Private equity’s appeal to football comes with a caveat – GAME OF THE PEOPLE
FOOTBALL’s investor base has diversified in recent years and the market has seen a new breed of club owner – one that demands some kind of return. Previous benefactors have poured money into clubs and clawed very little back, but the dynamic is changing with the rise of private equity firms in football.
The role of private equity owned by football clubs is certainly different from that of a sovereign wealth fund or Middle Eastern government entity. While the Middle Eastern owner is not overly concerned about a club making a profit, the private equity owner expects a return and will also have an exit plan built into the transaction. Additionally, they invariably rely on debt to fund an acquisition, which can make them very unpopular with the supporter base.
While investing in a P/E firm can be seen as an entry of big capitalism, there are some benefits that can accrue to a club such as: B. innovative ideas, cost control and a penchant for data analysis. Another focus is on generating new revenue. In short, a P/E outfit can transform a club and become its savior, but if the fundamentals are wrong, it can also break and destroy a club.
What is so attractive to these companies? Obviously TV money and staggering broadcast deals have made football a well-funded industry at the 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 practically guaranteed and their brand has no trouble attracting big sponsors and commercial partners. Clubs are also highly accessible and, unlike leaders in other sectors, there are few intermediaries. It’s relatively easy to have C-suite talks with football clubs as most are desperate for cash as the pandemic has been brutal for many football clubs. Even in the elite class, wages are too high and transfer fees have gotten out of hand.
Across Europe, private equity has been involved with companies such as CVC, Clearlake, Red Bird, Apollo and Fortress all taking stakes in major clubs. Some, like 777 Partners, have a penchant for football investing and have built a multi-club portfolio that includes Genoa, Standard Liège, Hertha Berlin, Paris Red Star, Sevilla and Vasco Da Gama. CVC has chosen to invest in leagues and has held talks with Serie A, Ligue 1, La Liga and the Bundesliga, with varying degrees of success and no small opposition from fan groups. CVC managed to invest around $3 billion in part of La Liga’s commercial business.
The global appeal of Premier League football has seen English clubs scramble for assets, but the ongoing debate over the sale of Manchester United suggests pricing is an issue. Whilst numbers have been thrown around valuing United at £4bn and up, football finance expert Tom Markham has calculated that the club’s true worth is likely less than £1bn. Qatar, who were believed to be favorites to win the club, are known to insist they don’t overpay just to receive a prestigious prize. Price-earnings can still buy United, but other clubs have come under the sector’s scrutiny, such as Liverpool and Tottenham Hotspur.
But it must be noted and emphasized that private equity firms are not sugar daddies and avuncular patrons. All they care about is making money and to do that they will cut costs, including peripheral activities like community initiatives, and insist on a certain level of prudence in the transfer market. They may not throw money around carelessly, but they will try to run a club properly so that their assets are attractive when they decide to exit. For a club like Chelsea, which was taken over by a consortium that included a P/E firm, they are at the dawn of a very different era from that funded by Roman Abramovich.
Private equity will have its place in the football landscape of the future, but with rising interest rates, a potentially nervous banking crisis looming and lingering geopolitical concerns, there is a level of uncertainty that could turn off even the most unwary investor. Football is unlikely to avoid the next phase of major economic upheaval.
Game of the People was founded in 2012 and is ranked among the top 100 football websites by various sources. The site regularly wins awards for its work across a wide range of topics. View all posts by Neil Fredrik Jensen