Editor's note: Rhys is currently making research and
writing contributions under Dr Antoine Duval at the T.M.C. Asser Institute with
a focus on Transnational Sports Law. Additionally, Rhys is the ‘Head of
Advisory’ of Athlon CIF, a global fund and capital advisory firm specialising
in the investment in global sports organisations and sports assets.
Rhys has a Bachelor of Laws (LL.B) and
Bachelor of Philosophy (B.Phil.) from the University of Notre Dame, Sydney,
Australia. Rhys is an LL.M candidate at the University of Zurich, in
International Sports Law. Following a career as a professional athlete, Rhys
has spent much of his professional life as an international sports agent,
predominantly operating in football.
Rhys is also the host of the podcast
“Sportonomic”.
Introduction
In the following two-part blog series, I
will start by outlining a short typology of investors in football in recent
years, in order to show the emergence of different varieties of investors who
seek to use football as a means to a particular end. I will then in a second
blog, explore the regulatory landscape across different countries, with a
particular focus on the regulatory approach to multi-club ownership. Before
moving forward, I must offer a disclaimer of sorts. In addition to my research and writing
contributions with the Asser Institute, I am the ‘Head of Advisory’ for Athlon
CIF, a global fund and capital advisory firm specialising in the investment in
global sports organisations and sports assets. I appreciate and hence must flag
that I will possess a bias when it comes to investment in football.
It might also be noteworthy to point out
that this new wave of investment in sport, is not exclusive to football. I
have recently written elsewhere about CVC Capital Partners’ US$300 million
investment in Volleyball, and perhaps the message that lingers behind such
a deal. CVC has also shown an interest
in rugby and recently acquired
a 14.3 per cent stake in the ‘Six Nations Championship’, to the tune of £365
million. New Zealand’s 26 provincial
rugby unions recently voted unanimously in favour of a proposal to sell 12.5
per cent of NZ Rugby’s commercial rights to Silver Lake Partners for NZ$387.5
million. Consider also the apparent
partnership between star footballer’s investment group, Gerard Pique’s
Kosmos, and the International Tennis Federation. Kosmos is further backed by Hiroshi
Mikitani’s ecommerce institution, Rakuten, and all involved claim to desire an
overhaul of the Davis Cup that will apparently transform it into the ‘World Cup
of Tennis’. Grassroots projects, prizemoney for tennis players and extra
funding for member nations are other areas the partnership claims to be
concerned with. As is the case with all investment plays of this flavour, one
can be certain that a return on the capital injection is also of interest.
So, what are we to conclude from the trends
of investment in sport and more specifically for this blog series, in football?
A typology elucidates that a multiplicity of investors have in recent years
identified football as a means to achieve different ends. This blog considers
three particular objectives pursued; direct financial return, branding in the
case of company investment, or the branding and soft power strategies of
nations.
From Associations and Member
Owned Clubs, to Corporate Structures
It is important to point out that the
ability to use football as an investment tool is only possible due to the ways
in which football has transformed from associations to corporations over recent
decades. For the purpose of this short blog, I will give the simplistic and
short story, though I would urge those interested to go beyond this blog on the
history of football ownership models and trends.
Essentially what I hope to emphasise, is
the influx of private ownership and the advent of substantial television rights
deals cannot be divorced. At this pivotal turn for football ownership, private
ownership had been taking place in some forms, often a hybrid model with
members, and often the case was a private owner coming in and saving or at
least supporting a club financially.
Whereas at the start of the 1990s when broadcast deals made headlines,
private owners saw a commercial opportunity as football moved into a generation
where broadcasting rights were the main source of revenue for clubs. By the early 2010s in Europe, “approximately
three of four professional clubs were majority owned by private investors, and
one in six clubs were owned by foreign investors”.[1]
Football club owners hence quickly became more business orientated and more
market-driven due to the opportunities that broadcasters presented and the
benefits leagues and organisers were able to conjure up. “The
growing prize money of the UEFA Champions League, the escalating TV revenues
for premium competitions, and the internationalization of marketing measures
have strengthened the incentives”.[2]
Private owners saw member owned clubs as unable
to maximise commercial opportunities, and it is the same kind of sentiment that
is aimed towards the less commercially mature sports by Private Equity groups
and other institutional players today. That
being, yes, you may know your sport, but you do not know how to take it to the
heights it could achieve in the commercial sense.
