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How to make a small fortune from football. (Part One)

It’s a well–known truism that there is only one way to make a small fortune from owning a football club – and that’s to start off with a large fortune! And as the cost of trying to compete with the super-rich sugar-daddy owners of the Premier League gets higher and higher, and clubs at all levels get burdened down with more and more debt, surely that’s more true than ever.

Well, yes it is – except there is another way to make money from owning a football club, and Sir John Madejski has found it. This article looks at how he was able to exploit the near-unique set of circumstance at Reading FC to fly in the face of conventional wisdom and do this – in theory at least.

The simplest way to make money, of course, is to buy something for not very much money and then sell it for a lot more than you paid for it. This is a simple principle, no doubt to be found on the first page of economics text books. That may be easy with Granny’s gold watch found in the attic, but does it apply equally to owning a football team? Only in certain circumstances – and there are a number of crucial factors which made this possible at Reading which aren’t to be found anywhere else.

Firstly, the club itself was relatively run-down and although there were debts they weren’t astronomical, so the capital outlay required to purchase the club was relatively small. (In Part Two of this blog, tomorrow, I’ll examine these numbers in detail).

So having a loss-making club, how could this be turned round to be a financially successful one? It was clear to everyone that Elm Park, loved as it was by Reading supporters, was a no-hoper in the long-term. Corporate boxes, as they were, were wooden boxes on scaffolding at the back of the Main Stand, and the only facility for pre-match hospitality was upstairs in the “Royals Rendezvous” – above the supporters club bar. And as this was at the other side of the ground, corporate guests needed to be led around the ground after meals to their “executive boxes” (using executive in the very loosest sense of the word.) Add to this the hemmed in roads and houses with no parking and no room for expansion, and it was obvious to everyone that relocation was vital.

But compared to the struggles that some clubs have had to relocate (Brighton, for instance, with their long- fight to get to Falmer) Reading had it easy. One of the unique circumstances at Reading was the assistance and co-operation of Reading Borough Council, who were accommodating and committed to the stadium relocation. Easing potential planning problems was a great help – as some clubs never get past such obstacles. Still, this really was a win-win for everyone concerned - John Madejski got land for a new stadium and Reading Borough Council got a large swathe of contaminated land cleared and re-used, together with a contribution to a much-needed new relief road.

But the most crucial success factor of all was the location of the stadium. For all his many faults and his attempt to create a Frankenstein football club in 1982 with “Thames Valley Royals”, Robert Maxwell was right about one thing - a successful football team in the Thames Valley could be a potential goldmine. The only significant competing clubs are the London clubs to the East; Portsmouth & Southampton going South; Swindon & Bristol going West and nothing really South of Birmingham/Coventry going North – by a strange twist of fate the same season that Reading were promoted to the Premier League Oxford United were relegated to the Conference, and historic local rivals Aldershot had long since ceased to be real competition.

Even better from a commercial point of view, reading is located in one of the most densely populated – and the most affluent areas in the country. The M4 corridor was the heart of the UK’s computer and telecoms industries, and all the demographics indicators back this up – the highest average income outside London, the highest rate of car ownership, the highest rate of broadband and PC ownership were all to be found in the Thames Valley.

Finally, Sir John has taken a long-term view. He has often spoken of building the club “brick-by-brick,” and instead of trying to make quick money from a floatation, or by trying to buy success by gambling on players and league success, the majority of his investment has been in the facilities themself. Although he has subsidised some player purchases and player wages/running costs, these have never been particularly significant in the scale of things. His investment was mainly in the ground, hotel and conference centre, the latter two of which were revenue generating and so helped offset on-field losses.

And the very fact that the hotel was expanded just a few years after opening shows the success of it – in such an affluent area, surrounded by booming businesses, and situated so close to a motorway junction and with direct communication links to both Heathrow and Gatwick Airports, how could it not? And , of course, these are solid assets, with solid value, unlike a football player who might break a leg of turn out to be an expensive flop.

The combination of these four unique factors :

  • a run-down club that can be bought cheaply, without significant debts
  • a co-operative local council which will provide land and planning permission without significant difficulties
  • a suitable location in an affluent area
  • taking a long-term view and investing in infrastructure

leave Reading FC (and therefore Sir John Madejski) in a financial position that is completely unrecognisable from that when he purchased the club in 1990.

In Part Two of this article, tomorrow, I’ll delve down into the numbers concerned at each stage of the process and analyse just how much Sir John has invested in the club and just what he has got for his investment.