“is european football the most interesting under-the-radar
TRANSCRIPT
MAPFRE AM
The Ben Graham Centre’s 1st EuropeanValue Investing Conference
“Is European Football the Most Interesting
Under-the-Radar Value Investing Story at the Moment?”
2
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax, Olympique Lyon and Borussia Dortmund?
3
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax, Olympique Lyon and Borussia Dortmund?
4
About MAPFRE AM.
Long term investments
Experts in Asset Allocation
Investment in iliquid or liquid and alternative assets
Investment centers in Madrid, Sao Paolo, Boston and Paris
150 professional investors
More than 50 years of experience
Present on the 5 continents
35.000 employees all over the world
EUR 61 bn in assets under management
5
Our Strategic Partners
6
Our Investment Process
7
Our Investment Process
8
Sustainable Investment
9
10
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax and OLG?
11
About the MAPFRE AM Behavioral Fund.
MAPFRE AM Behavioral Fund is managed according to three core principles.
(1)Value Investing
Builds Long-
Term Wealth
(2)Concentrated
Portfolios
Outperform
(3)Investor Biases
are Predictable
& Exploitable
We invest in attractively valued companies with:
o Low leverage.
o Aligned incentives.
o Track record of shareholder value creation.
Portfolio concentration encourages many virtues:
o A high level of conviction.
o A high threshold for inclusion (the 30-35 best stocks in Europe).
o A high degree of competition for capital (existing positions must continually “earn” their spot).
Investors are people who behave in predictably irrational ways:
o Over-reaction.
o Under-reaction.
o Availability bias.
o Recency bias.
12
About the MAPFRE AM Behavioral Fund.
Buy discipline
Sell discipline
o Competition for capital: We sell when we identify a use of funds with a better risk / reward.
o Behavioral self-awareness: We manage risk from the anchoring effect by using valuation ranges as opposed to a single price objective and adjust according to new information and market conditions.
MAPFRE AM Behavioral Fund applies behavioral finance concepts to identify
investments.
1 DeBondt, W. F., & Thaler, R. (July 1985). “Does the Stock Market Overreact?” The Journal of Finance, Vol XL, No 3, 793-805.2 Brandt, M.W., R. Kishore, P. Santa-Clara, M. Venkatachalam. (2008). “Earnings announcements are full of surprises”. Working paper, Duke University.3 Joel Greenblatt (1997), “You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits”, Fireside Ed.4 Chancellor, Edward (Ed.) (2015). “Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15“, Palgrave Macmillan.5 Cohen, L., Malloy, C., Pomorski, L., (2012). “Decoding inside information”. Journal of Finance 67, 1009—-1043.
Over-
reaction1
Under-
reaction2
Spin-offs3
Industry
cycles4
Under-
followed
Insider
buying5
Investor
sentiment
13
About the MAPFRE AM Behavioral Fund.
MAPFRE AM Behavioral Fund has an advisory board composed of experts in
behavioral economics, neuroscience, and organizational leadership.
The Advisory Board optimizes our investment process and improves decision making.
o Composed of experts from diverse fields outside of the asset management industry.
o Monitor latest research on behavioral economics and neuroscience and incorporate best practices into our core value investing process.
o Analyze individual behavioral biases and team dynamics to improve internal decision making.
Pedro Bermejo, MDNeurologist
Natalia Cassinello, PhD Professor at ICADE
Pedro Rey Biel, PhDProfessor at ESADE
Guillermo LlorenteSub director at MAPFRE
14
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax, Olympique Lyon and Borussia Dortmund?
15
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
1) Football clubs do not make any money.
2) Investing in football clubs is like sports betting.
3) The football industry is too cyclical.
4) A couple of bad seasons can ruin my investment.
5) Football clubs are just toys for rich people.
16
Reason #1: Football clubs do not make any money.
Fact I: Bottom-line result has improved by > €1.8bn since introduction of
UEFA Financial Fair Play (FFP).
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
-1,163
-1,634 -1,670
-1,076
-792 -789
-460-324
579
140
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Aggregate European net profits (EUR mn)
Introduction of FFP
Source: UEFA.
