Borussia Dortmund — A full recovery

Borussia Dortmund has been one of the most successful German football clubs for decades. FY23 was a great year for the first team, as it almost won the Bundesliga, failing to win its match on the last day of the season and finishing second in the league due to inferior goal difference. FY23 was also the first season that did not experience any disruption to the company’s operations since FY19. At home games the stadium was back to full capacity, leading to strong growth in multiple revenue streams, albeit with extra costs to ‘service’ those games too.

The corporate strategy has been to make Borussia Dortmund’s financial success less dependent on shortterm sporting success by increasing the domestic and international marketing of the brand. Coupled with this, the team’s sporting success must be sustainable (ie without taking on new debt). The relatively consistent on-the-pitch success has enabled the company to generate long-term revenue growth, a CAGR of c 12% from FY05 to FY19 from multiple revenue sources, while increasing the relative predictability of those revenues. The club’s reputation for spotting and developing young talent was further enhanced with the post-season-end transfer of Jude Bellingham for initial proceeds of €103m, the third consecutive season of headline-grabbing sales of players that were bought at low prices and sold for significant gains to other clubs. The strength of the brand is reflected in over 58 million followers across social media platforms at the end of June 2023, versus 52 million in the 12 months prior.

Following a full recovery in the company’s financial results in FY23 to above pre-COVID-19 (ie FY19) levels, it is back to normality for the coming financial years, meaning incremental changes to profit expectations are dependent on success on the pitch. Management’s guidance assumes progression through to the ‘round of 16’ in the Union of European Football Associations (UEFA) Champions League. Our new estimates for FY24 are broadly in line with management’s guidance.

We value Borussia Dortmund using an asset-backed SOTP approach, which separately values the playing squads, the club’s brand (last quoted valuation adjusted to reflect estimated market movements) and other assets (at net book value). Our valuation of €10.63 per share is at a premium of 193% to the current share price. Using more traditional multiples, the current FY24e EV/sales multiple of 1.0x is at a significant discount to the long-run average of 1.6x, and towards the bottom end of more recent low multiples (0.9–1.3x), suggesting strong upside potential.

The key near-term sensitivities are those that can affect the more variable revenue streams:

Borussia Dortmund was formed as Ballspielverein Borussia e.V. Dortmund (Borussia club for ball games) in 1909, hence the BVB 09 logo. ‘Borussia’ was taken from the brewery name BorussiaBrauerei, today known as Dortmunder Actien Brauerei. Since its formation in 1909, it has become one of Germany’s most successful and one of the most valuable global football clubs and brands. The company was listed in October 2000, becoming the first publicly traded football club on the Frankfurt Stock Exchange. It remains one of the few quoted European football clubs. Management includes the stake owned by Ballspielverein Borussia 09 e.V. Dortmund of 4.7% as part of its free float to give its ‘quoted’ free float of 67.2%. The company has a relatively complex corporate structure.

Domestically, the men’s team has won eight national championships (known as the Bundesliga since 1964), five DFB-Pokals (the German knockout cup competition) and six DFL-Supercups (played towards the start of a new football season between the winners of the Bundesliga and the DFB-Pokal from the prior season).

Borussia Dortmund’s finishing position in the Bundesliga has been relatively consistent, qualifying in the top four in 12 of the last 13 seasons, enabling it to play in the financially lucrative UEFA Champions League in the following season. In Exhibit 2 we show Borussia Dortmund’s finishing position (quoted) in the Bundesliga in every season since FY01 (when the company was listed), compared to the 18 competing teams, as well as that of its main competitor, Bayern Munich. We also show the lowest finishing position required to compete in the UEFA Champions League or the UEFA Europa Cup, previously known as UEFA Cup, in the following season.

Borussia Dortmund’s relatively consistent long-term success is demonstrated below with cumulative statistics for the top 10 teams in the Bundesliga since FY01 (Exhibit 3). Of the 38 teams to have competed in the Bundesliga since 2001, Borussia Dortmund ranks as the second most successful in terms of points won, games won, games lost and goals scored. Naturally, there is a survivorship bias given the worst-performing teams are relegated every season and the long-term record omits the rise of new challengers. Borussia Dortmund is one of only six teams in the 38 that competed in Bundesliga 1 over that time to feature in every season.

