International ownership – get used to it
Posted on September 30, 2017
IT IS a reasonable assumption that the Premier League’s power has been enhanced by an influx of overseas investment over the past 20 years. English domestic football has come a long way from the old days of butchers, bakers and candlestick makers to become the toy of tycoons, money sourced from oil, privatisation initiatives, opportunism and just sheer good business acumen. The football club boardroom has also become acquainted with words like “private equity”, “hedge funds” and “leveraged buy-out”.
Given that the UK has long since sold its family silver down the river, and many of its blue riband companies acquired by foreign conglomerates, it should be no surprise that the country’s most popular sport should also become prey to overseas investors. Want to broaden your footprint in Europe’s most throwaway society and one of its most easily influenced populations? Well, buy a football team, keep pumping out merchandise and hike those ticket prices – you will have them by the short and curlies. They will complain, but they’ll keep coming through the barcoded turnstiles.
Little wonder that the UK has become an attractive investment market in the football world. There’s gold in them hills, as they say, and it is comes from incredibly high broadcasting revenues and rising attendances.
But will it continue? And will the bubble burst? The answer to both of those questions is yes, but the United Kingdom’s exit from the European Union may well compromise future investments from abroad. There’s little doubt that navigating around the problems that will emerge as the UK breaks away from the body Europe will become an industry in its own right, but European Union footballers and wealthy investors may think twice about setting-up shop in the UK.
Key to it all may actually be broadcasting rights, which provide huge amounts of cash to each Premier League club. Just consider that for finishing bottom of the 2016-17, Sunderland received almost £ 100m in “prize money”. If the broadcasting fees dried up, English football would be in trouble.
From a financial perspective, however, Premier League clubs are increasingly behaving like financial institutions and large corporates. That clubs like Burnley and Stoke are now considered to be “bigger” than the likes of Ajax and Inter Milan says a lot about the financial clout the Premier has. It feels really disconcerting that giants from Europe’s past should suddenly be inferior to clubs that were often among the also-rans, but that’s the power of television and broadcasting.
Investors may well wonder why all the cash being poured into the English game does not reap more rewards. Since the launch of the Premier League, English success in European competition has been scarce – only four times has the Champions League been won in that timeframe: 1999 Manchester United; 2004-05 Liverpool; 2007-08 Manchester United and 2011-12 Chelsea. And we’re currently in a barren spell for the Premier in the competition.
Some investors clearly crave success – Roman Abramovich at Chelsea has churned over his management in constant pursuit of silverware and Manchester City may soon go the same way. Manchester United have turned to the arch-technican Jose Mourinho in order to put trophies on the table once more. For this category of owners and shareholders, success is measured in on-field performance. Arsenal, conversely, seem satisfied to have a financially sound club that keeps generating income in front of sell-out crowds. Any other regime would have changed the club’s manager long ago.
At the recent Soccerex conference, the expansion of foreign investment was discussed in detail. West Bromwich Albion, for example, have been taken over by a group led by Chinese entrepreneur Guochuan Lai. This follows other transactions in the Midlands involving Wolves and Birmingham City, which underlines the broadening interest in English clubs beyond the leading names.
The Chinese appetite could be coming to an end, though. A leading banker, James Stent, has written a book on China’s economy and points out that the Chinese government is looking closely at overseas investment and particular, that do not serve the broader economy. He says: “It is restricting frivolous investments in overseas football teams and by highly leveraged financial conglomerates whose acquisitions neither clearly serve the national interest nor arise out of a well-defined core business strategy.”
At Soccerex, the panel felt that in the immediate future the prospect of a significant investment in English football from China was slim. The Chinese cabinet recently put sports clubs on its list of industries that local companies are restricted from investing in overseas. It is all part of an initiative to curb capital outflows to protect the Chinese currency. This could actually result in Chinese club owners unloading their assets.
While Chinese influence would appear to have peaked, perhaps temporarily, the Middle East has been responsible for demonstrating what extreme wealth can do. The transfers of Neymar and Mbappe to Paris St. Germain, fuelled by the controversial state of Qatar, not only raised serious doubts about the future of the game, but also the relevance of financial fair play (FFP).
Indeed, Spain’s La Liga has accused the Middle East region of distorting the European football landscape and has asked UEFA to investigate the spending behaviour of both Manchester City and PSG. La Liga’s president, Javier Tebas called PSG the “habitual offender” that has been violating UEFA’s FFP regulations for years.“It is important that UEFA doesn’t just look at the most recent player transfers, but at PSG’s history of noncompliance. The transfers are merely the result of years of financial doping.”
Nobody at Soccerex suggested China had a “masterplan” to take over English football, but with Qatar’s human rights record and unpopular World Cup appointment, some people believed there is a clear agenda in Middle Eastern investment behaviour. PSG’s purchase of Neymar appeared to be somewhat ostentatious. “We can do this, because we have so much wealth” – and in doing so, they can also bully one of the world’s leading clubs. Moreover, City Football Group, backed by both UAE and Chinese cash, has become a multi-club organisation with Abu Dhabi investors at the heart of it.
Interestingly, the arch-villain among billionaire investors in football, Roman Abramovich, has kept relatively quiet. The Russian man of mystery was criticised when he bought Chelsea and created a bubble which is still being inflated in English football, but he has stayed out of the spotlight in recent years, although Chelsea still spend heavily. It is often overlooked that Arsenal (Alisher Usmanov – 30%) and Bournemouth (Maxim Demin – 75%), also have Russian backers.
But for all the publicity and protestations about foreign owners, the UK still has the biggest stake in its own clubs – more than 40% of the Premier is owned domestically. The next largest slice is not Russian, Chinese or Arab, but American. Some 20% of Premier shares are owned by US investors – and they are quite high profile – Liverpool (John W. Henry) and Manchester United (The Glazer Family). And let’s not forget that Arsenal’s major shareholder is Stan Kroenke (circa 70%).
In effect, England’s top clubs are in the hands of foreigners – Chelsea, Arsenal, Manchester United, Manchester City and Liverpool. Tottenham are alone in being 100% English-owned among the bulge bracket.
Will that change? It is doubtful as the shift in power also reflects the changing global economic situation. The 19th century, during which English football became industrialised, belonged to the British Empire. The 20th century was the time of the United States. The 21st century is about the rise of the east. In short, the liquidity is still with the oil producers and those nations that have raw materials and vast populations of emerging middle classes. It is not enough to be a millionaire in the old fashioned sense, the billionaires are the new club owners and it is unlikely they will come from the old world.
Globalisation has taken hold of football and the clubs no longer belong to countries where they are domiciled. Investors and owners look to markets to grow their empires and with football being the game of the people, the acquisition of a football club represents a foothold in a market. Football clubs now form part of an overall sport and leisure portfolio strategy. Like it or not, they are an asset class to be discussed alongside hedge funds, private equity, bonds and equities. Was that a scream of exasperation I heard from the main stand?