instrument. That’s a hard finance Column for another day. 

So, is women’s football a “short”, in a bubble, just a victory of wishful thinking and dogma over hard reality? Totally caught up in the wider identity politics and culture wars of recent years? 

 

Well, yes and no. 

The key to the answer is this.

Let’s distinguish between the product of women’s football, and the business of women’s professional football.

Most people in my network, including Methven, agree with the huge growth potential of the product as an investment theme, because very seldom do you come across an industry that has only addressed one half of its potential total addressable market (TAM). It makes absolute business and investing sense to be bullish on the other half of the sky. We, at Albachiara, have been for a while. 

 

But the “micro” of the business side of women’s professional football is very challenged in the way it is being run today. The numbers show that and, as luck would have it, the blogger accountant Swiss Ramble has this week produced a 3-part financial analysis.

It is sadly behind a paywall, but no matter. What this analysis shows at its core, beyond all his figures and graphs on past performance, is simple. The women’s game as a business is currently a non-starter, in no way self-sustaining, massively financed by the men. These handouts in the accounts are politely called “Group Support” and represent 50% of revenues at the big clubs that are getting all that great PR.

“Swiss” published the second part to the report on the operating upside possible to improve those figures. Because without this “jam tomorrow” scenario, we could all pack up the tent already.

“Swiss” in fact is optimistic and agrees with many of the other bullish analyst reports, like Deloitte‘s, all projecting big increases in attendances, match-day income, commercial revenues, and rights fees.

 

But nothing I saw from his analysis, or my own discussions and research, is going to materially change the status quo IMHO.

Ticket prices to attend WSL1 games are still very low, but attendances at the mean aren’t impressive.

I am just unconvinced, and people are being way too optimistic on the prospects of the woman’s professional game, frankly, because they so want it to be true.

They are in full confirmation bias, which is always strongest for emotional issues, and deeply entrenched beliefs/faiths. Or for new ventures where fees can be earned by talking it all up.

The appeal, loyalty and passion just isn’t there in quantum, and it seems women, frankly, aren’t as committed to following their football team the way men are. For the “lads”, the match isn’t just part of the possible leisure options around how to spend your weekend. The match IS their fucking weekend.

 

That is the three monkeys’ reality.
Call it evil if you want, but it’s true. 

The women’s game is a nice-to-have, a pleasant day out, in competition with so many other things that girls like to do.  For men, instead, it is everything, and that difference will not change for many many years, no matter how many young females you put on TV as pundits.

Jim Ratcliffe of Manchester United was harshly criticised for pointing out the completely bloody obvious that the men’s team was where his fresh capital needed to go. Ratcliffe is Britain’s most successful businessman, for good reason, and has little time for diplomatic sensitivities. He has one of football’s most-followed names to save from a decade of brand decline. The women’s team comes way way down his priorities.

Anyone resisting this reality is in denial. Debilitating denial.

Women’s football doesn’t generate enough revenue. Selling the odd ticket, at around a tenner (half of that for kids), doesn’t drive sufficient match day revenues. Maybe, it doesn’t even cover the cost of opening up the big stadium. Hospitality isn’t happening, and commercial revenues and sponsorship are still minimal, probably still benefitting from some kind of linkage to the men’s team. Broadcast appeal can always be gauged by looking at the rights deals, and even that isn’t looking good. 

There were big expectations that the new WSL TV contract from 2024 onwards would see a significant uplift in values, on the back of all this positive narrative. But, today, we’ve taken the red pill, and reality bites hard. The old contract was, in fact, recently just rolled over for a year at the same low values, and eventual renewal may seriously disappoint to the downside.

Whisper it… No one really is watching women’s football in any serious numbers, certainly not paying for it, and broadcasters are no longer able to turn a blind eye for virtue-signalling.

Those days are long gone in the media sector. This is the era of the “evil” CFO making sure numbers add up. True at Zazlav’s Warner Discovery, true at Comcast/Sky, true at DAZN, true at BeIN. Ask our French friends. 

 

Media rights for the girls are going down.

Women’s football in the UK doesn’t do the job as needle-shifting programming for a subscription business like Sky UK. And it hasn’t in any way worked for DAZN. They apparently lost their shirt in Europe.

Follow this money, and be healthily skeptical on the future rights values of women’s football in Europe.