17
Reason #1: Football clubs do not make any money.
Fact I: Bottom-line result has improved by > €1.8bn since introduction of FFP.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
“We have always said we want investors in football. Of course we want good investors in football. (…) We have to build on the strength of financial fair play and we have to look into how we can make investment possible but with reasonable, sustainable, appropriate
guarantees.”
Gianni InfantinoFIFA’s President &
Former UEFA’s General Secretary
18
Reason #1: Football clubs do not make any money.
Fact II: What about LaLiga? Almost every team is now profit making.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
Source: Palco 23 based on 2019-20 budgets and company data. Source: Palco 23 based on 2019-20 budgets and company data.
0 200 400 600 800 1,000
CA Osasuna
RCD Mallorca
CD Leganés
SD Eibar
Real Valladolid
Granada CF
RC Celta de Vigo
Deportivo Alavés
Levante UD
Real Sociedad
Getafe CF
Villarreal CF
RCD Espanyol
Real Betis
Athletic Club
Sevilla FC
Valencia CF
Atlético de Madrid
Real Madrid
FC Barcelona
Revenue in 2019-20(EUR mn)
0 10 20 30 40 50
CA Osasuna
RCD Mallorca
CD Leganés
SD Eibar
Real Valladolid
Granada CF
RC Celta de Vigo
Deportivo Alavés
Levante UD
Real Sociedad
Getafe CF
Villarreal CF
RCD Espanyol
Real Betis
Athletic Club
Sevilla FC
Valencia CF
Atlético de Madrid
Real Madrid
FC Barcelona
Net profit in 2019-20(EUR mn)
19
Reason #1: Football clubs do not make any money.
Fact II: What about LaLiga? Debt with public authorities has disappeared.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
0
100
200
300
400
500
600
700
Jan-13 Sep-14 Sep-15 Sep-16 Sep-17 Dec-17 Jun-20
Debt with public authorities (EUR mn)
Source: Senn Ferrero.
20
Reason #2: Investing in football clubs is like sports betting.
Fact: This depends absolutely on which is your time horizon.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
8
10
12
14
16
18
20
22
24
Dec-17 Jul-18 Feb-19 Aug-19
Evolution of AFC AJAX share price (EUR/share)
UEFA Champions League 2018-2019
Semifinals
Source: Bloomberg.
21
Reason #3: The football industry is too cyclical.
Fact I: Revenues have been growing quite steadily, without decline.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
Source: Statista.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue of the biggest European soccer leagues (EUR mn)
England Italy Germany Spain France
22
Reason #3: The football industry is too cyclical.
Fact II: Football clubs can help to diversify your portfolio risk.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
70
90
110
130
150
170
190
Stoxx Football Index vs Stoxx 600 (Base 100)
Stoxx Football Index
Stoxx 600 Index
Source: Bloomberg
23
Reason #3: The football industry is too cyclical.
Fact II: Football clubs can help to diversify your portfolio risk.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
8
58
108
158
208
258
Apr-02 Oct-04 Apr-07 Oct-09 Apr-12 Oct-14 Apr-17 Oct-19
Stoxx Football Index vs Stoxx 600 (Base 100)
Stoxx Football Index
Stoxx 600 Index
Source: Bloomberg.
24
Reason #4: A couple of bad seasons can ruin my investment.
Fact I: Football clubs have significantly diversified their sources of revenues.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
37%
22%
15%
10%
8%
7%
Club revenue by source 2018
Domestic broadcasting Sponsorship Gate receipts Revenue from UEFA Commercial Other revenue
Source: UEFA.
25
Reason #4: A couple of bad seasons can ruin my investment.
Fact II: Hidden asset value de-risks the investment.
Buy clubs
that own
real estate
Avoid
excessive
leverage
Look for
Skin in the
Game
1 2 3
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
26
Reason #5: Football clubs are just toys for rich people.
Fact I: The industry is attracting more and more sophisticated investors.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
27
Reason #5: Football clubs are just toys for rich people.
Fact II: The quality of management teams has increased significantly.