Internationally, Borussia Dortmund became the first German team to win a European competition, the European Cup Winners’ Cup in 1966, and won UEFA’s most important and financially lucrative competition, the Champions League, in 1997. In the same season, it won the Intercontinental Cup, today known as the FIFA Club World Cup, played between the champions of the UEFA Champions League and the South American equivalent, Copa Libertadores.

After listing in 2000, the company was at risk of bankruptcy in 2005, broadly attributed to extravagance, notably on foreign players, after winning the Bundesliga in 2002. New management (the current CEO and CFO) implemented a reorganisation programme, including restructuring liabilities through a long-term, fixed-interest loan from Morgan Stanley, cost cutting and a strategy of revenue development and sustainable investment in players. Key initiatives comprised of repurchasing the stadium, eliminating high rental costs and early repayment of the loan via a longterm agreement with marketing partner Sportfive, while early extension of flagship contracts endorsed the advertising strategy. A c €140m fund-raising in 2014, backed by key sponsors and new partnerships, was a strong endorsement of the strategy. In October 2021, the company raised further equity with gross proceeds of €86m to repay the financial debt taken on during the COVID19 pandemic and provide flexibility if there are more COVID-19-related restrictions.

Borussia Dortmund’s corporate objective is to defend its position in the top-flight of the Bundesliga, to be achieved by a five-pronged business strategy.

Supporting the above strategy is the fact that the team is one of the most successful and well-known German football clubs, with one of the highest average number of spectators in Europe. Also, Germany is one Europe’s largest football markets, but it lags other markets in terms of media exploitation rights.

The Bundesliga’s total broadcast revenues in 2022/23 of €1.2bn are significantly lower than those of England’s Premier League and Spain’s La Liga, as are those of Italy’s Serie A and France’s Ligue 1. Equally, the Premier League and La Liga have been more successful at growing and exploiting international audiences than the Bundesliga, Serie A and Ligue 1.

Borussia Dortmund reports revenue from five sources: match operations (ticket receipts for attendance at games), advertising (sponsorship and advertising from companies), TV marketing (broadcast rights), merchandising, and conference, catering and miscellaneous.

Below we show how the revenue sources have evolved since FY05, when IFRS was adopted. We have combined merchandising and conference, catering and miscellaneous revenues into ‘Other’ as there was a minor change to revenue disclosure between FY14 and FY15.

Borussia Dortmund’s revenue has grown from €75m in FY05 to €418m in FY23, a CAGR of c 10% per year, significantly ahead of German GDP growth. COVID-19-related restrictions hampered revenue growth but, by the end of FY23, revenue had recovered to more than pre-COVID-19 (ie FY19 levels) albeit this comparison is influenced by relative success in the various competitions the team competes in.

Management’s success in better national and international exploitation of the brand is demonstrated by a revenue decline in only two years between FY05 and before the COVID-19 pandemic (FY09 and FY18), which followed seasons when the team achieved greater success than in a typical year.

Before a change in accounting standards in FY20, Borussia Dortmund included gross revenue from transfer deals in total group revenue. Revenue including transfer proceeds is now called ‘total operating proceeds’.

TV marketing is revenue earned from the broadcasting rights of the games played by the team. It has grown at a CAGR of c 14% since FY05 due to long-term inflation in media rights from increased demand for premium content by competing media platforms and the team’s improved and more consistent on-pitch success. It has become the company’s most important revenue source, overtaking advertising in FY12.

There is a high degree of visibility in the near and medium term for the largest revenue source (Bundesliga rights represented just over 50% of TV marketing and 19% of total company revenue in FY23), whereas international TV and domestic cup are more dependent on the team’s success on the pitch and progression through the rounds of these competitions.