The best commentator in our sector is still Martin Ross of Sports Business. He is a classic prudent Scot (whose father in 1983 gave me my first job as a Grant Thornton accountant). Martin always calls it with a very straight bat, and his recent piece below is as clear as it gets. Have a read, and smell the coffee this fine Sunday in late July.

 

So why bother financing a “dog”?

Women’s football as a business is currently what Gordon Gekko would, in fact, call a dog. The club owners know it, and I suspect Nikki Doucet does too. Deep down. 

But to stop there as a judgement is not good enough. Certainly not for this diary. So, here comes the philosophy that maybe offers a wider perspective and some optimism.

Why is the men’s game and its investors doing all this? Paying the credit card bill for the girls? The boys’ game itself is loss-making and tight for cash. 

Why throw money at this thing at all? 

 

It depends on your socio-political view in 2024.

There are three possible reasons:

1. In realpolitik, the clubs are obliged to finance a female team, as everyone now expects it, especially sponsors.

In today’s world, you NEED to be seen to supporting women, inclusion, DEI etc. The men’s league, the EPL, also wants their clubs to do it, for the same reasons. This, of course, is the virtue-signalling answer, where a £3m pa subsidy is an acceptable cost to a club earning £200m revenues a year, to allow them to tick the Corporate Social Responsibility (CSR) box. In the specific case of say a Newcastle, clubs with Arab ownership also need to have a women’s team to counterbalance their perceived record on equal rights.

So, a subsidy into the female game can be called a brand investment cost at best, and a “woke” tax at worst.

2. The big English clubs like Chelsea and Arsenal want to develop a global brand as wide and inclusive as possible, and they need to have a successful women’s team to do that.

A strong reason, and many would do the same. They need their women’s squads to compete in Europe with credibility and big names, and they will spend heavy on players, well beyond their real value, to do that. This reasoning however applies to only a small handful of brand clubs in England and Europe.

The third reason is the most palatable for many, including Swiss Ramble. 

3. The subsidy from the mens game, and from also the FA to date, is in reality a seed or Series A investment in the start-up phase of a new product and market which has huge potential.

That start-up slide deck would say that the growth in women’s football is inevitable and just needs initial investment to get to breakeven, and then to seriously prosper. So, of course it is currently loss-making, but the best start-ups always are at this stage. How long did it take for Amazon to get to cash flow positive? 

That is a compelling argument, but sadly incomplete.

In fact, let’s take each of these in turn and do some due diligence to stress-test them.

 

The DEI imperative.

For many years, the Western DEI movement has evolved unchallenged and impregnable, and it has been career suicide to disagree with it in any way, or to even write a Column like this. The culture was “cancel”, so many understandably decided for a quiet life, and to follow the three monkeys. There is also the societal imperative demanding “equal pay” for athletes, based on all kinds of cultural, moral, ethical, guilt-trip grounds, regardless of any economics.

For many of us, all this was worthy, but naive, nonsense, fruit simply of the decades of easy money and cheap capital. As we now move from a bull to a bear market, to harder times, with even scarcer resources, it’s just going to be let go. In fact, the passion and fervour for all this is already dissipating as we write, in places like Microsoft. 

DEI and ESG were low interest rate luxury goods.

Such an elegant yet precise summary. 

Let’s be clear. Luxuries get cut when you can’t make payroll at month-end, and DEI is dying, even if most haven’t yet got the memo. But one day, they will get a tap on the shoulder, like at Microsoft. 

So, the current subsidy for women’s sport, if being done for this reason, must now be considered “uncertain” going forward. A material risk for any investor that is not on a cultural crusade. 

 

The polarisation of Hollywood and Arthouse. 

Like in the rest of European football, the big club brands are pulling away from their local leagues, being more interested in a global elite, an eventual SuperLeague, ideally based on the American model. 

So, they will always spend on players to maintain and nurture their winning Hollywood brand. And without serious league-level wage caps, this utterly destroys the idea of a cohesive domestic competition.The very big clubs are “doping” the player market and making anyone wanting to compete with them financially unsustainable. This is why no one in WSL2 wants to get promoted and why women’s football is being abandoned by those very same community clubs. Methven’s point.

Clubs, like Reading, Charlton, Sheffield, Blackburn, Bristol City, just can’t afford to foster the female game, and this will delay the entire growth of the sector, and its TAM. That’s not good for any start-up pitching on a glorious future, and hockey-stick revenues and profits.

The reality of unintended consequences is always savage.

