Private equity/football: trophy assets sit uneasily with financial investments

Billionaires and sports moguls are tackling more financially-driven investors in the bidding battle for Chelsea FC that closes on Friday.

One of the big six English Premier League clubs, Chelsea was put on the block by Roman Abramovich just weeks before the Russian oligarch was placed under sanctions by the UK. As one of sport’s biggest and most popular leagues, the EPL will earn broadcast rights of more than £10bn for the 2022-2025 cycle.

Football teams’ propensity for losing money and a glaring lack of predictability — league relegation means forfeiting these big broadcasting revenues — have rendered them trophy assets. Clubs should fit better with deep-pocketed tycoons than investment funds, such as Oaktree Capital. While exceptions exist — think Manchester United’s model — concepts such as financial discipline and dividends sit uneasily with a sport that spends 60-70 per cent of revenues on wages.

Covid changed that calculus. Postponed live matches and the subsequent nixing of broadcast rights left a lot of red ink on the pitches. The EPL clubs ended the 2019/2020 financial year with nearly £4bn of cumulative debt, Deloitte calculates. Private equity groups, rich with cash, moved from spectators to players, so to speak.

These groups cut their teeth on league investment, offering some of the thrills with perhaps fewer spills. Spain’s La Liga concluded a €2bn financial deal with CVC. PE bidders lead the field for France’s Ligue 1. Beyond association football, last month Silver Lake invested NZ$200mn ($134mn) in the organisation behind New Zealand’s All Blacks rugby team.

Methods new and old are in evidence. Debt financing is one. The All Blacks investment uses a perpetual security, convertible into equity after three years. A roll-up model is given a sporty airing by 777 Partners, a Miami-based investment firm busily acquiring soccer clubs, leagues and other sports teams.

That is a bold move. Squeezing cost savings from food delivery couriers or heavy industry look hard enough. That could explain the use of debt and hybrid securities. Outright club ownership is best left to the sports moguls.