Gunners struggle to score in the City

IT IS A tantalising prospect. For those investors who still believe football has a future on financial markets, the prospect of Arsenal being quoted on the London Stock Exchange as an alternative or additional investment to Manchester United is an attractive one.

To be frank, outside of Arsenal and possibly Liverpool, the appetite for football club stocks moving on to publicly traded equity markets is fairly well south of zero.

The financial collapses of a string of quoted companies such as Leeds United, Loftus Road (Queens Park Rangers) and Leicester City has seen to that.

As sector analyst Vijay Bedi of stockbroker Wise Speke says: 'It's a dead market. Too many fingers have been burned.'

But the success of Arsenal on the field and the laying down of the financial road map for the development of, and move to, the Emirates Stadium, opens the way for the Gunners to receive a sympathetic hearing if vice-chairman David Dein ever wanted to tread the road south to the Square Mile.

Paying a premium

Football finance expert Professor Tom Cannon of Kingston Business School says: 'Arsenal are a very good club and well supported. More importantly, they are a very well-run company, exceptionally well-regarded and they have got their stadium development in place.

'They are not quite in the same class as Manchester United, they might not have quite the same economic power, but the fact their share price [on Ofex] is going through the roof shows this is a stock which people are prepared to pay a premium for.'

The highly publicised financial problems of Ofex kick-started the rumour mill of Arsenal's potential move from the junior exchange to a full public quote.

Chief executive Keith Edelman, the former Storehouse retailing boss, says a move to the main market is not on the agenda but has not ruled out a step-up in the future.

Despite football's tarnished profile in the City, Bedi believes an Arsenal float could be welcomed but with some very large caveats.

Poser over valuation

'Investors would want to know what they are getting,' he says. 'How will ownership of the company be structured, given that the shares are closely held at the moment? Would they be looking at raising money? How much? And would they be raising that money to help pay down some of the borrowings for the construction of the new stadium?

'Would it be promoted to traditional City investors and would those fund managers be interested? When Manchester United came to market it paid pretty good dividends, giving a yield of 6%. That made Man U attractive as an investment. Would, or could, Arsenal pay a dividend?

'And how on earth would you value Arsenal? You would have to get the valuation right if you are going to attract serious investors but, given that Man U are very fully valued because of the bid talk, putting a value on Arsenal is very difficult.'

Ownership hurdle

Arsenal's closely held, rarely traded stock recently topped £3,900 a share, putting an enterprise value on the club of around £490m including £260m of debt on the new ground.

That compares with debt-free Manchester United's market value of £760m, although many agree a United share price close to 300p hopelessly overvalues the club, especially if (and it looks increasingly possible) it fails to qualify for the Champions League next season.

Yet the single biggest hurdle to a full listing for Arsenal is ownership. City dealers want liquidity in stock and while strong, certain leadership is desirable, tightly held ownership can often be a turn-off.

Currently, diamonds magnate Danny Fiszman controls 26%, main string-puller Dein controls - alongside the shareholdings of associates - about 20% and another fifth is in the hands of the Bracewell-Smith, Carr and Hill Wood families, shareholders since before the war. And therein lies the impasse.

As any true Gunner would ask, why open up the ownership when all that would happen would be a Manchester United-style farce ending up in a stand-off between, for example, a load of stakebuilding chancer Irish millionaires and US businessmen with no interest in football other than the cashflow?

Square Mile rules London clubs offside

Chelsea: Never much liked in the City because of the closely held, opaque shareholdings surrounding former chairman Ken Bates. The 2003 takeover by Roman Abramovich of the loss-making, heavily indebted club saw the shares bought at about a third of the value they had been trading at five years earlier.

Tottenham Hotspur: Still quoted but controlled by chairman Daniel Levy and the billions of Bahamas-based businessman Joe Lewis. Former chairman Sir Alan Sugar also retains 13%. Been on the market for two decades but £100 invested in Spurs share five years ago is now worth £35.

Fulham: No silverware but plenty of Premiership financial records. Its loss of £34m a couple of years ago was top-flight worst until the demise of Leeds. Current debt of £100m is beating all comers. Owned for the time being by Harrods boss Mohamed Fayed, who sees Craven Cottage as a property play.

Charlton: Still quoted on the stock market but closely held with 29% controlled by chairman Richard Murray, the millionaire media man, and significant stakes with a cabal of other shareholding businessmen fans. £100 invested in Charlton shares five years ago now worth £30.

Crystal Palace: There was talk of a stock market flotation in 1997 but it was in administration within a couple of years. Loss-making and indebted, the club remains under the control of mobile phones millionaire Simon Jordan, who has made no secret of the fact that he wants out.

West Ham: Hammered by its fall from the Premiership, the club remains in debt to the tune of £33m. Made a profit last year but only after a clearout of top stars. Periodic chat about takeover consortiums circling but the club remains under control of less-than-popular chairman Terry Brown.

Queens Park Rangers: Went bust three years ago when tycoon Chris Wright's dream of running Rangers alongside Wasps rugby club as the merged Loftus Road Plc fell apart. Investors lost a shedload. New shareholders include Monaco types and ex-Brazil star Dunga.

Watford: Chronically loss-making and hurt badly by relegation from the Premiership, it has kept going through emergency fund-raising exercises since its 2001 flotation. Now led by holidays millionaire Graham Simpson, the club is worth just £7m against £20m at float.

Millwall: Still quoted on the stock market despite going bust in 1997 but its shares are now quoted in hundredths of a penny. Headed by its rescuer and leading shareholder Theo Paphitis, the Rymans retail millionaire. £100 of Millwall shares bought five years ago are now worth £8.50.

Brentford: Saved from financial oblivion and the loss of its Griffin Park ground only by the intervention of supporters' financial trust Bees United. Former chairman Ron Noades, ex- of Crystal Palace, remains a major shareholder.

Leyton Orient: Regular £500,000-a-year loss-maker who keep going only through the support of sugar daddy Barry Hearn, the snooker impresario. Talks of floats on the Alternative Investment Market or Ofex are ancient history. Hearn has been in charge for almost a decade.