With Manchester United, Liverpool and possibly Tottenham Hotspur currently seeking further investment or potentially new owners, it feels like an appropriate time to look at the impact that Private Equity investment has had on football over the past couple of years and the role it will continue to play in 2023 and the years ahead.
Private Equity investment into football started long before COVID but as the main European clubs struggled to deal with the consequences of the pandemic, the need to receive post-COVID capital injection rapidly increased. In return, Private Equity firms have been attracted to the steady cashflows from media rights and the opportunity to align the traditional fractious clubs with the leagues, bringing about a more robust approach across rights deals and investment into commercial potential.
When looking at Private Equity investment into football, it is perhaps easier to split this into (1) league investment and (2) club investment.
(1) As the European leagues struggle to keep pace with the financial juggernaut that is the Premier League, Private Equity firms have spotted an opportunity to capitalise. Whilst the Premier League revenues are projected at over £7.11bn for 2023, La Liga (£3.7bn), Bundesliga (£3.6bn) and Serie A (£2.4bn) (Enders Analysis, December 2022) are left trailing in their wake. The biggest concern for the European Leagues and in turn clubs, is that the projected gap is getting bigger rather than smaller.
In 2022, CVC made significant investments into Spain’s La Liga and France Ligue 1. By selling equity to financial investors, the leagues have attempted to modernise their archaic and fractious politicised bodies whilst also moving towards a profit-driven corporate profile that is vital to their long-term success. These deals have also been an attempt to rise to the challenge that the Premier League growth has presented. The EPL has continued to attract fans from abroad to the detriment of continental leagues whilst also investing vast amounts of money into the best players, coaches and support staff.
CVC have chosen to invest in leagues rather than clubs, (we will come onto shortly) a strategy that they have successfully implemented across Formula One and Rugby. To the naked eye these deals represent cash injections against a share of future media rights. However, the agreements are far more extensive than that, including budget and cost control and extensive business restructuring. The leagues gain extra cash and access to expertise at a cost of losing some of their autonomy and decision making.
The reported private equity investments that Serie A and Bundesliga are considering would be on a much larger scale than the deals concluded with La Liga and Ligue 1. Serie A have been in talks with various Private Equity firms since 2020, after a deal with CVC collapsed due to opposition from key clubs, noticeably the ones who have been supporting the failed super league launch.
At this moment in time there is much debate about whether the league will finalise a deal with a Private Equity investor or create a commercial subsidiary either with Private Equity investment or without. One of the biggest challenges for Serie A is the perceived weakness of central decision-making, with club presidents unable to agree on a consensus of how to move forward. In theory this makes the league one with the most to gain from the structure and expertise of an outside partner, but also the league most unlikely to reach a decision about how to reform.
The Bundesliga has also been discussing Private Equity investment since early 2020, including reported interest from CVC, Blackstone, Advent & EQT to name just a few. Although the Bundesliga is a unique case with rules enforcing that clubs are majority-owned by the fans, it doesn’t appear that this would prevent the creation of a subsidiary commercial operation that would be controlled by the league.
(2) Private Equity firms are also investing heavily into acquiring majority or minority stakes in clubs across Europe. Buying clubs can be viewed as more straightforward than investing in leagues, and Private Equity firms are well positioned to extract more value from clubs thanks to the synergies that stem from a multi-club model of ownership (e.g. media, data and sponsorship).
However, there are connections between the investment strategies as improved central league management under Private Equity investment can create an incentive to invest in clubs which are in turn more supportive of reform. However, investments into clubs come in many shapes and sizes with vastly different outcomes.
The most straight-forward acquisition is a full takeover of a club where the new owners will focus entirely on the club they have purchased and have no other perceived conflicts of interests with other investment stakes in further football properties. For some time, we have seen a move towards a multi-sport ownership model as I have mentioned above with CVC’s investment across multiple sport.
However, in more recent times we have started to see an increased focus on the multi-club ownership model from Private Equity firms. This is not a new strategy. When Sheik Mansour purchased Manchester City in 2008, the owners embarked on a revolutionary (at the time) strategy of purchasing clubs across the continent. As it stands, CFG own majority shares in 10 football clubs around the world and have a minority holding in 2 further clubs.
The implications of this model are probably best served for another article, but CFG show no signs of slowing down with further takeovers rumoured. Private Equity firm Silver Lake Capital recently increased their stake in CFG to 18% (Sports Pro Media) allowing the group to continue their investment plans with fresh capital. The strategy by Silver Lake Capital in this instance seems to be more financially driven. They are clearly not in the box seat when it comes to decision making and part of a broader relationship with Abu Dhabi. They have further investments with an Abu Dhabi computing venture and Mubadala the Emirati sovereign wealth fund have made significant investments in Silver Lake.
A prime example of Private Equity firms following the CFG strategy is Miami based 777 Partners. Over the past two years they have taken majority stakes in Genoa (Serie B), Paris Red Star (3rd tier of the French Leagues), Standard Liege (Belgium Pro League), Hertha Berlin (Bundesliga 2nd tier), Melbourne Victory (Australian A League) and Vasco de Gamma (Brazileirao Serie A). They also have a 13% stake in La Liga’s Sevilla.
Further examples of multi-club ownership include RedBird Capital partners who recently acquired AC Milan to compliment the ownership stake they have in French Ligue 1 side Toulouse FC. As 2023 moves forward, we will no doubt see further examples of Private Equity firms increasing the roster of clubs that they own. On the face of it, this can only be a good thing for the fans of the clubs who are likely to receive a significant cash injection, but that could depend on whether you are the biggest club in the multi-club arrangement.
UEFA regulations forbid two clubs from competing in the same European competition if they are majority owned by the same shareholders. Therefore, if you are a supporter of Toulouse FC, it is unlikely the owners will be pushing for the club to qualify for the Champions League, a competition that their new club AC Milan compete in on a regular basis. Toulouse could still see several benefits from the multi-club model, including potential loan deals where players on the fringes of the AC Milan team might join the Ligue 1 club in a bid for more playing time. They might also benefit from the commercial advice and infrastructure that a club like Milan can provide them. However, it could be argued that there will always be a limit to Toulouse FC ceiling with Milan becoming the key focus for RedBird on and off the pitch.
The increased investment from Private Equity firms into the European Football eco-system has been significant over the past couple of years, both in terms of individual club ownership, and the multi-club approach we are seeing more frequently, it will be fascinating to see how this develops further as 2023 progresses. Will Serie A and the Bundesliga follow Ligue 1 and La Liga by taking PE investment? It certainly seems a strong possibility. Will another PE firm capture a major European giant such as Manchester United or Liverpool? You certainly wouldn’t bet against it. Could we finally see some of the global tech platforms enter the bidding wars to secure league and club investments, to this point they have remained more pragmatic but how long will that last.
Time will tell if some of the above investments prove to be successful on and off the pitch. What isn’t in doubt is the increased role that Private Equity firms will continue to play in European Football over the months and years ahead!