A panel cointegration approach onmodeling share prices of football clubs

Share valuation is one of the most studied topics in finance, whereas the studies on valuation of football club companies are limited. In fact, football companies show significant differences from other companies due to their non-profit nature and require different approaches for valuation. In literature review, there are some different approaches suggested for the valuation of football companies while there are also some authors favouring use of the known valuation methods. In this study, a model for football clubs in a certain league has been proposed based on net asset value by bringing the assets and liabilities to market value. In addition to net asset value, the proposed model takes into account the brand value and econ-wise management factors which are not seen in the balance sheet of the company. Moreover, a share price index, as a proxy of the investment sentiment in the market has also been included in the model. The model also includes a factor that represents the value derived from the league in which the club participates. The proposed model has been tested with the data for each quarter between the 2011/12 and 2016/17 seasons of the four publicly traded football club companies competing in Turkish Super League, assuming the market is fully efficient. Applying panel cointegration regression tests, all the factors included in the model were found to be statistically significant. According to the test results, the sales figure, used as a proxy for brand value, was the factor with the highest statistical significance in determining club value. The second most important factor influencing the company's value in the same direction is the Team Value, which has usually the biggest share among the assets of most clubs. As a proxy for the contribution of econ-wise management to the company's value, Free Cash Flow item, which takes into account the cash flows from operations and investment activities both in working and fixed capital assets, is used. This factor, found statistically significant, is interpreted as the fact that the cash surplus resulted by club management is positively reflected to the share prices by investors. While the Total Debt factor has a negative impact on company value as expected, an interesting finding of the study is that investing in non-team assets has a negative impact on company value. ii Tests made with the data of the four clubs revealed that the R-squared value of the model was 76%. The model predictions are also presented in comparison to the observations of the Borsa Istanbul at the end of the study. The limitation of the data used in the model testing has been one of the most important constraints of the study. It was not possible to incorporate more factors into the model due to data limitations.