It’s always been the beautiful game. Now, for American financiers, it’s the bountiful game.
Top-level football in Britain and Europe is drawing in a massive influx of cash from hard-headed US investors who see huge potential for profits.
This growing appetite for investment was on show late last month in Seville, where investors, bankers and boardroom executives met in the Andalusian capital at the World Football Summit, an annual industry get-together.
At this year’s two-day conference, there was one topic on everybody’s lips: The significant shift in the ownership of football clubs.
Armed with billions of dollars in dry powder, large US institutional investors such as private equity houses have been on the hunt for deals, swooping on cash-strapped clubs in the wake of Covid.
Fifteen investments in clubs across the ‘big five’ leagues took place in 2021, more than in 2019 and 2020 combined (12). The vast majority (87%) of investments were made by high-net-worth individuals and private equity firms, with more than two-thirds of investments being made from the US, according to accountancy firm Deloitte.
In the past there was often a sentimental, even romantic attitude to being the owner of a football club. Even as billions from Russian oligarchs and Arab princes flowed into the sport over the last 20 years, ownership of top trophy teams was seen as a major indication of status.
But the current breed of US investors in European football have a more hard-edged approach to the investments – they’re looking for returns on what they pay for clubs in divisions such as the Premier League in England, Serie A in Italy, and La League in Spain.
They are convinced that leading clubs in Europe are undervalued as assets when their potential for further commercialization is taken into account – and as a result, they are spending big on the continent.
“Major League Soccer franchises are being valued on average at $400-500m dollars, and other major sports are significantly higher than that. You look at European football, and you can get into the smaller leagues for much lower price points,” said Jordan Gardner, a US sports executive who has invested in several clubs across Europe.
Inside the Seville conference center – thronging with AI developers, business football institutes, social media start-ups and even a ‘metaverse merchandising’ firm – three main discussion slots on the agenda honed in on how best to “monetise” fans and clubs, with senior figures discussing media rights sales, overseas expansion, blockchain partnerships and data science.
“We’re seeing deals pop up every week in Europe,” said one US-based banker, who said he had clients currently looking at investments in four clubs across the English football leagues.
UK economic chaos
With the pound showing volatility, M&A dealmakers at the conference said that they expect even more takeovers in the months to come.
“Assets in the UK, if the pound stays at that level, are going to be cheap for US investors, so there’s an opportunity there,” said Simon Howard, Deloitte’s chief operating officer for global financial advisory and M&A transaction services leader for EMEA.
The US football frenzy has hit fever pitch in the UK, with tycoon Bill Foley finalizing a deal to buy Bournemouth FC and an investor group including mining magnate John Thornton in talks to buy Everton FC. Those deals, if completed, raise the prospect of 12 Premier League clubs being minority or majority owned by US shareholders.
The headline-grabbing deal of 2022 so far has been the acquisition of Chelsea FC by private equity firm Clearlake Capital and US tycoon Todd Boehly, who led a consortium that bought the club from Russian oligarch Roman Abramovich.
“When you cut through everything, the Chelsea deal is really about how huge the brand is, and the ways in which you can get more revenue out of a global fan base,” said one source who was involved in the Chelsea FC deal.
Spain, Italy and France have all seen a flood of US investment in the last two years.
Even in Germany, a country with some of the strictest rules in Europe about foreign ownership of clubs, there is now hope among dealmakers that a new wave of investment is inevitable.
Germany’s top league, the Bundesliga, has been sounding out interest from private equity firms about selling a stake of its media and commercial rights in recent months.
Deutsche Fussball Liga (DFL), which runs the top two leagues in Germany, said in a statement that it had informed the clubs of the Bundesliga and Bundesliga 2 about its latest considerations, which include “exploring the option of a strategic partnership that would bring the league and the clubs growth capital and know-how in areas set to play a crucial role in the future”.
Investors wanting to buy German clubs face the 50+1 rule – in which clubs, and by extension the fans, hold a majority of their own voting rights.
“The Germans are being lobbied hard to change the rules and open up to foreign investment,” says one M&A lawyer who has inked several football deals this year.
Going for double digits
For many US investors though, owning one club is not enough.
The soaring popularity of multi-club ownership (MCO) was a key topic at the summit in Seville.
