Author: Jonas Grimm, Graphics: Walton Bullard
The BRB Bottomline: Purchase prices in the billions and an increasing number of interested buyers represent the market for top European soccer clubs. At the same time, the share of ownership by private equity is increasing in this sector. This article addresses the question why investing in soccer clubs is becoming an increasingly interesting investment class.
For many people, soccer is not just a sport. It constitutes a religion, a family, and a unique community. For these fans, soccer also represents an important point of stability in a constantly changing world — despite increasing commercialization in the last two decades, fan support has always been consistent. However, changing ownership structures are exerting an increasingly stronger influence on the day-to-day business of professional clubs.
Multinational Interest
“Apple wants to acquire Manchester United” — with blaring headlines like this, the rumor that the U.S. technology giant was interested in one of the most successful and well-known soccer clubs of the last decades was spread all over the Internet. Even though this story was ultimately just a rumor, it still showed that large, multinational companies were becoming more and more interested in investing their money in soccer clubs and thus generating added value for the company.
The market for soccer clubs is currently booming, especially among private equity companies. While the takeover of Chelsea Football Club by the Russian oligarch Roman Abramovich in 2003 marked the start of the acquisition of soccer clubs by foreign companies, private equity takeover has since become the norm. Though local companies and businessmen were the primary owners before the 2000s, after the turn of the century, many clubs were acquired by foreign buyers as a leisure activity, representational object, marketing machine, or a long-term investment. However, their goals were rarely to generate a profit in the shortest possible time.
Profits in the Billions
The acquisition of Liverpool FC in 2010 by the sports marketing company Fenway Sports Group (FSG) for a purchase price of £300m marked the beginning of a new phase in the history of club ownership. The know-how already accrued through FSG’s ownership of the MLB club Boston Red Sox was used to give the Liverpool Football Club brand a new shine. After a few seasons of disappointment around the team’s poor performance, esteemed German coach Jürgen Klopp was signed, marking the start of a complete overhaul of Liverpool on the sporting side. Following major successes such as the victory in the Champions League in 2019 and their first win of the Premier League championship in 2020 after more than 30 years, the club value skyrocketed. In the 2021 Forbes ranking of the world’s most valuable soccer teams, Liverpool secured fourth place with a valuation of $4.45 billion, only behind the two Spanish superpowers Real Madrid and FC Barcelona, and their English rivals Manchester United.
In the fall of 2022, FSG announced that it was considering selling the club without a specified timeframe — Liverpool was looking for a new owner with an expected sale price of around $5 billion. There are already a number of interested parties, and a purchase offer of over $3.4 billion has already been received from the Middle East and rejected in 2021. Even without a deal set in stone yet, FSG’s successful investment shows the acquisition of soccer clubs to be a lucrative business.
The Entrance of Private Equity
The takeover of Chelsea FC in the summer of 2022 shows that purchase prices in the billions are not uncommon. Due to the war of aggression on Ukraine, the Russian oligarch Abramovich was sanctioned and had to sell Chelsea. Clearlake Capital Group, a private equity firm, was a part of the consortium of the takeover for £2.5 billion. The pressured situation and the expiring special license for Chelsea FC resulted in a good deal for the new owners, as according to the 2021 Forbes ranking the club was already worth $3.1 billion.
English top clubs are not the only focus of PE companies, as the Italian giant AC Milan was sold for 1.2€ billion to RedBird Capital Partners in 2022. This sale was particularly notable as it occurred between two PE companies, RedBird Capital Partners and Elliott Management. RedBird Capital Partners had previously demonstrated their interest in the sports industry through their prior investment in FSG, obtaining an 11% stake in 2021.
With PE firms as owners, fans may have valid reasons to be concerned over the balance their clubs will strike between business and sporting success. Chelsea had previously acquired Christian Pulisic, the star of the U.S. national team, with high hopes. However, after a bright start, Pulisic suffered injury after injury, and fans were ready to sell him to another team and replace him with another player. However, the club did not want to sell Pulisic despite his limited impact on the team’s performance because of his enormous importance for marketing activities in the United States. Pulisic was eventually sold this past summer. Interestingly, the team that pursued him was AC Milan, the team now owned by RedBird Capital.
Supporters as Stakeholders
The significant increase in soccer revenues over the past decade and the large, still untapped markets in North America and Asia/Pacific make these investments attractive opportunities. However, the owners must not overtighten the levers and subordinate everything to profit maximization. Supporters of the team must be recognized as a stakeholder group whose power and influence should not be underestimated. In October 2021, for example, “The Super League” was launched, a project in which twelve clubs were originally involved. With the participation of clubs from England (Arsenal FC, Chelsea FC, Liverpool FC, Manchester City, Manchester United, Tottenham Hotspur), Italy (AC Milan, Inter Milan, Juventus Turin), and Spain (FC Barcelona, Atlético Madrid, Real Madrid), a league was to be formed with 20 teams, which would have played against each other during the week. The clubs’ motives were presumed to be financial, as they considered the previous marketing of the UEFA Champions League to be inadequate. As a result, fans, especially of the English clubs, criticized this decision, burned merchandise of the clubs, and expressed their opposition with protests. In response, not only did officials such as the then executive vice-chairman of Manchester United Edward Woodward resign, but most clubs withdrew from the project.
Future Outlook
The sharp rise in revenues, partly due to TV money, makes European soccer clubs an attractive alternative investment. The strength of these investments is underpinned by the fact that most clubs have a strong following and a mature brand with global recognition. Moreover, clubs from the major American sports leagues (NFL, NBA, MLB and NHL) are overvalued relative to their counterparts in Europe. Therefore, it is more enticing for institutional investors to invest in European soccer teams, which have better value and growth potential.
Despite the fact that prices of these teams will not appreciate forever, and within a few years their revenue will settle and stabilize, the opportunities for growth are too appealing to be overlooked. The 2026 World Cup, set to be hosted in Canada, Mexico, and the United States, presents enormous expansion potential for the North American soccer market.
Take-Home Points
- Since the early 2000s, soccer clubs have been bought by foreign companies and foreign individuals.
- A well-known brand can lead to a very high return on investment in connection with sporting success, as can be seen with Liverpool and FSG.
- Soccer clubs from all over Europe are especially appealing to investors.
- Changes in ownership can also influence the planning and decisions of players.
- When optimizing profits, the influence and opinion of fans should not be underestimated. It is important to consider the supporters as a critical stakeholder group.