Marketing of media rights is conducted centrally by the organisers of their respective competitions (the Bundesliga and UEFA) and, therefore, it is outside Borussia Dortmund’s control. However, the system of revenue distribution to clubs is defined well in advance, providing a high level of visibility.

The current Bundesliga broadcasting rights for the four seasons 2021/22 to 2024/25 were sold for €4.4bn, a reduction of c €240m or c 5% from the prior contract. The lower proceeds for the current cycle reflected the timing of the auction, which was resolved in December 2020 during the height of economic uncertainty and COVID-19 lockdowns. The reduction included a more significant decline in revenue from international markets than German-speaking markets. The prior Bundesliga contract for the four seasons 2017/18 to 2020/21 was worth €4.64bn or €1.16bn per season, an increase of c 85% on the prior contract for the four seasons 2013/14 to 2016/17 of €2.5bn in total or €625m per season. Management believes there is significant opportunity to further develop Bundesliga rights in the long term, as evidenced by the relative scale of the media rights of the major European leagues (see Exhibit 4). Borussia Dortmund’s domestic TV revenue increased by c 2% to €79.9m in FY23 and management expects a further increase of c 4% to €83.2m in FY24. Over the next 12 months news should emerge about the next cycle of Bundesliga media rights, which will take effect from the 2025/26 season. Future media inflation will require ongoing competitive tensions between existing and potential new broadcasters, which may be affected by the external macroeconomic environment and shifts in strategy on the allocation of spend across different forms of entertainment and sports.

To determine the relative attractiveness of the Bundesliga rights for international viewers, below we attempt to demonstrate how ‘exciting’ the main European leagues are by quantifying the dominance of the top teams in the last 10 seasons. While the dominance of Bayern Munich in Germany is unhelpful in sustaining interest in the Bundesliga, we can see that competition below first place is healthy compared to other leagues based on the number of clubs that have gained UEFA Champions League positions and the average points gap between those clubs and the next bestplaced team.

UEFA is responsible for the centralised marketing of all media and commercial rights for all European club competitions, and subsequent distributions to competing clubs. The rights are typically sold in three-year cycles; the current cycle covers the seasons from 2021/22 to 2023/24. The current Champions League rights in Germany are held by Amazon, DAZN and ZDF. Distributions to Champions League participants are based on four ‘pillars’: 25% to the clubs that participate in the group stage; 30% for performance with escalating fees per game in the latter knockout stages of the competition (ie ‘round of 16’ onwards); 30% based on a coefficient that ranks a team’s 10-year relative success in the competition (the newly added pillar); and 15% based on the value of the club’s own TV market relative to all countries (ie the market pool). To highlight the sensitivity of this income to a team's success and the influences of coefficients etc, in FY22, the last season for which figures are available at the time of writing, the winners of the Champions League, Real Madrid generated revenue of c €134m (source: UEFA Annual Report 2022) versus Eintracht Frankfurt €38m for winning the Europa League. In that season, the losing quarter finalists of the Champions League earned between €66m (Benfica) and €110m (Bayern Munich); the losing semi-finalists earned between €78m (Villareal) and €109m (Manchester City); and the losing finalist, Liverpool, earned €120m. Borussia Dortmund earned €62m from competing in the initial group stage of the Champions League and a further €2m for competing in the Europa League.

There will be significant changes to the format of the Champions League and other European competitions from the 2024/25 season, no doubt given fresh impetus by UEFA to hinder the formation of breakaway competitions, such as the attempted launch of the European Super League. The most significant changes to the Champions League can be found here.

UEFA is also changing the way that money is distributed, initially for the 2024–27 cycle. There will be a shift to a greater share of the money being distributed based on participation (increasing to 27.5% from 25%) and performance (increasing to 37.5% from 30%) at the expense of lower distributions based on market pool and coefficient (both are merged and reduced from 45% to 35%) than under the current system. Therefore, there will be more teams in the competition, each team will play a greater number of games in the first round of the competition, there will more games in a season (189 games vs the current 125 games), and the chances of proceeding beyond the initial group stage will increase (ie two-thirds of teams that enter will qualify vs half of teams currently). UEFA has predicted a one-third increase in broadcast and sponsorship revenue under the new format, which sounds like a good increase in the simple average amount that each team might earn, but there will be just over 50% more games under the new format, suggesting the simple average amount per game will reduce. However, these calculations ignore the greater skew of distributions towards success. Therefore, the simplest thing that can be said about the new format is predicting likely future revenues remains complicated even before considering the difficulties of predicting a team’s success in the competition.