Deloitte recently found that over 70 MCOs are now thought to be in existence, more than double the amount only five years ago (28). Nine of the 20 Premier League clubs operate within a MCO model. New Chelsea owner Todd Boehly said last month that he is considering a multi-club model.
“There are some markets that are very attractive right now, like Brazil. It makes sense to have a football network of clubs if you’re able to explore synergies in the right way,” said Javier Sobrino, a former executive at Barcelona FC, on a panel at the summit.
“It’s not only bringing players from one market to another. If you’re able to run a network of clubs and implement technologies and use players and assets that the club has, use resources, that can create a lot of value.”
Game of risk
The question now facing this swathe of US investors piling into the sport is whether their acquisitions will pay off.
“We’ve got more transactions that have failed than actually have been really successful, both from a financial and football point of view,” said Deloitte’s Howard.
Soaring transfer fees, fan backlashes and the threat of losses on the pitch make the path to profit tricky.
Even more, the prospect of relegation is a top concern for risk-averse buyers, many of whom own sports clubs in the US which play in leagues without a relegation or promotion system.
“Relegation, or a failure to qualify for European competition, can have catastrophic financial implications for clubs in Europe. We can therefore expect to see more pressure from investors to move towards closed leagues and guaranteed participation in elite competition as the decade unfolds,” said Darren Bailey, consultant at Charles Russell Speechlys.
Bailey also expects to see greater focus on matches featuring the ‘best versus best’ in slimmed down competitions.
“These trends could well challenge the fabric of existing European competitions and the pyramid system itself, instead creating closed, ‘breakaway’ leagues as exemplified by the recent European Super League,” said Bailey.
Balancing the books
Short of reforming European football investors to put an end to relegation, US will be hoping to make gains from taking a tougher approach in the day-to-day financial management of clubs.
The takeover of AC Milan in 2018 by New York-based investment management giant Elliott Management is seen as the case study for buyers to emulate.
Elliot recruited new technical directors, introduced an internal salary ceiling and hired younger football players who joined on cheaper transfer deals with lower wages.
“Private equity brought discipline into the club,” explained Paolo Alessi of credit rating agency Fitch Ratings.
Elliott sold the club this year for an estimated $1.2bn to Redbird Capital, a New York-based PE firm with a focus on sports that is run by Goldman Sachs veteran Gerry Cardinale.
The AC Milan turnaround caught the attention of other US dealmakers and – just like in England – Italian clubs have since seen a swathe of corporate activity: Since 2019, Atalanta, ACF Fiorentina, AS Roma, Parma, Spezia Calcio and Venezia have all been bought by US tycoons, ranging from a former boss of the New York Stock Exchange to a cable TV magnate.
Miami-based PE fund 777 Partners also bought Genoa while Californian asset management firm Oaktree Capital Management has taken a stake in Inter Milan.
Fitch’s Alessi says that the synchronized change in ownership could create more discipline across Italy’s top league.
But US investors aren’t just buying clubs. Stakes in leagues and broadcasting deals are proving to be popular targets too.
In Spain, US private equity firm Sixth Street has bought 25% of Barcelona FC’s LaLiga TV rights for the next 25 years.
Luxembourg-based buyout shop CVC has also inked a deal with Spain’s top league, La Liga, taking an 8.2% stake in a new company that will receive broadcasting revenues and sponsorship.
Buying a stake in a league is sometimes described by dealmakers as a type of ‘securitisation’, in which investors can buy a share of the future revenue stream. It can offer more stable, reliant returns than the highs and lows of owning a club.
But even these deals come with their own challenges – the CVC partnership with La Liga has faced opposition from some of the biggest clubs in Spain.
Fans, too, have questions about their new owners. Sevilla FC chief executive José Maria Cruz said at the conference: “[The fans] believe they want only money, that they have no interest in the history, that they’re not interested in the city.”
Supporters might have grievances, but while the conference was being held last month, their attention was on a match between Spain and Portugal.
In bars across Seville’s historic centre, locals were glued to the big screen as their men’s national team clinched a 1-0 win.
They seemed blissfully unaware that here in their own city, a far more important event was quietly shaping the course of their sport.
This article was published by Private Equity News, part of Dow Jones
To contact the author of this story with feedback or news, email Sebastian McCarthy