ICAEW.com works better with JavaScript enabled.

Valuation Community

UTB and Sheffield United Limited [2019] EWHC 2322

Author: Andrew Strickland

Published: 04 Oct 2022

Exclusive content
Access to our exclusive resources is for specific groups of students, users, subscribers and members.

The valuation of football clubs can be devilishly difficult: for many such clubs the owners are driven by passion or by the need to own a trophy.

Not always a beautiful game? (Part two)

Valuation metrics based on bloodless and objective economic investment criteria can be used for want of a better; however they cannot embrace the emotions involved in football club ownership: such subjectivities cannot be reliably weighed in the balance.

This article is described as Part Two above as there was, relatively recently, another contentious valuation reported relating to a shareholder dispute over Blackpool Football Club (VB Football Assets and Blackpool Football Club (Properties) Limited [2017] EWHC 2767).

The valuation challenges as described above were played out in both cases by two valuers with wholly different approaches: one valuer used the income approach, with a focus on the cash-generating abilities of the business as a conventional trading enterprise. The second valuer was more comfortable with the market approach and viewed the valuations far more instinctively.

One for the referee

There have been five or six different hearings involving the two above protagonists, relating to a shareholders’ agreement made on 30 August 2013. UTB, controlled by Saudi Arabian interests, was to obtain a stake of 50% in the football club in exchange for injecting funds of £10 million. At the other end of the pitch was Kevin McCabe, the owner and funder of Sheffield United, and a person held in high regard in Sheffield.

It was anticipated that the club would be loss making for several years but that this would then change once of the goal of promotion to the Premier League had been achieved.

The dispute was over who was to fund the losses until the club had climbed to the dizzy heights of the Premiership with sight of the glittering prizes then possibly on offer.

Penalty shoot out

The Judge drew attention to the differences between the two valuers: one valuer was described as follows:

His valuations were rigorous and careful and he impressed me as a highly competent and professional man, appropriately cautious and reasoned in his approach, and aware of the limits to his own knowledge and of the difficulties of valuing a football club. The other valuer “was deeply immersed and actively involved in the world of transactions in football clubs and their shares, but was not otherwise an expert in forensic accountancy. His report was thin on reasoning and he was unimpressive as a professional valuer, failing to address and answer properly most of the questions that were put to him. In the final analysis he relied on his gut feel for the right value, based on his experience of the sector and the market.

The Judge clearly had regard to the views of both valuers, so considered that both the technical and the instinctive valuations had some element of merit. He decided on a value which was at the top of the range of one valuer whilst still being within the range of the other.

Betting odds

One of the valuation challenges is the enormity of the difference in the financial rewards between the Premiership and the other leagues. It was therefore necessary to assess the prospect of the club remaining in the Premier League.

One valuer had taken an imaginative path in addressing this issue: amongst the methods used was a review of the betting odds being given for the club dropping back down to the Championship within two seasons. The Judge was impressed with his approach in valuing the risk that the club could be relegated. However he preferred the evidence on the degree of success of previous club promotions and was not persuaded by the use of the betting odds.

The real world

One of the valuers made the entirely pertinent observation that no transaction for the sale of a football club would take place in the month of March if promotion to the Premiership was well within grasp but was not guaranteed.

He also made the observation that in the real world the consideration for a club such as Sheffield United would be payable in instalments, with later instalments conditional upon the club retaining its place in the Premiership. However the valuers were required to derive a value payable in cash on completion.

A game of two halves does not make a whole

The valuers were agreed that a significant discount would be applied in valuing a holding of exactly 50%. The paragraph in the Written Decision is worth quoting in full:

“The valuers appear to agree that 50% of the shares in Blades would be worth on the open market only about one-third of the net asset value of Blades. The discount arises because a 50% holding does not carry with it any control over the company's affairs. The special value attributable to a possible purchase by the other existing shareholder would be disregarded on a valuation on a market value basis, though in reality in many circumstances an existing shareholder would be likely to pay more than the market value.”