Domestic cup revenue is highly variable given its dependence on the team’s success in a knock-out competition, the DFB-Pokal as well as the DFL SuperCup, a one-off game played between the winners of the Bundesliga and DFB-Pokal in the prior season. The revenue is relatively low, typically €1–5m per season for the club over the last decade except in seasons where the team is successful. Winning the DFB-Pokal in FY17 and FY21 led to revenues of €9m and €10m, respectively. While it is great to win from a sporting perspective, success in the domestic cups does not have a material impact on the company’s financials, especially after player bonuses for achieving the success are deducted.

Advertising comprises the sponsorship income from Borussia Dortmund’s key corporate partners, as well as advertising on the billboards at Signal Iduna Park and bonuses dependent on the team’s success. Advertising has grown at a CAGR of 10% from FY05–23 and is the secondmost important revenue stream after TV marketing.

The resilience of the income stream is demonstrated by its continued growth through the COVID-19 pandemic, due to a combination of new sponsorship deals or extensions to existing major ones (Evonik, 1&1 Telecommunications) and more prize money (FY21), while sponsor hospitality and match day advertising have been a bit more variable, recovering in FY22 after declines in FY21.

Sponsorship revenue is typically earned from multi-year contracts (although there are annual contracts too) with leading international and regional companies that want to be associated with sporting success and want to promote their brands. Borussia Dortmund has a proven ability to renew at higher prices and attract new partners (sponsors).

The company’s principal partners, representing approximately half of total advertising revenue, include:

Before splitting the sponsorship by competition from FY21, Evonik Industries had been the sole shirt sponsor since July 2006. Opel became the team’s first ever shirt sleeve sponsor from FY18, when clubs were allowed to find their own partners, prior to which sleeve sponsorship of all Bundesliga teams was sold under a centralised deal. Principal partners tend to be shareholders of the company to strengthen the relationship with the club.

In addition to the principal partners above, there are three other levels of partner, which contribute differing amounts of income in return for various sponsorship benefits: BVB ChampionPartner (10 partners including General Logistic Systems bwin and EA Sports), BVB PremiumPartner (12 partners including Coca-Cola, Eurowings and REWE) and BVB Partner (18 partners including L’Oréal, ARAL and H-Hotels.com).

We believe the long-term principal partnerships represent over half of Borussia Dortmund’s advertising and should be relatively predictable given the multi-year relationships. For other partners, it is likely some revenue is sensitive to the economic cycle.

The activity of seeking new sponsors is currently outsourced to Sportfive, a media group, which receives a commission on revenue generated. For Borussia Dortmund, commission and expenses are reported as advertising within other operating expenses. Over time, the effective commission rate has reduced from 31% of reported advertising revenue to 25/26%, but a new licensing agreement from FY21 reduced the agency commission to c 10% of revenue.

Match operations represents revenue earned from the attendance of fans at its home ground, Signal Iduna Park, as well as from friendly games played by the team including overseas tours, which typically take place before the start of the new season and during the winter break.

Management regards Signal Iduna Park, Germany’s largest football stadium with capacity for 81,365 fans, as its most valuable asset apart from the team.

Within match operations, the company separately discloses revenues from domestic (Bundesliga games), international (UEFA competitions), national cup (DFB-Pokal) and friendlies (tours).

Revenue is a function of the number of games played, the number of fans attending and price per ticket. In ‘normal’ circumstances, there is a relatively predictable element to domestic revenue, the most significant source of revenue, as there are 17 home Bundesliga games in every season, which are typically sold out. Over the long term, there has been a gradual increase in the capacity of the stadium as it has been updated and management’s policy regarding ticket prices is typically to grow them by inflation. The club benefits from the advance sale of 55,000 season tickets, which brings revenue visibility. The ticket price varies depending on location in the stadium, the competition, concessions and opposing team.