Deconstructing the 5 traditional reasons for NOT investing in football clubs.
From local real estate developers… …to global business school graduates.
28
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax, Olympique Lyon and Borussia Dortmund?
29
Football is a stable and attractive (but stigmatized) business.
As a product, football has a compelling value proposition for fans:
Sizing the opportunity: Is football is undervalued?
Importance to the
Consumer
Low High
Cost to the
Consumer
High
Low
30
How do we value a football club?
A conceptual framework for understanding the key value drivers.
Sizing the opportunity: Is football is undervalued?
1 2 3
Media /
Content
Business
Real
Estate
Assets
Net
Transfer
Revenue
31
Are European football clubs undervalued by the market?
A quick look at their relative valuation vs US sport franchises would
suggest that they are… big time. (I)
Sizing the opportunity: Is football is undervalued?
OLGAJAX
BVB
0
1,000
2,000
3,000
4,000
5,000
6,000
-100 -50 0 50 100 150 200 250 300 350 400
En
terp
ris
e v
alu
e (
US
D m
n)
EBITDA (USD mn)
Source: Forbes and MAPFRE AM estimates.
32
Are European football clubs undervalued by the market?
A quick look at their relative valuation vs US sport franchises would
suggest that they are… big time. (II)
Sizing the opportunity: Is football is undervalued?
0x
10x
20x
30x
40x
50x
60x
Los
Ange
les
Clip
pers
Los
Ang
eles
Char
gers
Los
Ange
les
Ram
sM
iam
i D
olp
hin
sB
roo
kly
n N
ets
Gre
en B
ay P
ackers
Bost
on R
ed S
ox
Real M
adri
dC
aro
lina
Pan
thers
Seatt
le S
eah
aw
ks
San F
ran
cis
co G
iants
Chic
ago
Cub
sIn
dia
nap
olis
Colt
sK
ansa
s C
ity
Chie
fsLos
Ang
eles
Dodge
rsG
old
en S
tate
Warr
iors
Jack
sonv
ille
Jagu
ars
St. L
ouis
Card
inals
Pitts
burg
h S
teele
rsA
rizona
Car
din
als
Chic
ago
Bears
San F
ran
cis
co 4
9ers
Bost
on C
eltic
sM
inneso
ta V
ikin
gsN
ew
Yo
rk K
nick
sW
ashi
ngt
on R
edsk
ins
Los
Ang
eles
Lake
rsD
enver B
roncos
Bal
tim
ore
Rav
ens
Phila
delp
hia
Eagle
sB
ayern
Munic
hA
tlan
ta F
alco
nsD
alla
s M
averi
cks
Houst
on R
ock
ets
New
Yo
rk G
iants
New
Yo
rk Jets
Ars
enal
Chels
ea
Chic
ago
Bulls
New
Orl
ean
s Sa
ints
Houst
on T
exan
sLiv
erp
ool
New
Engla
nd P
atri
ots
Man
chest
er
City
Man
chest
er
United
Bosu
ssia
Do
rtm
und
Dalla
s C
ow
boys
Aja
xO
LG
EV/EBITDA of global sports franchises
Source: Forbes and MAPFRE AM estimates.
33
Case Study: Operating leverage in the NFL
Like many media businesses, professional sports have high fixed costs.
Revenue per team doubled from 2008 to 2018, while EBITDA tripled.
Sizing the opportunity: Is football is undervalued?
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
350
400
450
500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Average NFL Team Financial Performance(USD mn)
Average Revenue Average EBITDA margin
34
Case Study: Operating leverage in the NFL
NFL teams generated strong incremental margins on revenue growth beyond
$250mn, consistent with what leading European football clubs earn today.
Sizing the opportunity: Is football is undervalued?
YearsAvg.
Revenue
Avg.
EBITDA
Avg.
Margin
Incremental
Margin
2007-10 $242 $30 13% --
2011-14 $302 $54 18% 39%
2015-18 $427 $98 23% 35%
35
Are we seeing the beginning of a similar trend in European football?
We think so: revenue growth with margin expansion leads to higher valuations.
Sizing the opportunity: Is football is undervalued?
