The most avid of readers of ICAEW valuation group articles may remember two previous shareholder dispute cases involving football clubs:

• VB Football Assets and Blackpool Football Club ([2017] EWHC 2767)
• Sheffield United and UTB ([2019] EWHC 2322)

These two cases had similarities: firstly, they both related to the challenge of clubs moving between the Premier League and the Championship and the eye-watering financial consequences that flow from promotion or relegation: the difference in income is vast, as is the difference in expenditure, mainly in the form of players’ earnings.

The second startling similarity was that two business valuers gave evidence in each of these cases; in each of these, one of the experts was steeped in business valuation technical analysis and careful measurement; the other was far more instinctive regarding the way that these unusual business assets were valued in the marketplace.

It will therefore perhaps be no surprise that these two factors also ran through the above shareholder dispute case concerning Cardiff City Football Club.

Mr Isaac was a 4% shareholder and Mr Tan owned the vast majority of the shares in the club.

Both valuers valued the enterprise and deducted the very significant debt to derive the equity value.

They also agreed the base revenues of £126 million – these were the expected revenues for the 2018/19 season. The written decision then refers to earnings, but I assume that this is total sales revenues.

The experts disagreed on the extent of the risk of the club dropping back down to the Championship – with the very significant reduction in revenues arising.

One of the valuers applied a probability of 50% to staying in the Premier League. Using an imaginative technique to address this fundamental valuation difficulty, he then valued the club inside and outside the Premier League in order to take account of this binary event.

It was noted that there are a group of clubs with relatively secure positions in the Premier League. These can be contrasted with those teams which oscillate between the top of the Championship and the lower reaches of the Premier League. Any comparable transactions should be reviewed as to whether they were in the first or second of these two groups.

The revenues applied by the experts were 1.4x and 1.6x. These were derived from recent transactions in the market for Swansea City, Southampton and West Bromwich Albion.

We have to remember that revenue multiples deliver enterprise values, and that debt needs to be deducted in order to view the equity values.

Due to the large amount of debt in the capital structure, we can all recognise that modest changes in assumptions can have very dramatic effects on equity values. This was the situation here: one expert derived an equity value of £52 million to £72 million. The other expert concluded that the equity had a value of £nil.

One expert made the following statement as passed to us in the written decision: “[expert 1] said that those buying football clubs are most likely to be passionate supporters or individuals looking for trophy assets, who are likely to be bullish and optimistic and to focus more on the upside and not the downside risk. Such people would likely be motivated by instincts beyond the purely commercial, and some allowance must be made for that in assessing value.”

This aspect of football club valuation is doubtless one to which we can all relate.

The judge concluded that he accepted the general proposition advanced that the value of football clubs is not based on entirely rational commercial criteria. He did not consider that the risk of falling out of the Premier League was the 50% suggested by one valuer. He dealt with the uncertainty with a relatively modest reduction in the multiple.

The final decision was a 1.3x multiple of revenue, giving an equity value of £25.8 million. The discount applicable to a holding of 4% was 45%. Attempts to argue that quasi-partnership concepts should be applied were not successful.