Sharing the dream

If Alf Garnett ever got lucky like the Trotter brothers, where would this icon of working-class capitalism invest his money? Why, West Ham FC of course. The idea of buying a share in their local football club is a boyhood dream which most fans carry through their adult life. It may not automatically convey the right to watch matches from the directors' box with free champagne and fat cigars, or even to decide which players to buy and sell, and when to fire the manager. But we can all dream, can't we?

Now the dream is coming a little closer. League clubs such as Manchester United, Tottenham, Celtic and Millwall have been listed for some time. In the past few months, Chelsea Village, Loftus Road (QPR), Caspian (Leeds United), Sunderland, West Bromwich and Preston North End have been listed on the AIM market, and another half-dozen including Arsenal, Newcastle, Birmingham, West Ham, Aston Villa and Everton are likely to be listed this year as the leading clubs complete the transition from being rich men's playthings to commercial enterprises. But will they be a sensible investment for small investors?

Like any commercial business, a football club has assets and liabilities, revenues and costs. Assets usually include the freehold of the ground, which is often worth far more as a redevelopment site than the club itself.

Assets also include the players. The Liverpool, Manchester United, Arsenal and Newcastle squads can each be worth pounds 50m or more on the transfer market, although no-frills teams such as Wimbledon can be assembled for pounds 10m and most teams in the lower divisions may not be worth much more than pounds 1m.

Some players appreciate in value, and most of the lesser league teams traditionally survive by nurturing and selling young stars. But in the long run, all players, even the evergreen Peter Shilton, are depreciating assets, especially if their value is abruptly reduced by injuries, and by the freedom that players are winning under European law not to renew their contracts and to go elsewhere.

For bigger clubs, the income from selling players is usually less than the costs of buying new ones. Admission charges have always been the bread- and-butter income for a club, and any shrewd investor will look at a club's catchment area, its average home gate, and the capacity of the ground to accommodate more.

Fans can pay an average of pounds 20 a seat, and with an average weekly attendance of 30,000 to 50,000 for 20-odd home matches, gate receipts can bring in more than pounds 20m a season for the top clubs; more if the club has a good run in the cup competitions. Most parents with football-mad kids can testify at this time of the year that merchandising team strips and spin-offs are an increasingly valuable supplementary source of income, and successful teams can sell products well outside their home catchment areas. Sponsorship is also a useful source of revenue for successful clubs.

But income from the sale of TV rights to BSkyB is already the main money- spinner for Premier league teams, and the prospect of pay-per-view opens the possibility of individual clubs signing lucrative deals direct with specialist and local TV channels, creating a further source of income.

Costs are rising steadily, however. Clubs don't get much for pounds 1m in the transfer market these days. Paying anything up to pounds 15m for a player such as Newcastle's Alan Shearer is the major cost for clubs, and on current wages paying them is also an expensive business, when a player such as Middlesbrough's Fabrizio Ravenelli can command up to pounds 40,000 a week, plus performance bonuses. This explains the increasing habit of letting players who are not automatic first-team choices out on loan, in order to save their wages while retaining their potential transfer values.

Grounds also need to be maintained, stands renovated and a substantial backroom staff from manager and coaches, marketing men and merchandisers down to gatemen and ball-boys all need paying. The wage bill at Manchester United is already pushing pounds 15m a year.

All this means that football clubs are big business with asset values and annual turnovers well in excess of many quoted companies. But are they good investments? Football is a cut-throat business, cursed by costly and volatile assets, and only the most successful clubs will ever make a profit. Indeed, success in football is visibly polarising. There are only 20 clubs in the Premier league, only half of them are reasonably secure, and relegation can halve the next season's gate receipts, as Norwich, Leicester and Manchester City can testify.

Some certainly are profitable investments. Manchester United shares have more than trebled in the past 12 months, and the company is now worth pounds 430m. Tottenham shares have almost trebled and the company is worth pounds 125m. Both clubs actually pay shareholders dividends - but don't expect to get rich that way. Shareholders in Manchester United get a return of just 1 per cent a year, Tottenham 0.9 per cent and Sunderland shareholders are looking at a possible 0.8 per cent. Celtic and Millwall don't currently pay any dividends, and it is difficult to see when Millwall ever will.

Most big clubs are tightly controlled by a small clique of backers who will be happy to sell minority stakes as a cheap way of cashing in on supporter loyalty to fund ground improvements or buy success on the pitch with better players. But some of the big leisure combines, such as Whitbread and Granada, are known to be looking at football clubs as the core for multi-leisure complexes so takeovers may happen.

The top 10 Premier league clubs will probably be the best investments, but the fun will be in picking smaller prospects. Clubs such as Carlisle, Torquay, Shrewsbury and even Brighton have too few people in their catchment areas to support top clubs, however. Manchester United and Liverpool have carved up the North-west, between them making it difficult for the likes of Rochdale or Burnley, or even Everton and Manchester City to grow. Arsenal, Spurs and Chelsea are squeezing the south London clubs, but Yorkshire and the West Midlands ought to be able to support more successful teams than they do. West Bromwich could be a viable business, although the shares at pounds 280 are hardly priced to tempt the small investor. Norwich, Southampton, Bristol and Luton have good catchment areas.

The safest bet for a small investor, however, might well be the investment trust to be launched this month with Alan Hansen as its figurehead