Lazio Roma

Lazio Roma - unprecedented valuation at stock exchange

Soccer club Lazio Roma trades on Milan stock exchange (apart from some short hikes) for many years now under 40 million euro.
Current market cap at 37 million euro is even lower than market values of individual soccer stars like Ronaldo, Bale, Pogba or Higuain, but also even lower than individual market values (asking prices) that the club seems to demand for several of its own players!

In recent years prices payed (and asked) for quality players, have tremendously risen. The same did valuations of soccer clubs (see Forbes and KPMG reports on soccer clubs).
If as easy explanation one would believe that high indebtedness of Lazio Roma will surely be the reason for this low market capitalization, then falsely thought.
As of June 30, 2016 net financial debt of Lazio Roma was 27 million euro, which in this sector is virtually nothing.
Italian competitors Juventus and AS Roma for example have at the same point in time net financial debt of 199 million euro and 170 million euro respectively.

Lazio´s Enterprise Value of 64 million euro (as of today) is utmost peculiar since players are the main asset of soccer clubs, and, for good reasons, clubs are commonly traded at least equal to their squad values. The biggest clubs however are even valued up to 5 times their respective squad values.
Lazio´s neighbor AS Roma currently trades, including its net financial debt, at 338 million euro (Enterprise Value), which is also clearly more than its complete squad value. The same holds for Juventus.

One may ask why such a clear correlation club value - squad value exists. Basically since squad value is the main asset in soccer and ultimate prerequisite for (future) sportive succes and therefore also for generating future revenue streams, which as such allows clubs to properly compete in this unprecedentedly booming sector.

Comparison of Lazio Roma against its Italian peers AS Roma and Juventus

As of October, 12 2016 Juventus is over Milan stock exchange valued at 505 million euro (Enterprise Value i.e. true market value), AS Roma is valued at 338 million euro and Lazio Roma at 64 million euro. See table below.
Taken into account the respective values of their squads, the valuation multiple EV / Squad Value for both Juventus and AS Roma is about 1,20.
Being both valued at least at the value of their major asset is no coincidence and completely reasonable, since in fact squad values of (which for up-striving clubs even are tendentiously conservative) can easily provide liquidity in the same amounts of money.

Lazio Roma however is even valued far below its squad value. Precisely this multiple at 0,40 shows that currently just 40% of its official squad value is priced in. Unofficial squad value, as pointed out, seems for Lazio to be still much higher.
According to this peergroup comparison Lazio's fair enterprise value stands at 193 million euro and thus fair share price at about 2,45 €. Then the value of its squad would be priced in at same 120% level as both Juventus and AS Roma squads.

And since squad value of Lazio currently may even be at 300-350 million euro (see table "transfer rumors" below), this implicates that if share price currently stood at about 5,00 € there would still be no reason to see Lazio as overvalued.

Further remarks

From the side of the club (and its "investors relations") there is clearly nothing done against the extreme poor market valuation!
If this were on purpose, it would of course also imply that true club interests are massively corrupted, for the obvious reason that every listed company has a strong competitive edge from being listed properly according to common sector multiples. And of course the more as many of the competitors in soccer aren't publicly listed.

Only capital or private equity that tries to seek complete ownership of poorly listed companies (and most likely seeking a delisting after-wards) have tremendous financial advantage of such deprived market valuations in the peer group as Lazio Roma has. This of course largely at the cost of other financial stakeholders, as well as of the company itself as a going concern.

Since Lazio has 1) this ludicrous valuation and 2) nevertheless at Milan stock exchange sudden demand hikes are instantaneously counterattacked by equal massive rise of supply volume, the question could be raised :
who could be the single one that is fiercely holding (manipulating) against a proper market valuation of Lazio Roma? And how naive (they obviously believe that) Italians are in seeking explanations for such tremendous financial anomalies?

Refusal to sell players at virtually any price and building such costly squad assets are for clubs at current revenue and valuation scale of Lazio Roma from both financial and economical standpoint completely crazy.
And as such one may argue that this (strategy) has three major consequences (objectives).

1. Preventing tremendous profits that immediately would arrive from book gains because of in general enormous differences between true transfer values and often very much lower or even zero book values.

2. Mutatis mutandis transferring such massive profit potential into future.

3. Keeping (short-term) operational costs and player amortization far bigger than is necessary (and wise), thus also assisting in turning down (short term) profitability potential.

Strangulating short term cash and profit gains, and building massive hidden assets instead, are in general well known takeover tactics, but in soccer business such practices build even a much more attractive scenario, since over time the main assets (nevertheless to be amortized fastly) mostly increase in value.
Such would make the extreme market valuation of Lazio Roma the more transparent, since trying to gradually build a competitive soccer club over good scouting and transfer-policies, which require (sometimes) cashing in on players, is common and clever business practice.
Only for biggest clubs with 400 million plus revenues, this revenue stream of course is much less relevant.

PG, October 13, 2016