It is the new CEO’s biggest challenge, and from experience, it will not be easy to find compromise. Running a football league in Europe is like getting a Supreme Court judge elected. It’s exhausting horsetrading for votes, with the carrot and the stick. You have really no idea until you’ve been in that seat. 

 

The start-up argument. 

If this is indeed the camomile lotion answer for the optimists, and if women’s professional football really wants to play the “start-up card” to justify subsidy, it needs to be ready to prove that it deserves it. Like any other start-up.

As a business! Not as a concept, a social justice, a settling-of-scores. But as a business!

By a country mile the main reason most start-ups don’t get funding is because the founders talk only about the marvels and uniqueness of their product, and ignore the merits of the business that can be built from it.

Exactly the mistake women’s sport is making in 2024.

To get seed capital, a start-up needs to make its business case, present a Plan, have a deck to stand behind. Remember, very few pitches in Silicon Valley get a penny, because the conditions for financial return are not there. The deck isn’t perceived as credible.

All this is significantly harder in a world of venture capital totally changed from 3 years ago, where the bar of being seen as a good bet is so so much higher now. This is very important to grasp.

Just because something is new, socially sexy, early-stage exciting, doesn’t mean it deserves capital.

Not in 2024. Sorry.

So, casually using the start-up argument to demand a subsidy for English women’s football is flawed, “Pollyanna“, and lazy, unless you can answer the below query in the affirmative…

 

Would a WSL pitch to Sequoia succeed today? 

I don’t think so. Not today. The investment world has changed, especially for sports in Europe. But almost all of our industry still hasn’t twigged as to why.

The risk profile of sports assets in Europe is materially higher. This needs repeating.

The risk profile of sports assets in Europe is materially higher.

A good financier will always look at investing based on a risk profile, and it is clear to all that European sport, with its volatility around relegation, with its lack of wages caps, with its horrendous conflicted governance, is all a bridge too far.

I had a couple of meetings this week, around advising a new sports fund with major backers and very high profile athlete ambassadors. It was a discussion around where to eventually invest. Which assets; franchises, leagues, or sport-adjacent? Which geographies? 

Some of our Limited Partners (LPs) won’t commit if we are going to invest outside of the USA. 

Give us the case to even consider European sports assets, Roger.

Quotes from a very senior PE partner. 

None of this ever matters to the groupthink, until it absolutely does. Like the penny dropping in 2008. Like Ligue1 today. And like women’s football tomorrow.

 

Assessing risk always matters.

In fact, it’s all that matters.

It is the difference between a score-keeping accountant looking at old financial statements at Companies House, and a great financier, and this has been the major thrust of this Column and the book “Sport’s Perfect Storm“, seemingly without making much impact.

So, imagine my delight when in that same meeting someone notes that in the book we actually create a protocol and process to calculate all that risk, with the Capital Asset Pricing Model. (CAPM). 

You make it clear that the risk and discount rate in Europe is so much higher. So, why don’t we just concentrate in the US? That’s what the LPs want anyway.

This conclusion can not be ignored. It is existential for European sport, because reality does always bite eventually.

The Americans have woken up to the core axioms of corporate finance. They want to avoid risk.

Arctos to prioritise US sports investments with new US$4.1bn fund

 

People these days look at valuations of sports assets and use a comparator benchmark of American franchise multiples, and it is just total nonsense. It’s a completely different risk profile.

If anyone successfully convinces you to buy a European football club (men or women) by noting how cheap it is compared to the States, I have a bridge in London to sell you.

 

Here is how a serious VC would look at the WSL. 

Investing in start-ups is about coldly assessing the environment for an entire market (TAM) to grow in size and profit marginality. If you think that it will, if you think that the eco-system is stable and reliable, if you think that the rule of law and governance is solid, then maybe it’s worth the risk. 

But English women’s professional football has none of those things, and, today, its way of doing business is killing the growth of the grassroots female game. No one at the clubs below the mega-brands wants to invest.

So, the TAM will not grow. At least not exponentially. 

Then, all football leagues in Europe are polarising and inherently unstable. The EPL for example is in the middle of a major court case with its champion club Man City, and the lawyers are starting to dominate European football everywhere, creating major uncertainty, The EPL will spend circa £40m in legal costs against the Abu Dhabi club by the end. The overall governance is horrendous, across rabid political in-fighting among FIFA, UEFA, leagues and clubs. The European Leagues are today actually suing FIFA. Of course they are, and it was all so utterly foreseeable, but that risk wasn’t priced in by the optimists.