Investing for Direct Return:
Private Equity
Private Equity firms are notorious for
being able to identify undervalued businesses that they can further improve the
value of by trimming unnecessary or wasteful expenses, as well as reconstruct
operations and other inefficiencies. The priority of course is to make money
and a return for investors.
A variety of Private Equity groups have
found football appealing in recent years as clubs look for non-traditional
means of funding and in some extreme instances, rescuing from bankruptcy. Larger
Private Equity groups have come to be known to accrue a portfolio of football
clubs and other sports asset investments in order to diversify their sports
investment wings, and to maximise returns for investors. For the boutique firms, the strategies might
be more considered and to the observer less audacious, identifying undervalued and
underperforming smaller clubs with a history at the top tiers of football or
the potential to get there. There may of course be other commercial motivations
for specific acquisitions, such as the location of clubs, though in a nutshell,
these Private Equity plays are a matter of identifying undervalued football
clubs with scope to grow in value, in turn providing an opportunity to make
investments and acquisitions at a low entry point and to deliver substantial
results for investors.
Whilst examples of Private Equity
investment into football are a plenty, conder the following few for the purpose
of this short blog. As
an example of a multi-club ownership portfolio, New City Capital, fronted by
Chinese American, Chien Lee, now boasts investment and ownership in
Barnsley F.C. (England), FC Thun (Switzerland), K.V. Oostende (Belgium), AS
Nancy (France), Esbjerg fB (Denmark), and is the former owner of OGC Nice
(France); selling the club at the time for a record price in the French
context. Lee and his multiple co-investors bring strategies and philosophies to
these clubs akin to the “Moneyball” strategies made famous by Billy Beane. With
a business background, the investors involved clearly fancy their abilities to
maximise value of the clubs, but Lee is additionally conscious of his ability
to grow the value of the clubs by the ways in which he has been able to tap
into Asia and create new fans and revenue streams based on these connections. “We
will try to ‘internationalize’ Barnsley, as we did with Nice. Before we
invested in Nice, not many people in Asia had heard of them. Now in Asia -- in
China -- people know the club.”
In terms of opportunistic timing
strategies, as well as funding arrangements in order to complete an
acquisition, one may consider another noteworthy example in the Private Equity
space, that of ALK
Capital’s takeover of Burnley. A leveraged buyout play, the sports
investment arm of ALK, Velocity Sports Partners, acquired majority and
controlling shareholding of 84% late 2020. For its part, Redbird Capital has
made a variety of investments into football, in a variety of ways. They
took a direct stake into Toulouse FC, but have also made an interesting investment
into the Fenway Sports Group that owns Liverpool FC. This ultimately
highlights an overarching view that football is a good bet for the firm, yet also
showing that investment into the world game may come in many shapes and sizes.
It is the case that with the aforementioned
examples, the investments have been a success insofar as the assets and
portfolios of these firms have experienced growth in value, for example New
City Capital sold OGC Nice for a handsome return. However, one must also point
at investment failures such as King
Street Capital with Girondins Bordeaux. Some of the identifiable
distinctions between those firms able to achieve their objectives or at least stay
the course, and the King Street Capital debacle, appears to be among other
things, a fractured relationship with local government and the distance between
the firms ambitions, control over that ambition and those running the club
(COVID-19 to an extent as well).
Investing for Nation Branding:
Qatar & UAE, Soft Power & Sports Diplomacy
Insofar as football remains the world game,
nations are acutely conscious of the consequent power in nation branding via football
investment. Nation branding according to Dinnie’s summary, consists of three
key objectives; to attract tourists, to stimulate inward investments and to
boost exports.[3] For
a nation like Qatar, it is additionally about security and standing on the international
scene. To attain such objectives though
of course requires certain image and branding achievements. In recent years, it
is notable that a variety of states have been using their financial power to
invest in football, not for the sake of profit, but in order to improve their image
internationally.
