Top-flight soccer in the UK and Europe is attracting numerous Asian investors and private equity firms who see huge profit potential. But the new financiers are not welcome everywhere.
In the past, owners of soccer teams often had a penchant for romanticism and attachment to their club. Then, as billions of dollars from Russian oligarchs and Arab princes poured into soccer leagues over the past 20 years, ownership of a top team was undoubtedly also seen as a status symbol.
A new generation of investors has stepped onto the field in European soccer, one that takes a tougher approach: the pursuit of returns. Hailing mainly from the United States, these investors are convinced that the leading clubs in Europe are undervalued, considering their potential for further commercialization. That's why they are willing to spend big on the continent, according to a report by «Private Equity News.»
Revenue Potential
While clubs in US Major League Soccer are valued at an average of $400 million to $500 million, an entry in Europe is possible at much lower prices in the smaller leagues, says Jordan Gardner, a US sports manager who has invested in several clubs in Europe.
In addition, there would be further revenue to be made with fans and clubs by selling media rights, expanding abroad, forging blockchain partnerships, or seeking deals involving the sale of data.
British Clubs Attractive
The UK is likely to see acquisitions in the coming months given the volatility of the pound, believes Simon Howard, chief operating officer for global financial advisory at Deloitte and head of M&A transaction services for the EMEA region.
The most headline-grabbing deal of 2022 so far was the acquisition of Chelsea Football Club by private equity firm Clearlake Capital and Todd Boehly. The US tycoon led a consortium that bought the club from Russian oligarch Roman Abramovich.
Germany Squirms
Even in Germany, a country with some of the strictest rules in Europe regarding foreign ownership of clubs, a new wave of investment appears imminent. To close the gaps to richer soccer leagues, executives at the German Football League, which runs the Bundesliga, have held talks with private equity firms, including Advent, Blackstone, Bridgepoint, CVC, and KKR.
The formation of a company to control the media and commercial rights of the Bundesliga with a value of 18 billion euros ($17.7 billion) is under discussion. Additionally, up to 4.5 billion euros would be raised by selling a 25 percent stake to outside investors. An agreement would likely be presented to the clubs for a vote early next year.
Last year, Spain's La Liga and France's Ligue 1 concluded media rights agreements with private equity group CVC. At the time, the Bundesliga also considered raising 300 million euros through the partial sale of the league's international TV rights, but the 36 member clubs decided against it.
Italy Learns Discipline
In Italy, the 2018 takeover of AC Milan by New York-based investment firm Elliott Management is seen as a successful example. The US investor tightened the screws on the club's finances by hiring new technical directors, introducing an internal salary cap, and signing younger footballers on cheaper transfer fees and lower salaries.
The turnaround at AC Milan caught the attention of other American businessmen. Since 2019, for example, Atalanta, ACF Fiorentina, AS Roma, Parma, Spezia Calcio, and Venezia, has been bought by US investors.
Elliott sold AC Milan this year for an estimated $1.2 billion to Redbird Capital, a New York-based private equity firm focused on sports. This week, according to a «Financial Times» report (behind paywall), the search is underway for a buyer for Inter Milan, the city's second heritage club, which has been owned by Chinese electronics retailer Suning since 2016.
A Tough Business
Compared to other European leagues, Italian football presents several challenges for investors. Serie A has the second-lowest broadcast revenue of the so-called «Big Five» leagues. Only the Bundesliga is behind Serie A, according to Ender's analysis, earning just over 270 million euros per year from international TV rights. The Premier League, on the other hand, with 2 billion euros, and La Liga with 900 million euros, are considered to be the cream of the crop.
The business of sporting rights is considered a long-term growth market. Still, rising transfer fees, fan riots, and the threat of losses on the pitch can make life difficult for investors. Consulting firm Deloitte says that there have been more failed than successful deals from both a financial and soccer perspective.
Nick Hornby Said
Regarding the latter, «the natural state of a (soccer) fan is bitter disappointment, no matter what the score,» wrote Nick Hornby, a die-hard Arsenal fan, in his book «Fever Pitch»
