The Routes Taken By Investment Firms Into Football
October 8, 2021
This week, Mohd Umar looks at the ways investment firms enter football as they try to transform the business models of clubs and leagues.
Football has long been known as a dynamic and fast-paced sport, and now Private Equity and Hedge fund firms have taken a long stride towards transforming the football clubs themselves.
The most popular sport going looks attractive to PE & Hedge Funds due to their stable and predictable cash flow coming from broadcasting revenue, matchday sales and merchandising. It comes forward as an opportunity to buy undervalued businesses with enormous growth potential and improve them by trimming underperforming divisions and reconfiguring operations.
After the pandemic kept the fans away from stadiums, wiped out matchday sales and reduced payouts from broadcasters, leading some of the biggest teams in Europe into enormous debts, investment firms helped some of them to stay afloat.
Inflated wage bills, relegation risks and ardent fanbases don’t agitate the PE & Hedge funds in their pursuits. Recently, RedBird Capital acquired undervalued Toulouse FC looking at its enormous growth potential, but unfortunately the club was relegated and will now require hefty investment to get back into Ligue 1.
Some routes taken by investment firms to establish a foothold in these treacherous waters are:
Acquiring stakes in multiple teams
To ensure profitability, PE & Hedge Funds have diversified their portfolio of rights into varied clubs of different sizes and geographical locations. In 2019, Californian private equity investor Silver Lake acquired a 10% share in City Football Group, which has ten clubs operating around the globe.
Buying into the league
Last year, CVC Capital and Advent international made a bid of 1.7bn EUR for 10% stakes in a firm that would handle Serie A’s TV rights, only for it to fall through.
However, recently CVC acquired 11% stakes in LaLiga’s media rights for 2.1bn EUR and allowed three clubs to drop out. CVC plans to take an active role in managing media rights and the clubs will be granted an interest-free loan from the 2.1bn EUR funding.
Acquiring stakes in smaller clubs
With robust scouting and investment into youth academies, small clubs have the opportunity to develop young talents and maximise revenue from transfer fees. But it can turn ugly if the firms decide to misuse the club’s resources.
After the recent takeover of Burnley by ALK Capital, the club is now facing eye-watering debts and reduced cash reserves for their stature. Manager Sean Dyche said Burnley ‘aren’t quite in the same league financially’ – they are now £60m in debt and have £30m+ less cash due to their recent US takeover.
Clubs in crisis
The clubs have always been in dire need of cash and that’s grown more acute after the pandemic kept crowds away from stadiums. Premier League clubs Arsenal and Tottenham have secured £300m loans at low interests from the Bank of England, but smaller clubs and those in lower leagues have complained about the struggle to secure financing.
As the commercial banks perceive football clubs as high risk, the investment firms have instead been lending their helping hand. Last year, MSD Partners has loaned almost £80m to Premier League team Southampton and funded the £200m takeover of Burnley by ALK Capital. While Inter Milan recently gained £233m from Oaktree Capital for a 31% stake. If majority owner Suning isn’t able to repay its debt in three years, the U.S. fund reportedly gets control of Inter Milan.
The fans have slammed private equity’s reputation as vulture funds that strip assets and sell them off for profit. If the ownership of clubs is fairly regulated the whole football environment will become more stable and PE could bring in expertise along with a sophisticated model and a strategy for commercialising football.
It can play a positive role if it is carried and led with the right motivations in mind.