Revenue from other competitions is less predictable given these include knockout competitions and revenues are shared in different ways. For example, net income (revenue less stadium costs) from DFB-Pokal games is split equally between the two competing teams and, in the latter stages of the Champions League, the home team receives all the ticket income.

We aggregate several revenue streams, merchandising and conference, catering and miscellaneous income (as disclosed by the company) into ‘other’, due to a change in disclosure between FY13 and FY14. As well as the more obvious revenue streams, it includes booking fees for the sale of tickets and fees received for squad players who represent their national teams, so it can be quite variable relative to other revenue streams.

Merchandising represents the award of licences and revenue from the sale of team merchandise (eg replica team kits). In addition to partners’ wholesale distribution channels, sales are made via a major FanWelt centre near the stadium, branded stores (FanShops) in Dortmund, sales kiosks at the stadium and e-commerce (www.bvbonlineshop.com). Growth should be driven by the increasing global appeal of the brand, as well as the company’s ability to increase and improve the range of merchandising.

Conference and catering is closely linked to attendance at the stadium as well as Borussia Dortmund’s ability to monetise improved (ie higher value) hospitality.

There is likely to be some economic sensitivity to some of the revenue streams, as fans may spend less on food and beverages or not buy new kits in a more challenging macroeconomic environment.

Borussia Dortmund’s strategy has been the development of a competitive team with a focus on identifying promising up-and-coming talent at minimal cost (even free), who can then be further developed at the ‘BVB Academy’.

Over the long term, Borussia Dortmund has a proven track record of prudent investment in players and has a good ‘eye’ for spotting new talent, who are ultimately sold for a good profit. In recent years notable successes have included:

We note that the gains on the sale of players have been an important driver of Borussia Dortmund’s profitability over the long term; however, these gains are unpredictable.

Describing why one club is better at identifying up-and-coming talent than another is as difficult as explaining why one music industry representative is better at finding promising new artists than another. Therefore, our comments are reserved to Borussia Dortmund’s development structure and highlight the company’s success with respect to player transfers.

Regarding player scouting, the club uses a worldwide network of around 30 scouts who are supported by technology, enabling them to conduct individual player analyses. Management believes its modern training centre and the ‘BVB Academy’ provide excellent training for players, and there is a clear willingness to play young players in the first team, which may be lacking at other clubs.

Borussia Dortmund’s success in the transfer market is evidenced by its net spend versus its local and international peers over the long term. Below, we show the cumulative net transfer spend for a range of competitive peers from the Bundesliga and other large European clubs over two timeframes: the last 10 seasons (including 2023/24, which, by definition, is only part of the season) and from the 2000/01 season. The data are sorted by net transfer spend since 2000/01.

Borussia Dortmund has been the only the club to generate a net surplus on transfers over the long term (from 2001–23) and one of two clubs (including Schalke) to generate a net surplus over the last 10 years, which is testimony to its ability to recruit and trade talent. There is an apparent clear distinction between the level of spend between the clubs in the Bundesliga and elsewhere. Therefore, although it has been several years since Borussia Dortmund last won the Bundesliga, we would argue its regular qualification to compete in the Bundesliga comes at a significantly lower cost than its bigger-spending peers.

The move of Lionel Messi to the US Major League and the sudden emergence of the Saudi Pro League, which has attracted a number of high-profile players (including Cristiano Ronaldo in the 2023/23 season and Neymar in 2023/24), leads to obvious concerns that the competition for signing players has increased. Below we show the annual net spend of several leagues since 2010/11. The English Premier League has dominated net transfer spend in most seasons, but the emergence of the Saudi Pro League, with net spend of just under €900m in the current season, is astonishing in the context of anything that has happened in recent years, including the emergence of the Chinese Super League from 2014/15, which appears to have petered out.

