Private Equity’s attraction to football comes with a warning

FOOTBALL’s investor base has diversified in recent years and the market has seen a new type of club owner – one that demands some sort of return on investment. Past benefactors have poured money into clubs and asked for very little back, but with the arrival of private equity firms in football, the dynamic is changing.

Private equity’s role in football club ownership is certainly different than a sovereign wealth fund or state-owned entity from the middle east. While the middle eastern owner is not over-concerned with profit-making by a club, the private equity owner expects a return and also will have an exit plan built into the transaction. Furthermore, they invariably rely on debt to fund an acquisition, which can make them very unpopular with the support base.

While investment by a P/E firm can be seen as big capitalism moving in, there are some positives that can benefit a club, such as innovative ideas, cost controls and a penchant for data analysis.  There is also a focus on new revenue generation. In short, a P/E outfit can transform a club and become its saviour, but if the fundamentals are wrong, it can also break and destroy a club.

What is so attractive for these firms? Obviously, TV monies and spiralling broadcasting deals have made football a cash-rich industry at the very top, but the imbalances are huge and probably always will be. It’s also a global game and its popularity shows little sign of waning. 

For the big clubs, very lucrative revenue streams are virtually guaranteed and their brand has little trouble attracting big sponsors and commercial partners. Clubs are also quite accessible and there are few intermediaries, unlike leaders in other sectors. It is relatively easy to have c-suite discussions with football clubs as most are desperate for cash as the pandemic was brutal for many football clubs. Even in the elite bracket, wages are too high and transfer fees are out of hand. 

All around Europe, Private Equity has been busy with companies like CVC, Clearlake, Red bird, Apollo and Fortress all taking stakes in major clubs. Some, like 777 Partners, have a taste for football investments and have built up a multi-club portfolio that includes Genoa, Standard Liege, Hertha Berlin, Paris Red Star, Sevilla and Vasco Da Gama. CVC have decided to invest in leagues and have had dialogue with Serie A, Ligue 1, La Liga and the Bundesliga, with varying degrees of success and no small amount of resistance from fan groups. CVC managed to invest around US$ 3 billion in part of La Liga’s commercial business. 

The worldwide appeal of Premier League football has made English clubs sought after assets, but the ongoing debate over the sale of Manchester United does hint that pricing is an issue. While figures have been thrown around valuing United at £ 4 billion and higher, Tom Markham, a football finance expert has calculated the club’s true value is more likely less than £ 1 billion. It is well known that Qatar, who were favourites to win the bid for the club, insist they will not overpay just to land a prestige prize. P/E may yet buy United but other clubs have come under the microscope of the sector, such as Liverpool and Tottenham Hotspur.

But it has to be noted and underlined that Private Equity companies are not sugar daddies and are not avuncular patrons. They are all about making money and in order to do that, they will slash costs, including peripheral activities like community initiatives, and insist on some level of prudence in the transfer market. They may not throw money around on a carefree basis, but they will try to run a club properly so that when they do choose to exit, their asset will be attractive. For a club like Chelsea, who were taken over by a consortium that included a P/E firm, they are at the start of a very different era than that funded by Roman Abramovich.

In the football landscape of the future, Private Equity will have its place, but with interest rates rising, a nervous banking crisis possibly unfolding and continued geo-political concerns, there is a level of uncertainty that could deter even the most cavalier investor. It is unlikely that football will avoid the next period of major economic upheaval.

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