Further micro analysis on the WSL would reveal that the eco-system today is badly designed. For example, catchments areas in southern England are much bigger, and franchise locations should reflect that. The northern working class clubs are clustered too closely together to make a women’s team work up there.

So, in conclusion, there is no way a serious detached investor in early stage looks positively at the business opportunity to make money in women’s football in England. The WSL is not a start-up pitch deck that would get past the first cut of the junior VC executives, frankly.

The risk factors are way too high, and the business case is woefully inadequate.

 

Listen to the Naysayers.
It is they who will always enlighten you. 

If this Column was not balanced, it could end here with an arrogant smirk of satisfaction. Job done.

But it IS balanced.

The criticism of anyone who dares suggest that women’s football isn’t working is often vicious and vindictive. They will retort that men’s football has never made any money itself and yet gets well subsidised by fresh capital every year. So they will insist that there is a moral obligation to do the same, and invest long term for the women’s game, come what may.

Any disagreement or scepticism around that will be called mansplaining.

That is wrong and the best current argument for subsidy is the WNBA, for years propped-up by the men’s NBA, and now apparently the proud owner of a new broadcast deal. There’s your benchmark to debate the argument. 

Just a sec though.

It should be noted that the WNBA deal is still negotiated by the men’s game, and in many ways is tightly bundled with their rights. Separate terms sheets maybe, but the linkage is clear. In fact the exact same broadcasters won the rights. What an astonishing coincidence!

So one shouldn’t read too much into the WNBA, beyond it being a somewhat decent validation for investment/subsidy in women’s sports. The product and its appeal, market-fit, is getting there for women’s sport, but it’s just that the business model often isn’t, and this is the kernel of everything.

The business fundamentals do not currently merit seed capital and subsidy.

 

Some smart investors still love women’s football.

Michele Kang and Mercury 13 et al are all investing in European women’s football with conviction, and they believe in the growing appeal of the sport. They are smart, and apparently aren’t intending losing their investors’ capital.

So, what do they see?

Well, what these people are investing in, if the truth of the red pill is laid bare, is not really in women’s football. The sport is arguably actually incidental. 

They are investing in an audience play business, around a new consumer brand based atop a football club. Certainly that is what Mercury 13 is doing. (Michele Kang I’m less sure about. That seems more the life crusade of a zealot to me.)

Have a look at what Mercury 13 has done with its brand and logo launch here in Como.

This is what Como Women will become under Victoire H. Cogevina Reynal at Mercury 13. A fashion brand like Prada.

It is about being in with the cool kids, associated with the right community with a Clooney celeb vibe, having the right fashion accessory at the stadium, and going to the right social events, where you will meet the right people. It’s arguably what’s called a “Black List” business. Access to an exclusive network and associated benefits, like a Platinum Amex, or the Privee at a hot club.  

Mercury 13’s investment thesis is on increasing asset value of the franchises. You buy them for nothing basically, add some brand glitz, build a database, and sell for a nice capital gain. And that may work. We are after all in the Everything Bubble.

Similarly, in America, in the middle of its identity politics, owning, and being seen to own, DEI assets is social currency. The chance to meet Michelle Obama or Serena Williams. Even Natalie Portman. It’s difficult to put an asset value on this DEI credibility, but some of us think they are well-overvalued. 

 

The WSL does have a bright future. 

But not like this, where it currently needs daddy to always pick up the tab. The way it is operating today is in fact merely keeping a lame-duck alive. The WSL is like British Leyland in the 70s. 

It could do so much better, but to have a chance it needs to stop drinking the KoolAid, to start again and be radical, to create a business very much based on the American model. Nikki Doucet, a Canadian, I suspect agrees.

We asked her to comment on all, but she declined. I get that. I wouldn’t have spoken to me either.

Closed leagues, with well-spaced out franchise (not club) locations, hard wage caps and controls, a fair distribution mechanism, and clear independent governance empowering a CEO. Below that pro-level, someone clever needs to work with the FA on pathways and pyramids, all inevitably on a semi-pro basis. Player wages need to reflect the actual revenues without subsidy, and not exceed a 60% ratio. 

That’s a pitch deck that may interest Sequoia Capital.

This Column will likely offend some, and that’s a shame, but it’s not written to garner popularity. You are free to dislike it, and me, but I’m far more interested in what you think is factually wrong substantively, in today’s capital markets.

Answers on a postcard……

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