Ian Mallon: Reality is Chelsea are leading sport's fastest growing strategic trend
Pic: Todd Match League A Davy/pa Trend Wire Setter: Boehly Premier Owner Chelsea At Before Stamford Adam Bridge
As the transfer window draws to a close, almost all attention is once again focused on Chelsea and its latest splurge on new players.
While the €261m spent this summer might seem top heavy, the club has generated €145m for transfers out, contributing to an overall balance of €-116m – with more trading expected before tomorrow’s 11pm deadline.
So far 23 players have come into the club, nine returning through end-of-loan deals, three players were promoted from the U21 squad, one free transfer arrived with 10 arriving for fees paid, at an average price of €26m.
The squad size – 39 at time of writing, with a market value of €1.09bn – has invited deep analysis in recent days, on how this large body of players have been split into two separate groups – the first team, and a large isolated asset surplus, the so-called 'bomb squad'.
In total Chelsea has spent €1.3bn on players since Clearlake’s purchase of the club in 2022, part of an additional €2 billion commitment following its €3bn acquisition from Roman Abramovich.
Player valuation index analyses that “just eight English clubs have spent more money in their entire history than Chelsea have spent in the last two years”.
This has led to some commentary in the UK media that Chelsea has no clear strategy and that Todd Boehly and Clearlake really don’t know what they’re doing.
The reality is that they are leading the way in the fastest growing strategic investment trend across the game.
A recent report from financial data and software firm has revealed that more than a third of clubs in the five leading European football markets are backed by private equity, venture capital or private debt firms.
Some 33 of the 96 clubs in the ‘Big Five’ leagues – or 32 of 78 excluding the Bundesliga - now have part or full private equity investment ownership.
Last year alone €4.9bn was poured into the English, Spanish, Italian, German and French top tiers, compared to just €66.7m in 2018.
In the Premier League, Liverpool, Manchester City, Manchester United, Newcastle United Bournemouth, Crystal Palace, Ipswich Town, Southampton, Wolves – and of course Chelsea – are fully or partially controlled by private equity wealth funds.
Across the Spanish, Italian and French leagues clubs including Barcelona, PSG, Juventus and AC Milan all enjoy private equity investment – the Bundesliga is an exception due to the fan-ownership model employed in Germany, excluding the Red Bull-owned RB Leipzig.
Private equity is where investors raise pools of capital through limited partners (LPs) to form a fund, which is then invested into companies which may be stagnant or even distressed, but where there is considerable growth potential.
Suddenly top-tier football investment has become a less volatile, safe long-term bet.
While the rate and growth of PE ownership is certainly driving an exceptional investment spike across the game, it’s nothing new with Manchester City and Paris St Germain the strongest examples of clubs operating long-term through wealth investment.
Covid focused even greater investment attention towards football and a highly distressed market – mainly through US and Middle Eastern funds – with forecasted exceptional returns of investment and increased values.
Take Newcastle United which was bought in 2021 by a consortium comprising Saudi sovereign wealth fund PIF, PCP Capital Partners and Swiss PE firm Reuben Brothers – it has doubled in value from its cost price of €355m (£300m) to €712m today.
SilverLake – one of the first major PE investors in football has seen its 18% stake in the City Football Group (owners of Manchester City) grow to approximately €1bn - of a total value of what is now a €4.5bn asset, controlled by Abu Dhabi’s Newton Investment and Development.
The club was initially bought for €230m in 2008, less than a quarter of the value of SilverLake’s less than one-fifth stake today.
Fenway Sports Group’s purchase of Liverpool, with RedBird Capital Partners and additional investment from Arctos Sports Partners, for €354m in 2010, sees the club now worth approximately €4.83bn ($5.4bn).
One of the more interesting models is at Barcelona, a club which is operating through a debt management agreement with Goldman Sachs, and through an equity investment structure around 10% of media rights with PE fund Sixth Street.
Covid’s decimation of Matchday revenue hit all clubs hard, pushing income through the floor and increasing vulnerability for even the strongest assets.
This led to a devaluation of assets, allowing PE funds which were once solely focused on basketball and baseball primarily in the US to look at European football.
Conor Smyth, CEO and Founder of Irish investment firm TritonLake explains that there are “a number of parts which are all key” to the evolution of PE investment in football.
“Firstly, from a valuation perspective it’s only going in one direction and that’s upwards,” explains Smyth, whose firm is title sponsor of the Men’s and Women’s Ireland Rugby Sevens teams.
“Then there’s the consumer side – those who watch the sport and the revenue which comes from broadcasting deals - which is also increasing as sports are brought to new markets and increase in popularity.
“And then there is the perception that investing in sports is uncorrelated, the club or organisation is generally going to continue in the same direction despite market conditions. – people will still go to games in a recession, for example.”
That captive audience is key, and works like a moat, says Smyth, protecting the brand against competitors, maintaining high levels of interest and allowing stability to create growth.
“All of this stuff ties in together and revenues will generally increase - while nothing is guaranteed to succeed - it is hinged on being able to create a product that has consumer appetite.” For Chelsea this will include getting back to the Champions League, achieving a long-term club and shirt sponsor, parting company with expensive luxuries – eg. Sterling and Napoli-bound Lukaku – and driving greater efficiencies within the business.
Todd Boehly has already done this with the LA Dodgers, a once-bankrupt baseball franchise which is now valued by Forbes Major League Baseball index at $5.45 billion – more than double its sale price of $2.15 billion in 2012.
This was achieved through significant broadcast rights deal with Time Warner, not something he can do with centralised broadcast agreements in the Premier League – as well as a deferred payment structure for marquee players – saving enormous sums on tax and interest.
“What effectively happens is that they come in and put their business expertise to that organisation or franchise and turn it around by getting it all running more efficiently – typically sports clubs are not managed effectively,” adds Smyth.
“And that doesn’t mean cutting costs, rather growth investment, and making sure their proven expertise in business builds and creates a solid and far more efficient model.”
These efficiencies were best measured by this week which reported that latest figures (2022/23 season) reveal that Premier League clubs generated £6.1bn in revenue, a record figure.
While Chelsea lost £90m during the same period – marginally better than Villa (£120m) and Spurs (£95m) – it is these surging £6bn revenues which will alert even more PE investors to top-tier football – now an increasingly prudent bet.
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GOAL announces Leinster and Ireland star as ‘crucial new ambassador’ Hooker Dan Sheehan has been announced as ambassador for the Irish humanitarian charity GOAL.
The role will support the organisation’s work in 14 countries across Africa, the Middle East, Latin America, as well as through its aid programme in Ukraine.
Speaking of his new position, Sheehan said he was honoured to take up such a role and will “proudly represent GOAL and do what I can to support and advocate for the charity and their work across the world for the most vulnerable communities”.
He joins a panel of other high-profile GOAL sports ambassadors, including Padraig Harrington, Jamie Heaslip, Rob Kearney, Eamon Coughlan and Roisin Upton.
Jane Curtin GOAL’s head of communications said the charity “looks forward to him championing GOAL’s cause and work over the next three years”.