For some players, the prospect of earning higher wages may be more appealing than playing in more established leagues, especially so towards the end of their careers. We note that of the 25 most expensive signings to the Saudi Pro League in the 2023/24 season, nine players were aged 30 years and over, and 12 were aged between 25 and 29 years. The transfer fees themselves for individual players were not high in the context of fees paid for other players in Europe, as for many players the appeal is to earn a higher salary. The most expensive signing was Neymar for €90m, and the 25th most expensive signing was Frank Kessie for €12.5m versus his estimated market value of €12.5m per Transfermarkt.com.

Having described how the squad is developed and looked at Borussia Dortmund’s historical success in the transfer market, we move on to looking at the valuation of the current squad. At the time of writing, Borussia Dortmund has the 21st most valuable first-team squad of the 500 that are valued globally, with an estimated value of c €467m versus the purchase cost of €312m (source: Transfermarkt.com). The estimated value of the squad of c €467m compares with the valuation of c €483m in our prior Outlook note.

Below we show the estimated market values in descending order for the top 25 most valuable global football squads. We would highlight that the majority of the teams listed below appear to have unrealised gains in the valuations of their squads, except Chelsea, Manchester United, Aston Villa, West Ham United and Juventus.

The value of Borussia Dortmund’s first-team squad is currently more balanced (ie not so dependent on the valuation of one player) than it has been in prior years. For example, in our prior Outlook note, Jude Bellingham represented c 20% of the squad’s estimated value at that time; in the current squad, four players each have an estimated market values that is 8–9% of the total squad’s value. The contracts of six of the current squad of 28 player are due to expire at the end of the current season, including older players such as Mats Hummels and Marco Reus. As might be expected given the club’s recruitment strategy, the first-team squad skews to a younger age range: 16 of the 28 players are aged less than 25 years, eight players are between 26 and 30, and four are over 30.

Given the importance of the estimated squad valuation in our overall valuation of the company, and the estimated valuation is that of a third party, we have examined all of Borussia Dortmund’s transfers during the last seven seasons (ie from 2017/18) to determine whether there is any positive or negative bias to the estimate. Over this period the fees realised were c 12% below the estimated market values. The overall result is heavily influenced by lower realised fees on the more significant transfers, particularly the sale of Haaland. In 2023/24 Jude Bellingham was sold for an initial fixed fee of €103m versus an estimated market of €120m, with variable fees to follow that are dependent on sporting success of up to 30% of the initial fixed fee; in 2022/23 Erling Haaland was sold for €60m versus an estimated market value of €150m; and Sancho was sold for €85m versus an estimated market value of €100m in 2021/22. It is difficult to determine whether the estimated valuations were unrealistic or there were special circumstances around the transfers that enabled the purchasing clubs to get a genuine bargain. Haaland’s purchase price by Manchester City looks relatively low given his impact on the team and when compared to the fees paid by other Premier League clubs for players that have performed less well. Bellingham has made a very promising start at Real Madrid. Conversely, Sancho has struggled to make a significant impact at Manchester United since he joined. We therefore now apply a c 12% discount to the estimated squad valuation in our overall company valuation.

We view the key sensitivities for Borussia Dortmund as follows:

In the previous sections of the report we have focused on the main growth drivers and revenue streams, so we turn our attention to the drivers of Borussia Dortmund’s profitability, cash flow and balance sheet.

Borussia Dortmund has demonstrated a broad improvement in EBITDA profitability over the long term, with growth in personnel expenses (relative to revenue) at the expense of other operating expenses. Depreciation has been a relatively consistent 3–4% of revenue in more recent years, while amortisation, predominantly of the playing squad, has been increasing relative to revenue, reflecting the increased investment in the squad. The company’s financial prudency is demonstrated by the generation of a positive operating profit, profit before tax and net income in every financial year since FY10, irrespective of the team’s success, except for FY20–22 when restrictions due to the COVID pandemic affected activities.

