Bucks, Balls and The Beautiful Game.

     If there’s indeed a global sport in which money talks, football would be it. Lucrative contracts, sponsorship deals, stadium naming rights, multi-billion Euro television broadcast rights, player transfer fees and merchandise sales all portray the grip that money has gained on the game. And if there was money to be made, it was only a matter of time before private equity came calling.

     Now typically, sports franchises don’t have the trappings of a typical private equity investment. Returns, after all, are difficult to come by. Sports franchises are expensive to acquire in the first place and need perennial cash infusions to meet their season expenses and contract bids. With revenue streams being largely lumpy and seasonal, building a steady non-game revenue stream needs heavy marketing and brand building. Broadcasting revenue and merchandising provide some stability and predictability, while fans’ club loyalty is a powerful adhesive. Even then, most teams swing from profits to losses with nary a predictable trend. Exits, if indeed the end game, are difficult to come by and tougher to materialize, at a worthwhile return at that. Then again, sports franchises are more often than not side projects that a billionaire with spare cash picks up on a whim. Chelsea, which Roman Abramovich acquired in 2003, is apparently on the block with a multi-billion Pound price tag post several successful seasons, while Queens Park Rangers, owned by Tony Fernandes and Lakshmi Mittal, has seen mixed fortunes. Manchester United debuted on the bourses several years ago and has been as much in the news off the field, as it has been on it. The Glazer family loaded the club with debt when they acquired it, reminiscent of a typical private equity leveraged buyout. The family has also been stripping the company of dividends, even in the years when The Red Devils have been deep in the red.

     Like in the case of other sports, Arab money has virtually flooded the game. In 2008, Abu Dhabi United Group (a private equity fund and essentially little more than a vehicle of the Emirate’s government) scooped up an underperforming Manchester City and the club’s transformation since then has been nothing short of an oil money – fuelled fairy tale. The club splurged and picked up several international stars and skyrocketed to the top of the league tables for several seasons. Oh and those bolt-on acquisitions characteristic of any private equity portfolio investment? Manchester City did those too when it went on to acquire football clubs in New York, Japan, Spain and of course, Mumbai City FC. This was part of City Football Group’s (Manchester City’s holding company) strategy of holding a controlling stake in teams in several leagues. When Silver Lake and China Media Capital picked up minority stakes in Manchester City, valuing the club at c. $5bn, it did indicate that there was indeed a strong logic to Abu Dhabi’s investment.

     Qatar Sports Investments controls Paris Saint-Germain, a team that has been passed from one private equity firm to another, Colony Capital being the last PE owner. State affiliates Qatar Foundation and Qatar Airways have sponsored several teams in the past such as Barcelona and Bayern Munich, from having their logos front and centre on the team jersey, to painting some of their long-haul jets in team colours. While Aston Villa is backed by the Fortress Investment Group, a handful of clubs have Chinese conglomerates as their main shareholders. Activist investor, hedge fund and serial troublemaker Elliott gained ownership of AC Milan after its Chinese billionaire owner defaulted on his loans. Elliott also gained control of Lille in a similar manner.

     Deep pockets don’t give clubs a free kick at outrightly splurging their way to a championship though. Clubs such as Manchester City have been caught violating the Financial Fair Play (FFP) rules, with Abu Dhabi’s state airline and team sponsor Etihad Airways increasing its sponsorship pay to the team in a blatant manner of covering losses and justifying the team’s higher spend. Paris Saint-Germain and its Qatari backers too aren’t far behind when it comes to circumventing the rules.

     Private equity owners though aren’t as carefree with their investments. If recent times have showed us anything, it’s that private equity interest lies not just in the teams but also in the lucrative media rights, with the Italian Serie A looking to sell a 10% stake in its media pie to a PE consortium led by CVC Capital. Word has it that Germany’s Bundesliga is hunting for a similar way to monetize its own media rights, no doubt piqued by the interest that the space has shown. Greater revenue from media rights would benefit the leading teams, which in turn could be able to add to their star-studded line-ups. In a Covid-induced era in which stadia are virtually empty and stadia-related revenues are down to a trickle, media rights have surged in value and could be the new normal in terms of being the main revenue stream and monetization.

     Needless to say, private equity firms do leave their imprint on their football investment as well, almost as much as if it were a corporate asset. Wage bills trend lower and transfers are driven more by pure business and game logic rather than by mere aesthetics. Merchandise sales and branding efforts are given a new and stronger push to drive revenues. Silver Lake has deployed analytics and technology from several of its portfolio firms to enable the City Football Group’s teams to train better, pick better talent and of course, track and use game data. Private equity firms often chase lesser-known clubs that are capable of developing their own talent, grooming them into the main leagues and later selling them to other teams for a high transfer fee.

     Over the past half-decade or so, private equity funds have sat on copious amounts of dry powder with deployments being of a staggered and cautious nature, given that global valuations across sectors have remained stretched, fuelled by low interest rates. Some of that private equity fund pool has snaked its way into football and if the recent years are indeed a sign of things to come, the sport will see heightened interest from private equity in the years to come. Flipping a team in a few years to gain a multifold return isn’t likely and private equity will have to play the long game. Silver Lake, for instance, is looking to hold on to its City Football Group stake for a decade or so, even looking at a potential IPO to eventually cash out. And for now, we’ll choose to overlook the fact that the Abu Dhabi Investment Authority has invested in several of Silver Lake’s funds, indicating that the relationship goes both ways.

     While many may still say that football is a vanity investment solely driven by passion, recent times have shown a strong underlying financial logic to the beautiful game. They say that money can’t buy you happiness but then again, it can buy you a football team, top stars, a global fan base and the thrill of one day seeing your team lead the championship league table and all that does indeed come quite close. And evidently, private equity does seem to be getting a kick out of it.