• 8/23/2012

Soccer champions playing the stock exchange

How a team's performance influences its share price

Borussia Dortmund (BVB), which finished on top of the Bundesliga championship table the last seasons, can claim another distinction dating back ten years: It was the first and remains the only German soccer club to be traded publicly on the stock exchange. Together with 20 other European football clubs the BVB is listed on the Stoxx Europe Football Index. But what influences the value of football shares? A research project at the Technische Universität München (TUM) examined the ups and downs of BVB’s share price and how much it depended on match results.

Über einen Sieg freuen sich nicht nur die Fans, sondern auch die Aktionäre - besonders, wenn ihr Verein auswärts gewinnt. Image: creativedoxfoto/ fotolia.com
How wins on the field drive wins drive prices on the exchange. Image: creativedoxfoto/ fotolia.com

The researchers discovered that it wasn’t just win, lose or draw that mattered: The expectations of a result and the match venue were also key factors on the trading floor. For their investigation the economists from TUM’s Department of Financial Management and Capital Markets analyzed Dortmund’s last six seasons. To see how the team’s results actually influenced the share price, they compared the share’s post-match fluctuations with the performance of the exchange as a whole on that particular day. The researchers were able to use this difference – known as the abnormal return – to see how a win or defeat affected the share price.

It came as no surprise that match wins gave the share price a boost. On average, BVB’s share price rose by 1.31 percentage points on the first trading day following a win. Losses, however, provoked a stronger reaction on the trading floor, resulting in a negative abnormal return of 2.83 percent. Investors weren’t too keen on draws either – the negative return after these results was 1.78 percent on average. This initial general analysis clearly shows that on-field performance influences shareholder value. Based on the BVB shares' current market value of around 150 million euros, a win would increase that value by almost 2 million euros, whereas a draw or defeat would result in a loss of over 2.5 million euros or 4 million euros respectively.

The research team also investigated how expectations influenced the stock's performance after a match. To do this, they analyzed the odds offered by betting offices. These odds generally indicate what the public expects the outcome of a match to be. By mapping the expectations against the actual results, the researchers were able to analyze the effect of expected and unexpected final scores. They found that the BVB share price showed a positive abnormal return of just 1.18 percentage points when Dortmund won as the favored team, but when they pulled off a surprise win the gain was 2.21 percentage points. If the team suffered an “expected” defeat, the shareholder reaction resulted in a negative abnormal return of 2.08 percentage points, but there was a harder hit in the case of a surprise loss with the share price down 3.51 percentage points.

Similar effects were observed for home and away games. Here it became clear that shareholders expected a successful outcome at a home game. Without the surprise effect, a BVB home win resulted in an abnormal return of 0.88 percentage points, while an away win brought a return of 1.82 percentage points. The difference was not so pronounced for Borussia Dortmund defeats and draws. This might have something to do with the team’s growing status as championship favorites.

To cross-check their findings, the researchers also analyzed the share prices of all other clubs listed on the Stoxx Europe Football Index. The European comparison confirmed the results observed in analysis of the BVB share price. However, the magnitude of the share-price fluctuations appeared to be a bit smaller because less "liquid" clubs, whose matches trigger only slight or delayed stock market activity, are also listed in the Index.

“This research shows that good team performance can have a direct impact on a soccer club’s share price. However, the value of point gains or losses also depends on objective expectations and the match venue,” explains Prof. Christoph Kaserer of the Department of Financial Management and Capital Markets. He concluded with this advice: “It holds true for football too: A smart investor will  keep a portfolio as diverse as possible.”

Dr. Matthias Hanauer (currently at Columbia University, New York, USA)
Department of Financial Management and Capital Markets
Technische Universität München
E-mail: matthias.hanauerspam prevention@tum.de

matthias.hanauerspam prevention@tum.de

Technical University of Munich

Corporate Communications Center

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