We draw attention to the accounting and disclosure of ‘net transfer income’, which is equivalent to net profit on the sale of players (gross proceeds less the written down value and associated transfer/agent fees) from FY19 onwards, which was required by IAS 8.42. Previously, gross amounts for revenue and unamortised costs, etc, were recognised in the income statement. The net effect is that profitability is not affected, but gross revenue and costs for the group, as previously disclosed, are lower. We can see that net transfer income is important to the group’s profitability.

The company introduced an annual dividend in FY12, initially at €0.06/share, which continued through FY19 before the pandemic led to a rightful focus on preserving cash. In FY23 loss carry forwards/net accumulated losses were offset against the revenue/capital reserves so it can legally once again pay a dividend in future years, provided it generates the necessary net profits. We note there is no company definition of what would constitute the ‘necessary net profits’. In the years of prior dividend payments, net profit ranged between c €5m and €51m, therefore management’s current guidance for FY24 net profit of €15–25m would suggest a resumption of dividend payments is possible. We assume the company resumes the payment of a dividend of €0.06 per share for FY24.

Borussia Dortmund produced a strong financial recovery in FY23, exceeding pre-pandemic levels of revenue and profitability, as it enjoyed a first full season since FY19 in which there was no disruption from the pandemic (ie it was able to sell out all games).

Revenue (excluding transfers) grew by c 19% y-o-y to €418m (exceeding FY19’s €370m and management’s guidance from the start of the year of €394m), EBITDA increased by 47% to €123m (versus FY19’s €116m and guidance of €101–106m) and it generated a net profit of c €10m (still slightly below FY19’s €17m but above guidance of €2–7m). All revenue streams enjoyed year-on-year growth, which provided good operational gearing on operating costs to give an EBITDA margin of 29.5% (FY22: 23.8%), which compares favourably with more recent pre-pandemic profitability of 31.3% in FY19. The improvement in profitability included the second highest net transfer income (net transfer fees less residual book values of players sold) since the accounting for transfers and financial disclosure with respect to transfers changed in FY19, reaching €73m versus the previous high of €83m in FY19. This is further evidence that the industry has regained confidence to spend money post the pandemic. For completeness, total operating proceeds of c €516m grew by c 13% y-o-y, exceeding guidance of €489m and the prior peak of c €490m in FY19.

Borussia Dortmund’s results were influenced by the different phasing of games this season versus the prior season, which had to accommodate the unusual timing of the FIFA World Cup in November-December 2022 instead of the more typical Northern Hemisphere summer. The first team played fewer (three, solely Bundesliga) home games in Q124 than in Q123 (five including four Bundesliga and one Champions League game). Revenue excluding transfers declined by c 2% yoy to c €103m (Q123: €104m) with fewer games reflected in lower revenue from match operations, advertising and TV marketing, while merchandising (special edition kit) and conference, catering and miscellaneous revenue increased. The period benefited from net transfer income of c €82m, which includes the gain on the sale of Jude Bellingham versus €62m recognised in Q123 for the sale of Erling Haaland and other players. As a result EBITDA increased by 8% y-o-y to c €79m. The absolute increase in EBITDA of c €6m versus the incremental net transfer income of c €20m was affected by the relative number of games.

Management introduced FY24 guidance with the publication of its FY23 results, and it was subsequently reiterated at the Q124 results; changes were unlikely given it is still early in the season. At the start of the season, management typically assumes the first team will reach the round of 16 of the Champions League competition. The team has already qualified for the round of 16 of this year’s competition, having played five of the six group qualifying games at the date of writing. In the event of not reaching the round of 16, Borussia Dortmund would naturally generate lower revenues, although still with the potential to earn revenue from the Europa League competition, and there would be lower operating costs such as personnel costs due to lower player bonuses given they were less successful.

The FY24 guidance is for total operating proceeds of €538m, revenue (excluding transfers) of €427m, EBITDA of €104–114m, operating profit of €15–25m and net income of €15–25m.

A summary of our updated forecasts for FY24 and new forecasts for FY25 is shown in the following table:

Our new FY24 profit estimate includes a lower forecast net transfer income of c €82m (already recognised in Q124), versus €105m previously, and higher personnel and other operating expenses, offsetting upgrades to revenue estimates. In the absence of greater clarity on the new distributions for the Champions League for the FY25 season, we assume c 5% y-o-y revenue growth to €457m and c 7% EBITDA growth to c €121m.

