With the Premier League season well underway, the influence of managers’ investment decisions off the field is already becoming evident on it.
Money management in football is a minefield. Many understand the minutiae of the football industry, but often the comparison between the investment decisions of the top managers and our own is overlooked.
In fact, the questions we ask of football managers are the very same we ask ourselves when it comes to the risk, diversification and longevity of investments.
Some clubs invest heavily to chase their dreams of playing top-flight football, but the risks involved in such a strategy are great. Prize money of £2.4bn is to be shared between the 20 league clubs.
The winner takes home approximately £150m, while the club finishing bottom of the league will earn just £95m. Add in European prize money for the top six and it’s the middle of the pack that fail to make a return on their transfer expenditure.
Ultimately, when time and money is invested in nurturing existing talent, the risk is reduced when it comes to a club being able to secure a sustainable future. Whether the aim is to reach the Champions League Final or to avoid the relegation zone, investing for retirement or to help your child onto the property ladder, it’s important to carefully consider the decisions that will put you on the right path for future growth.
All investments come with a risk. It’s those who marry their investment decision with a longer-term strategy who minimise the chance of losing out.
Diversifying your portfolio
Our research found similarities in the impact of diversification on performance of players and of an individual’s investments. The most positive returns for each come from a fully diversified portfolio.
For example, the limited number of Academy prospects in first team squads and the low number of caps they have in a season demonstrates that clubs fighting for a European place are less likely to ‘blood’ their youngsters due to the impact on revenue.
Instead, club managers rely on a loan system which will increase the value of their players while they’re gaining more match experience at other clubs.
Conversely, data from the CIES Football Observatory shows that the average percentage of club-trained players among Championship winning teams was 24 per cent.
This is 10 per cent higher than the EPL average and suggests that training footballers in-house to achieve sustainable success in the long term is deemed more important to lower league clubs.
Ultimately, when time and money is invested in nurturing existing talent, the risk is reduced when it comes to a club being able to secure a sustainable future.
Short-term gain or failure?
Short termism is having a growing impact on the business of football.
Managers joining clubs where leadership turnover is high tend to spend more, seeking to protect their short-term reputation regardless of the club’s long-term plans. Combining this with the prevalence of panic-buying at the end of the transfer window highlights how a short-term approach rarely results in sporting success.
Stability and longevity need to be incorporated within every investment decision.
Investors can adopt such tactics for a more beneficial long-term return. Start with regular contributions or test the strategy with smaller investments, become familiar with the workings of the financial markets and grasp financial planning for a more consistent return on investment.
The ultimate strategy
According to our findings and analysis, along with Rob Wilson, a principal lecturer at Sheffield Hallam University, investors can be broken down into six types: Pioneering like Pep Guardiola, Adventurous like Mauricio Pochettino, Exploring like Jürgen Klopp, Driven like Jose Mourinho, Focussed like David Wagner or Conservative like Unai Emery. However, none are perfect.
Each exhibits a different style, behaviour, a certain level of risk acceptance, a duration of investment and an ability to adapt.
This applies on and off the pitch. The top trump for a successful investment is a long-term strategy, with a fully diversified portfolio, an end-goal in mind and willingness to adapt to life as it continues to evolve.
Ultimately, a strategy driven by pressure to achieve, combined with the want and need for a quick return is not likely to be advantageous in the short nor long term.
Operating with financial awareness; careful planning, considered decisions and patience, will be sure to yield greater returns this season and beyond.
Richard Flax is chief investment officer at Moneyfarm
