Thread by @andersnorlen

(ENG) FC MIDTJYLLAND -

A deep dive into the financials of the rags-to-riches story @fcmidtjylland since Matthew Benham acquired the club back in 2014 and turned it into a consistent title contender and talent powerhouse

#soccernomics #superligaen #fcmlive #sldk

THREAD 👇👇👇

I have previously done two similar threads about the two major Copenhagen clubs @FCKobenhavn and @BrondbyIF (in Swedish) but FCM is actually the Danish club with the best aggregate results (sum of places in Superligaen) last 5 years:

2-1-2-1-4 = 10

FCK: 3-2-1-4-1 = 11

This has been achieved while excelling in player development and outstanding value creation for its owners.

@osynligahanden posted an excellent piece about this during the holidays (in Swedish)

osynligahanden.com/2021/12/25/var…

Most know the story by now: British former banker and professional gambler Matthew Benham had ideas around how to apply analytical tools in football and acquired Midtjylland (and later @BrentfordFC) to test his ideas in real life

theguardian.com/football/2015/…

FC Midtjylland (or FC Midtjylland A/S below) is a relatively new club, founded as a result of a merger between local rivals Ikast and Herning Fremad in 1999.

FCM plays its home games at MCH Arena with a capacity of around 12,000 in Herning, with around 50,000 inhabitants.

To put this into a Swedish context this is (should be) a mid-sized club from a mid-sized town we are talking about.

Just to keep this in mind.

FC Midtjylland A/S is a privately held company and are unfortunately not too generous when providing details about its accounts, which has led me to calculate backwards in some cases to make a best estimate around revenues and costs.

All figures below in DKKm (1 EUR = 7.45 DKK)

FCM has relatively moderate operating revenues of around DKK 80-110m per year, ex participation in UEFA competition group stages (which they reached 15/16 and 20/21)

Revenues from UEFA are estimates based on details around payouts to participating clubs.

FCMs operating revenues are nowhere near to be able to cover operating costs.

EBITDA is running at around minus DKK 80m years when FCM is not participating in the group stages of UEFA competitions.

This is countered through developing and selling the talent that is acquired.

Its also clear that FCM is far away from being able to challenge @FCKobenhavn with compensation, even if staff costs have doubled from from 2014/15 to almost DKK 150m.

Gap to FCK still more than DKK 70m though.

Revenues are thus generated through player sales, totaling DKK 537m (EUR 72m) over the last 7 years, up until June 2021.

So this is excluding the transfers of Jens Cajuste to Reims (EUR 10m), Frank Onyeka to Brentford (EUR 10m) and Anders Dreyer to Rubin Kazan (EUR 7m).

This has been done while the results in both the Superligaen and UEFA competitions have improved, with qualifications for the UCL group stage 2020/21 and EL group stage 2021/22.

Or in other words: the on-the-pitch value of talent development is *much* higher than DKK 537m

But one has to differentiate between gross and net:

DKK 537m gross has to be compared with the DKK 200m that has been amortized from contracts purchased -> Net DKK 337m

FCM are not shy to pay up for talent. They bought players for almost DKK 70m per year 2018/19 and 2019/20

Netting DKK 337m from transfer activities while at the same time qualifying for UEFA competition group stages is impressive.

Expressed in terms of Return on Invested Capital (ROIC) on player trading, returns have averaged 20% p.a. the last 7 years

Very impressive.

But all of this can be done because FCM is backed by a wealthy owner ready to carry not insignificant losses in the beginning and also letting the club take on a fair bit of risk

Lets look closer at what Matthew Benham actually put into the club in terms of financial investments

Lets first just quickly look at the cash flow statement

The operating activities show a significant deficit every year (bar playing in the UCL 2020/21)

Investing activities (player trading) is the counter-weight

Then comes the contribution from the owner

When Benham got onto the scene in the late summer of 2014 he put in almost DKK 95m as equity injections and loans. The following two years he upped that by another DKK 50m

All in all almost DKK 150m used to cushion the significant operating losses from operations

One can also put it in the following way -

+ Operations (EBITDA) had deficits of DKK 265m since 2014/15
+ Player trading has created a DKK 336m surplus
+ Owner(s) contributed DKK 231m

= equity capital has grown by around DKK 300m…

…which is clearly visible in the balance sheet where FCM has seen its equity grow from a dismal DKK 4.6m to 280m as per last summer.

The ability of a business to create value for its owners is rarely overlooked, and not in this case either

In June 2021 FCM invited Denmarks richest man Anders Holch Povlsen to the owners list through a direct issuance that made him owner of 25% of the club for a 125m investment

This valued FCM A/S to DKK 500m around a year ago.

In other words Benham has seen the value of his investment of DKK 106m (excl acquisition cost) grow to DKK 375m, or by 22% p.a.

Unique for the world of football?

So with an average attendance of something like 7000 per home game (pre-corona) but with an extreme focus on talent management and data driven analytics they have been in the UEFA competitions every year and always finished top-4.

Conclusion -

FCM has clearly turned the pyramid upside down. They have proven that a relentless focus on alternative ways of value creation (talent management and on-the-pitch details) are ways clubs have to choose when one cannot challenge the spending leader in other ways

The synthesis for me is that alternative ways of winning always lay in thinking differently, if the conventional (spending big) route to glory is not available.

Copying? Sure, but everyone has different starting points and competencies

Benhams is clearly in analyzing data…

…which doesn’t necessarily mean that others is the same.

Of course.

But FCM are highlighting something important: Football isn’t static.

It evolves, and the one that dares lead that evolution can get a royal payout both on the pitch and financially.

- END -