What investors can learn from the Qatar World Cup
Luis García Álvarez of the MAPFRE AM Behavioral fund uses “the world’s greatest sporting spectacle” to explain why he invests more than 10% of his portfolio in football clubs.
As with most World Cups, football fans are looking for any excuse to watch a daytime kick-off when they are supposed to be working. Luis García Álvarez, who runs the MAPFRE AM Behavioral fund, has more reason than most, investing more than 10% of his portfolio in listed football clubs.
However, he claimed that professional investors like him are more likely to approach the World Cup from the opposite point of view.
“If there’s one thing that unites us as fund managers, it’s our tendency to look for opportunities to improve our portfolio performance everywhere in our lives,” he explained.
He added that “the world’s greatest sporting spectacle” has shone the spotlight on numerous themes and lessons for investors that have largely gone unnoticed since the first match on 20 November.
Arrival of new investors into football
Álvarez said that the most obvious lesson that investors can draw from this World Cup is that football is the most powerful media content at a global level.
“This isn’t anything new, but when you combine it with the development of improved financial controls and increasingly well-prepared management teams in recent years, it means that new investors have arrived (or are planning to arrive) in an industry that was once practically ignored,” he explained.
He added that most new investors are coming from the Middle East (the region hosting the current World Cup) or North America (which will be hosting the next one in 2026).
Improved business models
The manager added that the mass arrival of new investors into a market where supply is almost completely inelastic (meaning it is virtually impossible to create major new football clubs from scratch) is causing prices for these assets to rise sharply, a trend that is likely to continue.
“In our opinion, this influx of new money should result in attractive returns for those who are able to look ahead and select the right assets,” he added.
Caution is still warranted in this area, though: European football clubs were running annual losses of €1.7bn by 2011, and Glasgow Rangers, Fiorentina and Parma are among those to have gone bust in the past 20 years. However, Álvarez said that UEFA’s introduction of Financial Fair Play regulations in 2011 was a gamechanger, helping European football clubs turn a net profit by 2017.
“The good news is that it seems as though regulatory bodies have a clear idea of the direction they want this trend to take, and are imposing restrictive measures, among them stricter financial controls,” he added.
Infrastructure as a source of revenue
It has been impossible to ignore the enormous amount of investment that has been dedicated to building stadiums for the Qatar World Cup – the total figure has been estimated at $220bn, about 20 times the cost of the previous World Cup in Russia.
Álvarez said that what makes this figure even more shocking is that many of these stadiums will become ‘white elephants’, serving little use after the competition is over.
Fortunately, he said the opposite trend is evident with European clubs that build new stadiums.
“There are increasing efforts to ensure that sports infrastructure assets will continue to be used in an ongoing, efficient and sustainable manner,” he explained.
“If they include spaces suitable for hosting corporate events, conferences, concerts or other sporting events, why should the clubs that own stadiums limit their commercial activities to hosting a match once every two weeks?”
The manager said that embracing this mindset has opened up new revenue streams which have already proved successful in the US and helped to diversify clubs’ business activities to avoid dependence on their team’s success on the pitch.
ESG investing isn’t universal
Even more noticeable than the amount spent on infrastructure has been the social and ethical implications of holding the World Cup in Qatar. An investigation by The Guardian last year estimated 6,500 migrant workers had died in the country since it won the right to host the tournament in December 2010.
Meanwhile, although FIFA has claimed to take “concrete measures to promote diversity and anti-discrimination in football”, homosexual behaviour remains illegal in Qatar.
For these reasons, suspicions continue around possible governance failures at FIFA when the host country was being selected.
“The world of sports (and specifically the world of football) is probably the best common ground we have available to us to make a positive impact on society through the concept of unity, to test and implement technologies that can improve how we care for the environment, and to promote good governance in our institutions,” Álvarez said.
“This is why it seems surprising that, at least up until now, ESG [environmental, social and governance] investment has received so little attention in this particular area.”