Chelsea FC supporters who have been around for a long time are well-versed in the realities of billionaire ownership.
Roman Abramovich is a Russian energy magnate and ex-friend of Vladimir Putin. He has been the head coach for nearly two decades. During that time, managers and coaches were changed frequently and the silverware has increased, including the Champions League 2021.
The current ownership structure is very suitable for clubs that are owned by Middle-East potentates or billionaires from overseas.
Value: All Blacks’ sacred Haka dance. Television sports rights have annuity-like characteristics and are highly valuable.
The European and Premier Leagues with lower financial resources have become political props or used as a means to increase their power.
In many ways, the recent much heralded £310million purchase of Newcastle United by the Saudi Arabia Public Investment Fund, is a back-to-the-future deal, coming years after other major clubs such as Manchester City and Paris St Germain in France fell into the hands of Gulf region autocrats.
Television sports rights have a tremendously high value and annuity-like quality due to their recurring nature.
Global viewing is shifting from satellite and terrestrial broadcasting towards streaming. With relative newcomers Amazon Prime, Netflix, and Amazon Prime, a lot of big finance see sport as an undeveloped resource.
It was no accident that Wall Street’s biggest bank, JP Morgan, was the £3billion investor behind the currently shelved (but not dead) European Super League.
Michael Kenworthy from Goldman Sachs is head of the sports investment banking department. Kenworthy says assets in sports do not always behave in the same manner as the rest.
Football teams were, he points out, ‘selling for record values through the 2008 financial crisis and Covid-19’.
This is gradually but surely being recognized by tech barons, private equity and hedge fund buccaneers.
Many elite sports are still in existence, from F1 motor racing’s plutocrats to Six Nations rugby, the former bastion for amateurism, baseball in America, and Premier League football.
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It is possible that Anfield’s fans, who cheer the goalscoring exploits by Mo Salah, believe that Liverpool FC is owned by John Henry, a Boston sports fan.
It will be hard to believe that Redbird Capital Partners, a New York-based private equity firm, acquired a 10% stake in Redbird Capital Partners in March 2021. This is the same company that owns Liverpool and Boston Red Sox.
The new agreement in sports franchise ownership allows traditional owners to sell out or transfer long-standing debts in return for access to private equity and income streams.
Among the pioneers and market leaders in the private equity assault on sports is £125billion CVC Capital Partners, part of the consortium which bought department stores group Debenhams in 2003, setting the scene for its eventual demise as a force on Britain’s high streets, and its closure this year.
The most noteworthy financial foray for CVC’s sports franchise, based in London, was the purchase of F1 from Bernie Ecclestone for £1.4billion in 2006.
Unusually for private equity, which so often seeks the quick flip, it held on to F1 until 2017, extracting an estimated £3.5billion, some of which could arguably have gone into investment in the sport. In 2016, CVC parachuted in as chairman Chase Carey, formerly Rupert Murdoch’s right-hand man at 21st Century Fox.
His background in TV was instrumental when it came to selling the enterprise to ‘cable cowboy’ John Malone’s Liberty Media for an astonishing £6billion. This was a great British creation.
Even more serious, analysts in motor racing lamented the CVC’s lack of investment and promotion to attract a younger audience and their failures on social media.
In 2016, the drivers were openly critical of CVC, arguing that decision-making was ‘obsolete and ill-structured’. Liberty has the task of putting Humpty Dumpty together.
Mercedes and others have made claims that F1’s rules were being manipulated in an attempt to create drama. For example, Max Verstappen of Holland was able, on the final lap, to win the F1 World Championship from Lewis Hamilton.
Owners hoped to end the British driver’s win streak and show that it is still competitive.
Private equity hasn’t discouraged sports franchises, especially CVC, from investing in them despite their poor F1 history.
The most noteworthy financial foray for CVC’s sports franchise, based in London, was the purchase of F1 from Bernie Ecclestone (pictured) for £1.4bn in 2006
Of particular relevance to followers of Six Nations Rugby is that CVC has bought a stake in the tournament for £365million. As the UK was releasing from lockdown, March 2021, and revenue were limited, this deal was made.
Six Nations Rugby stated that the deal would make Six Nations Rugby a major step towards investing in the game and expanding its reach on the international stage. However, Twickenham’s English union has been compromised by a predator who is skilled in breaking into its citadels. Fans need to be worried about the future.
CVC shows a willingness to buy into struggling franchises when they acquire sports assets.
Its most recent swoop came this month when the Spanish football clubs of La Liga approved a £1.7billion deal with it.
CVC will release £339million to the cash-strapped top Spanish league almost immediately in spite of forceful opposition from serial Champions League winners Real Madrid and Barcelona.
The two top Spanish clubs, despite their financial problems, recognize that it is not a good idea to allow the fox in the La Liga chicken farm.
Both believe the only way to finance their future is through a European Super League. This is despite the fact that JP Morgan’s proposal was rejected due to fan hostility towards Chelsea, Manchester United, and other English clubs.
La Liga committed to handing 8.2 Percent of the Spanish League over to its CVC masters during the five-decade period.
The average private equity owner lives for a few years, rather than for decades. This suggests that it is stuck in an arm-lock which will make it difficult to get out.
Real Madrid and Barcelona have tried to destroy the transaction, so they are unlikely to get any CVC funding. They still have the option to make their own deals and avoid the trap of vulture capitalism.
The private equity barons of Europe are not limited to Europe. In the southern hemisphere, Silver Lake Capital managed to buy itself a stake in the most valuable rugby union franchise in the world when it agreed to take a 12.5 per cent share in the All Blacks for £205million.
The New Zealand Rugby Players’ Association is concerned the new investors might seek to market the sacred Haka tribal dance performed before each match.
After the repeal of rules that prohibited investors from holding stakes in multiple clubs, there has been an increase in private equity involvement in the US.
It is becoming increasingly difficult to sell franchises. The family which controlled Utah Jazz in the NBA recently sold out to Qualtrics tech entrepreneur Ryan Smith for £1.2billion, more than 66 times its valuation in the 1980s when it was bought for just £18million.
CVC’s latest goal is tennis. It has seized upon the US Open success of British teenager Emma Raducanu to propose sweeping changes by unifying the men’s and women’s tour calendars. It proposes injecting £451million into the professional tour.
As if there were no tomorrow, smart private equity and tech capital are pouring into the sport industry.
Before selling, sellers should look into the history of the industry before signing on the dotted. This includes the use of debt to increase profits, and the interest in investors returns.
The losing side in this world is the supporters, the players and the wider sporting interest.