State branding via soft power strategies
like investment in football has come to be known widely as sports diplomacy. A
variety of nations have identified sports diplomacy as way in which to be
viewed favourably by other nations and to create positive imagery around an
investment that in turn reflects positively on the nations image. Soft
power and sports diplomacy has been endorsed by scholars as legitimate
strategies, given it is a non-military instrument to compete with much larger
and militarily capable states.[4]
This is of course key to a nation like Qatar, that desires to move away from
oil dependency and has to compete with much larger neighbouring nations. Branding
is to make a distinction between one brand and another. For Qatar, it is
perhaps it’s ultimate struggle to differentiate and distinguish itself from its
neighbouring countries.
One of Qatar’s headline soft power through
investment in football strategies is the acquisition of, and post-acquisition operation
of European giants, Paris Saint-Germain (PSG). It is almost impossible however
to disconnect Qatar’s
sports diplomacy strategies with PSG, from its strategies with BeIN Sports the
broadcaster, along with being awarded World Cup 2022.
The Qatari’s acquired PSG in a less than
ideal state but have since managed to turn the club into one of the richest and
most successful on the planet. PSG’s image remains a priority, because in turn
it is seen that Qatar’s image is the beneficiary. The importance of this for
Qatar might be best measured by the size of the spend on players since taking
over the club. Putting the likes of David Beckham and Zlatan Ibrahimovic aside
for the moment, PSG paid both the number one and number two world record
transfer fees for Brazilian superstar Neymar (a reported 220 million Euro) and
French wonderkid, Kylian Mbappe (a reported 180 million Euro). One media report
said “The colossal Neymar deal, funded by Qatar Sports Investments, shows how
far governments will go to secure global influence.” That article was headlined
- “A
£198m transfer is not about football. It’s about soft power”.
Now consider the United Arab Emirates (UAE)
and how it yields power through the following subsidiaries and stakes therein:
Manchester City F.C. (100%), Melbourne City FC (100%), Montevideo City Torque
(100%), Lommel S.K. (99%), New York City FC (80%), Mumbai City FC (65%), Girona
FC (44.3%), Sichuan Jiuniu F.C. (29.7%), Yokohama F. Marinos (20%), Troyes AC
(100%), City Football Academy, City Football Marketing, City Football Services,
City Football Japan, City Football Singapore, City Football China, City Football
India, CFG Stadium Group, Goals Soccer Centers.
Manchester City FC is certainly the golden
child of the group and much like PSG for Qatar, the successful imagery around Manchester
City cannot be disconnected from the desired branding in a global sense for the
UAE. The growing list of investments of CFG highlights that the UAE is intent
on soft power strategies and using sports diplomacy to brand itself widely as a
legitimate and well organised nation. Was it a coincidence that just as the
City Football Group was arranging its stake in the Chengdu based football club,
Sichuan Jiuniu, the UAE’s national airline Etihad announced it “would
be enhancing its links with Chengdu’s airport”? That is to say nothing of
the Chinese investment into CFG.
Questions remain about whether these soft
power strategies have been successful in light of for instance, the widely reported
atrocious treatment and deaths of migrant workers in Qatar, or the ongoing reports
of slavery in the case of the UAE. In an ugly sense, the success of the
soft power investments of these nations in football, is whether they are loud
enough to drown out the noise of the atrocities associated with their nations.
The paradox for Qatar, is that before using football as a diplomatic tool and
winning the right to host the World Cup, the exploitation of migrant workers
was not making headlines. Ironically, it is this active use of football as a
diplomatic instrument that has shone a light on the issue and effected Qatar’s
image substantially.