The company has generated positive operating cash flow in every year except FY20 since FY06. Free cash flow has been a bit more variable given the variability of player transfer fees, but has mainly been positive over the long term. The variability of Borussia Dortmund’s operating and free cash flow in more recent years, including the negative influences from the COVID-19 pandemic, are shown below:

In the next section we show how changes in receivables and payables from transfers have affected cash flow.

In FY23, management surpassed its guidance for operating cash flow (ie after net interest payments), reporting c €54m, a good improvement from FY22’s c €35m and versus initial guidance of €45m. Free cash flow came in at an outflow of c €22m versus management’s budget of zero.

Management is expecting lower cash generation in FY24, with expected net operating cash flow of €32m and a free cash outflow of €26m.

Over the long term the company’s balance sheet has become increasingly ‘conservative’ given management’s preference for no or limited debt. Prior to the COVID pandemic the company had a net cash position since FY16 but the disruption to activities caused by the pandemic led to it taking on some debt. The company’s financial position has improved since the depths of the pandemic, helped by the October 2021 equity raise. Net debt peaked at c €94m in Q121. By the end of Q124, the company had net debt of c €18m, marginally lower than the end FY23 position of c €30m.

The balance sheet is asset heavy, specifically intangibles, which is predominantly the playing squad, and tangibles, which is predominantly the stadium and training infrastructure. At the end of Q124, the net book value of intangibles was €237m and tangibles was €184m from total net assets of €335m.

Other important items on the balance sheet include debtors and creditors with respect to transfers, which are split between current and long term. There has been a notable increase in both since FY16, which should be expected given the general trend to higher transfer fees in the overall market. The figures are likely affected by different payment terms on each transfer. The changes from one financial year-end to another can have an important impact on the company’s cash generation: note the significant increase in total receivables from FY21 to FY22 and then again to FY23; an increase in receivables negatively affects cash generation as does a reduction in payables.

Our preferred valuation method for Borussia Dortmund is an asset-backed SOTP approach, which incorporates the unrealised value of the football squads and the brand name. We also compare its valuation multiples to its quoted peers, a relatively small universe of companies, and its own trading history.

Our updated valuation of €10.63 per share represents significant upside from the current share price of €3.63.

To the estimated market values for all Borussia Dortmund’s football squads we apply a discount of 25%, to allow for the average transfer costs paid since FY19 (13%) and to allow for possible overestimation of market values by Transfermarkt.com of c 12% (see page 13). To the last quoted brand valuation from May 2018 we apply a premium based on the movements in market values of other quoted clubs since that time (see Exhibit 20), which have been helped by the recent changes at Manchester United. We would highlight the current share price of €3.63 compares with the combined estimated value of the squad and stadium of €4.90 above.

A comparison of Borussia Dortmund’s valuation with its peers shows that it is trading at a significant discount.

Below we show Borussia Dortmund’s prospective EV/sales and EV/EBITDA (current EV) multiples for FY24e and FY25e versus historical multiples (historical enterprise values) with the high, average (quoted) and low multiples shown for each year. We exclude FY05 and FY06 from the EV/EBITDA charts as the company was emerging from its financial troubles and was either loss-making (FY05) or generating low EBITDA (FY06) and therefore valued on much higher multiples, which are less representative.

Borussia Dortmund’s EV/sales multiples of 1.0x for FY24e and 0.9x for FY25e are a large discount to the long-run average of 1.6x, and a little above its typical low multiples of 0.9–1.3x since FY15.

The prospective EV/EBITDA multiples for FY24e and FY25e of 3.7x and 3.5x are well below the long-run average (since FY07) of 6.7x, which is skewed by the high valuations of FY20 and FY21 when profitability was affected by the COVID-19 pandemic. The above would suggest potential for strong share price performance, even with only a normalisation to prior average multiples.