How private equity came to dominate the sports world
Longtime Chelsea FC supporters are more than familiar with the vicissitudes of billionaire ownership.
Roman Abramovich, the Russian energy mogul and former friend of Vladimir Putin, has been in the driver’s seat for nearly two decades in which managers and coaches have been changed with much abandon and silverware, including the League of champions in 2021, has accumulated.
For clubs owned by Middle Eastern potentates and overseas billionaires with nearly unlimited resources, the current ownership structure works very well.
Precious: The All Blacks perform their sacred Haka dance. There is an awareness that televised sports rights are an extremely valuable source of income, with annuity qualities.
The less well-funded Premier League and European clubs have simply become props to their greatness or their more important political goals.
In many ways, the recent much-publicized £ 310million purchase of Newcastle United by the Saudi Arabia Public Investment Fund is a back-to-the-future deal, coming years after other big clubs fell. such as Manchester City and Paris St Germain in France. in the hands of the autocrats of the Gulf region.
There is an awareness that television sports rights are an extremely valuable source of income, with annuity-like qualities due to their recurring nature.
As global viewing shifts more and more from terrestrial and satellite broadcasting to streaming services, with newcomers such as Amazon Prime and Netflix infiltrating the playing field, private equity and big finance see sport as an underdeveloped asset.
It is no coincidence that Wall Street’s biggest bank, JP Morgan, was the £ 3 billion investor behind the currently suspended (but not dead) European Super League.
Michael Kenworthy, head of sports investment banking at Goldman Sachs, says sports assets don’t necessarily behave the same as the market at large.
Football teams were, he points out, “sold at record values during the 2008 financial crisis and Covid-19”.
The recognition of this by private equity, tech barons and hedge fund buccaneers is slowly but surely changing the sport.
Few elite sports remain intact, ranging from the plutocrats of F1 car racing to this former bastion of amateurism, Six Nations rugby, baseball in the United States and even Premier League football.
Talent: British teen tennis sensation Emma Raducanu
It is suspected that fans on Anfield terraces, hailing the exploits of the genius of goal scorers Mo Salah, believe Liverpool FC safely belong to Boston sports fan John Henry.
What may have escaped notice is that in March 2021, New York-based private equity firm Redbird Capital Partners acquired a 10% stake in the company that controls Liverpool and the baseball team. of the Boston Red Sox.
The equity formation is part of the new sports franchise ownership agreement that allows traditional owners to cash in or shift the burden of long-standing debt, in return for access to private equity to income streams. .
Among the pioneers and market leaders in the private equity assault on sports is £ 125 billion from CVC Capital Partners, part of the consortium that bought the Debenhams department store group in 2003, setting the stage for the ground for its eventual demise as a force on the main streets of Britain, and its closure this year.
The most notable financial foray for the London-based CVC sports franchise was the purchase of F1 from Bernie Ecclestone for £ 1.4 billion in 2006.
Unusually for private equity, which so often seeks the quick turnaround, he retained F1 until 2017, extracting around £ 3.5bn, some of which could have been invested in the sport. In 2016, CVC was parachuted as chairman Chase Carey, Rupert Murdoch’s former right-hand man at 21st Century Fox.
His television background was instrumental in selling the company to ‘cable cowboy’ John Malone’s Liberty Media for a staggering £ 6 billion. A great British sporting creation found itself in foreign hands.
More seriously, auto racing analysts have lamented HVAC’s lack of spending on promotion and investment to attract a younger audience, and the inability to engage on social media.
In 2016, drivers openly criticized CVC, arguing that decision-making was “outdated and poorly structured”. It was left to Liberty to piece together Humpty Dumpty.
In its determination to inject some drama into F1, Mercedes, among others, alleged that the rules had been extended so that Dutch driver Max Verstappen could snatch the F1 World Championship away from title rival Lewis Hamilton. in the last round of the season. in Abu Dhabi.
The goal for the owners was to close the curtain on a procession of victories for the British driver, demonstrating that it is still a competitive sport.
F1’s botched history has not kept sports franchises away from private equity, and CVC in particular.
The most notable financial foray for the London-based CVC sports franchise was the purchase of F1 from Bernie Ecclestone (pictured) for £ 1.4bn in 2006
Of particular relevance to fans of Six Nations Rugby is that CVC bought a stake in the tournament for £ 365million. The deal came as the UK emerged from lockdown in March 2021 and income was scarce.
Six Nations Rugby said the transaction would be a key step in investing and growing the game on the world stage. But after allowing a skilled predator to enter England’s Union citadels at Twickenham, fans should be worried about what will happen next.
When it comes to acquiring sports assets, CVC shows an eye for buying franchises that are going through tough times.
His latest blow came this month when Spain’s La Liga football clubs approved a £ 1.7 billion deal with him.
CVC will release £ 339million to the cash-strapped top Spanish league almost immediately despite vigorous opposition from the Champions League series winners Real Madrid and Barcelona.
Despite their own financial difficulties, Spain’s two big clubs admit that allowing the fox to enter the La Liga chicken coop is a bad idea.
Both still believe the financial path ahead for them must be some form of European Super League, despite the proposal backed by JP Morgan collapsing amid hostility from supporters of Chelsea, Manchester United and other English clubs. .
As part of the deal, La Liga pledged to cede 8.2% of the Spanish League to their CVC masters for the next five decades.
Given that a private equity’s average lifespan is in single-digit years rather than decades, it appears to have gotten caught in a lock that will be difficult to escape.
Barcelona and Real Madrid’s efforts to derail the deal mean they will have no CVC funding. However, they retain the ability to do their own business, away from vulture capitalism.
But it is not only in Europe that the barons of private equity are essential. In the southern hemisphere, Silver Lake Capital has managed to acquire a stake in the world’s most valuable rugby union franchise by agreeing to take a 12.5% stake in the All Blacks for £ 205million.
The New Zealand Rugby Players’ Association is concerned that new investors are looking to commercialize the sacred Haka tribal dance performed before every match.
In the United States, private equity and other financial players are increasingly involved in Major League Baseball, Major League Soccer, and the National Basketball Association (NBA) after rules prohibiting investors from holding stakes in more than one club have been ruled out.
The values of franchises are skyrocketing. The family that controlled Utah Jazz in the NBA recently sold Qualtrics tech entrepreneur Ryan Smith for £ 1.2bn, more than 66 times its valuation in the 1980s when it was bought for just £ 18m. of pounds sterling.
The latest CVC target is tennis. He used the success of British teenager Emma Raducanu at the US Open to propose sweeping changes by unifying the tour schedules for men and women. He offers to inject £ 451million into the professional tour.
Smart private equity and tech capital are pouring into sports like there is no tomorrow.
Before signing on the dotted line, sellers would be advised to look at the balance sheet of an industry that operates behind closed doors, uses debt to boost profits, and is largely interested in investor returns.
In this world, supporters, players and sporting interest at large risk being on the losing side.
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