Black
and Peacock point out, when it comes to soft power sports diplomacy one
ought to be aware that the values publicly portrayed and associated with an
investment in football (i.e. success, courage, commerciality, aspiration) will
often not be the actual values of a state but rather merely the values with
which a state would preferred to be associated with to fulfil wider objectives.[5]
Investing for Company Branding:
Red Bull
The other type of investment aimed
primarily at improving the image of the investor (and not recouping a profit
directly from the club as an entity) is company branding. In a way, it is the
ultimate move of a sponsor, instead of paying an annual yearly contribution to
the club, the sponsor takes control of the management of the club in order to
maximise the image return for its brand. The paramount example of such a
strategy is embodied by Red Bull’s investment in football clubs around the
world. The regulatory complexities will be left for blog 2, but it is Red
Bull’s stake and influence in four clubs (Red Bull Salzburg, RB Leipzig, Red
Bull New York, Red Bull Brasil) that renders it the ultimate example of a
company that found investing in football as way to brand at scale. Despite the
success that Red Bull football clubs have experienced, sporting and commercial,
the purpose for Red Bull investing in football is of course to further promote
the brand and sell energy drinks.
Red Bull had
previously and in a revolutionary way, tapped into branding via sport and had
worked out a way to brand at large using the content production arm of the
company. Utilising extreme sports, Red Bull campaigns focussed on
associating itself with elite sport, perhaps thus conflating the alleged
performance enhancing capabilities of its beverages or at least that its
product was trendy and fashionable to drink in the context of sport.
When it came to football, Red Bull followed
an ownership strategy rather than a traditional sponsorship method, opening up
both the benefits
of the ownership over traditional sponsorship models, and, the size, scale and
reach of football as opposed to the more niche extreme sports.
Branding through football is seen as almost
more covert, as the consumer is less aware that when they watch a branded club
in a branded stadium, they are being advertised to;
“the consumer does not perceive that the content is branded. Sport
content is predestined for branded entertainment. Engaging sports fascinate and
attract people and have proven to be capable of transferring positive images…
many niche sports still lack the attention of sport consumers or sponsors and
are not covered extensively by the media. Branded entertainment, therefore, can
provide niche sport enterprises, athletes, and teams as well as sponsors with
consumer attention and prosumer engagement.”[6]
Conclusion & a note on Member Owned
Clubs
Per the title of this blog, the typology of
investors listed above is not exhaustive, though perhaps the most relevant as I
segue into the regulations around multi club ownership. However, a short note
on the membership model clubs is worthwhile. Member owned clubs still exist widely and some are in fact popping up
in protest over a perceived hyper commercialisation of football. SV
Austria Salzburg is a newer member owned club, established in response and in
protest to the Red Bull ownership of the former SV Austria Salzburg, that
Red Bull subsequently changed the name and colours of. Member owned clubs can be funded by paid memberships and more
traditional revenue streams like ticket sales and sponsorship. Control wise however, the members maintain
the controlling stake and more importantly perhaps, the controlling vote. The
hybrid model between private ownership and member ownership remains interesting,
given what can be maintained in terms of history and culture, and what can be
brought in in terms of commercial expertise and the reality that the need and
desire for profits can drive success of a football Club.
As is hopefully apparent from the above,
the types of investors and indeed the motivations come in all shapes and sizes.
It is also worth pointing out, when it comes to the Private Equity groups and
the nations and companies concerned with branding, the main reasons for
investment does not render it the exclusive reason. Qatar will take the
commercial benefits of PSG, BeIN sports and the World Cup. Part
owners of CFG, China Media Capital/CITIC Capital (12%) and Silver Lake (10%)
would not have invested with such alacrity based on the soft power strategies
and state branding aspirations of the UAE, and rather those groups are of
course more interested in the commercial benefits. Separate from selling more
energy drinks than ever, Red
Bull is undoubtedly pleased with taking RB Leipzig from the 5th tier
to the Bundesliga, and now valued at EUR560 million, Red Bull has an
extremely valuable asset. Likewise, the big funds and institutional players are
aware of the positive branding that sport affords them when their football investments
are successful.
In the next blog, I consider the current
regulatory landscape regarding investment in football with a particular focus
on regulations that address multi-club ownership.