We simply don't know what Peace thinks the club is worth it is merely an educated guess on part of the writer who assumes rightly that the club is worth more now than when it was initially put up for sale due to the increased TV revenues.
Based on the Everton sale a price of 2 times turnover is probably not unreasonable which with the new TV deal would give a price of around £250m. Given the relegation risk and the nature of the assets if I was a buyer I be would haggling very hard to get that down to £200m but £150m would be a steal.
I had a quick look at valuing Albion based on what we know. As I've said before, I'm not involved in this deal but have bought and brokered a few that have similarities and I used the same model I have previously used. Someone earlier mentioned a multiple of EBITDA. Personally I wouldn't use that as earnings are far too easy to (legitimately) manipulate although I accept that it's much better than the net profit figure that the E&S etc quote. I much prefer to use cash flow as it is much harder to dispute. You either have cash or not. This is especially important when looking at the massive impact of player transfers. I believe one needs to take out all player profit and loss and then add in a normalised net player transfer loss per annum. The methodology I used was:
Apply something called Discounted Cash Flow (DCF). This is basically a way of turning a stream of future cash flows (such as future TV rights, gate receipts etc) into a value today. For those who haven't come across the concept you can think about what value you would place on a fiver each year promised by your mate. A fiver next year is worth less than a fiver today due to inflation and it is worth even less if there is a risk he won't pay. Albion have an uncertain stream of cash flow as you go out further into the future. Next year they have revenues guaranteed by the PL and parachute payments after that. There is therefore a lot of short term certainty (although we aren't certain about net cash flows as wage increases etc are unknowns) but long term rapidly gets uncertain. The discount rate that is applied to these cash flows is a function of the cost of financing and/or the internal rate of return( IRR)demanded by an investor. The more leverage needed and the higher the perceived risk, the more the cash flows are discounted. We can get a pretty good idea of the discount rates from the cost of "factoring" that almost every PL club uses when selling a player on deferred payment terms. The costs of these are in the 6-9% range and that gives us a fair indication of the market price of finance.
The DCF part is the crucial part of the valuation. It's got nothing to do with whether we play good or bad football. It's just the present value of a stream of cash and allows Albion to be compared to other cash generating assets such as an annual rock concert, a pay and display car park or block of student flats.
I have read the comparison made by others with the value of Everton but I personally believe that the "half as much=half as valuable" argument is wrong from a DCF perspective for two crucial and linked reasons. If I were building a DCF for Everton I would happily assume PL cash flow for 10+ years, much longer than for Albion. I know that other Everton sized clubs have lost PL status but in general, I believe there is much more (and more than twice) the cash flow predictability than for Albion. I would also suggest that the risk is great and therefore the IRR or finance cost would need to be much higher (and therefore the discount rate greater). To give an analogy, is a tenner a year twice as valuable as a fiver a year? What if the tenner was promised by a very wealthy and trustworthy friend and the fiver was promised by someone far less reliable? The former is probably 3 or 4 times more valuable, not twice as valuable.
Beyond the very short term (I modelled 3-5 years), PL survival is so unpredictable that I simply added a stub value of £20m that could be thought of as the option value attached to a Championship club. We know that a club's value jumps when it enters the PL and therefore a Championship club with a chance of returning to the PL must have an option value even if its assets and operating cash flows aren't worth much more.
The only thing to add to the equation of DCF+Stub value is any trophy asset premium or hidden asset value. Someone may be happy to pay over the top for the rights to own something cool. I have assumed in my model that this isn't the case for Albion and that there is no realisable value from redeveloping the Hawthorns in the way that Chelsea, Fulham etc could.
Using this model and publicly available data I struggled to get anywhere near £200m. To do so required one or more of the following:
-PL cash flows to be modelled way out beyond 5 years
-Unrealistic cost control, especially around player wages. Basically one would have to assume that the new TV deal all goes into the club's coffers rather than players and agents.
-A very low cost of funds or very low IRR expectations.
-A high stub value in the Championship
-A trophy asset premium
-A spell in the Champions League
There's clearly a lot of detail that I don't know about this deal which could effect my model but based on what I can see, the value of £120-150m is (in my view) much closer to the mark than the £200-250m that is now being mentioned. Let's see...