Source: Forbes.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2008 2010 2012 2014 2016 2019
Average value of sports franchises in the US(USD mn)
NHL MLB NBA NFL
36
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax, Olympique Lyon and Borussia Dortmund?
37
The structure of the revenue stream have been evolving in the recent years,
with broadcasting being now the main source of income for big clubs.
Still a lot of room to go : New sources of revenues.
Source: Deloitte.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019
Revenue growth of top 20 clubs in Europe(EUR mn)
Matchday Broadcast Commercial
38
Broadcasting revenues are still far below the NBA, the NFL or the MLB,
while the interest in football in the US and China just keeps growing.
Still a lot of room to go: An industry at an early stage.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
NFL NBA MLB European football
Comparison of broadcasting
rights through sports(EUR mn)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Trend in television rights,
European football(EUR mn)
2007-08 2017-19 2019-21
Source: PledgeSports and MAPFRE AM estimates. Source: Premier League.
39
Fewer than 20% of European clubs own their own stadium but this is
becoming a very relevant source of income.
Still a lot of room to go: An industry at an early stage.
Source: UEFA
12%
2%
4%
14%
51%
17%
Top-division clubs' stadium ownership
Owned directly by the club
Owned by municipality or state but considered a club asset (long-term finance lease)
Owned by another entity within group (association, parent or subsidiary) and included as a club asset
Partially included as a club asset (leasehold improvements)
Stadium owned by municipality or state and not reported on club's balance sheet
Owned by another party and not included on club´s balance sheet
74
62
2527
18
13
22
Stadium projects by capacity (2020-2019)
45%
Source: UEFA
40
Only 15% of all top-division clubs have stadium naming rights partners, so
there is room to increase clubs’ revenues in this front.
Still a lot of room to go: An industry at an early stage.
0
5
10
15
20
25
30
35
50% or more 25%-50% 0%-25% None
Nu
mb
er o
f le
agu
es
% of stadiums with naming rights by league in Europe
Source: UEFA
41
Just over a third of clubs own their main training facilities, which will be
another area of investments in the coming years.
Still a lot of room to go: An industry at an early stage.
Source: UEFA
26%
10%
44%
9%
11%
Ownership of clubs' training facilities
Owned directly by the club Private owner related to club
Municipal authorities Government
Owned by another party
Source: UEFA
5%3%
11%14%
17%
50%
More than
EUR10mn
EUR5mn to
EUR10mn
EUR2mn to
EUR5mn
EUR1mn to
EUR2mn
EUR500.000
to EUR2mn
Less than
EUR500.000
Last improvement work on
training facilities(Distribution by amount spent)
42
Presentation Outline.
I. About MAPFRE AM.
II. About the MAPFRE AM Behavioral Fund.
III. Deconstructing the 5 traditional reasons for NOT investing in football clubs.
IV. Sizing the opportunity: Is football undervalued?
V. Still a lot of room to go.
VI. Why do we invest in Ajax, Olympique Lyon and Borussia Dortmund?
43
What kind of clubs are we looking for? Let’s use the same criteria that we apply to other companies in our portfolio. We are interested in clubs that…
Why do we invest in Ajax, Lyon and Dortmund?
Have great management
teams
Make net profits in the transfer
market
1 2
Have low financial leverage
Own a stadium, preferably multiuse
3 4
Are significantly undervalued by
the market
5
RIGHTPEOPLE
CAPITAL ALLOCATION
BALANCESHEET
GOODASSETS
AT ADISCOUNT
0
200
400
600
800
1,000
1,200
1,400
1,600
Market cap of listed clubs in European exhanges (EUR mn)
44
The are currently just 22 football clubs listed in European stock exchanges.
Ajax, OL and Borussia Dortmund are the ones that better fit our criteria.
Why do we invest in Ajax, Lyon and Dortmund?
Source: Bloomberg.
45
Both clubs share a series of common characteristics: net-sellers in the
players’ transfer market, solid balance sheets and great management.
Why do we invest in Ajax, Lyon and Dortmund?
5.5% 2.5% 2.0%
46
Thank you