How football clubs can cash in on the game’s changing investment landscape | Anthony S Casey Singapore

  • Nature of investment in football is evolving as it attracts more private equity
  • Clubs can leverage new investment, both on and off the pitch
  • Risks and rewards vary across different leagues

According to KPMG’s ‘The European Elite 2019’ report, published in May, the combined enterprise value of the 32 most prominent European football clubs increased nine per cent in 2018, and has grown 35 per cent over the past three years.

This growth rate contrasts with the fortunes of European stocks in the same period – notably the STOXX Europe 50 Index, whose value fell 13 per cent in 2018, the report notes. It says this demonstrates “the different pace at which the football industry is evolving.

Charles Baker, co-chair of New York-based O’Melveny’s sports industry group, which advises on a broad array of transactions, including M&A, tells SportBusiness that “an investment into a football club currently offers investors the potential for significant return on their initial investment, as the CAGR for sports team ownership is better than almost every other asset class over the last five, 10 and 20 years”.

He adds: “Given the current levels of growth in the sports market, an investment in a football club may be a smart portfolio choice. A lot of investors see this asset class as the new frontier for sports investment, especially when compared to the NFL and MLB, which are seen as more mature properties.”

Baker also notes that due to financial fair play regulations and other factors such as stable sponsorship revenues driven by global appeal, the profitability of European clubs is growing.

Stephen Duval, co-founder of London-based 23 Capital, which provides finance to the sports and entertainment sectors, tells SportBusiness that a new wave of investors has entered football and is changing the landscape.

“Football clubs are definitely being seen far less as trophy assets for rich people,” he says.

“They are now run like proper businesses. Even Manchester City – you may say Abu Dhabi are throwing money at it, but they’ve turned it into a business.”

His co-founder at 23 Capital, Jason Traub adds: “We are seeing more institutional financial interest in football now.”

Examples of US private equity investors buying into European clubs include Jason Levien and Steve Kaplan (Swansea City), John Henry (Liverpool), Harris Blitzer Sports & Entertainment (Crystal Palace), The Tornante Company (Portsmouth), Joe DaGrosa (Bordeaux), and James Pallotta (AS Roma).

John W. Henry the owner of Liverpool FC during the Premier League match between Liverpool FC and Huddersfield Town at Anfield on April 26, 2019 in Liverpool, United Kingdom. (Robbie Jay Barratt – AMA/Getty Images)

Challenges for clubs

Baker says that the influx of private equity “cannot be understated because it significantly increases competition for clubs, driving up prices”.

He adds: “I think we will also see more clubs changing hands, due to the focus on short-term returns and exits, which could create instability at certain clubs. These short-term turnarounds could lead clubs to take actions that are riskier from a regulation or operational perspective, and that a long-term investor would not otherwise take.”

However, he adds: “Private equity firms can be savvy financial investors focused on buying underappreciated assets and making certain operational and financial changes to unlock value.”

Duval notes that “there are a lot of principles to private equity, so the rules about getting out in a managed timeframe are less relevant”. Such principles include alignment of interest, governance and transparency. “Particularly in the Premier League a lot of these principles of private equity are getting involved.”

Comparing the influx of private equity to previous waves of owners, Traub adds: “I think the financial community coming in is potentially a healthier one. Most private equity investors come with a challenging mindset, a smart mindset.

“A lot of them will have a financial driver but what is clear from the Premier League, for example, is that an individual investor will learn quickly how to balance financial performance with stakeholder interest – and by that I mean the fans and the local community.”

Attracting PE investment

Baker stresses that a club “must be appropriately priced to provide an acceptable risk/return from a capital cost perspective. Without that, all of the operational changes will not provide much upside”.

He explains that investors are more wary of buying stakes in European clubs, especially in the Premier League, because of the risk of relegation and its effect on club value.

“There is definitely an increased sense of caution when buying a Premier League club,” he says.

To overcome some of that risk his group recommends structured deals with a contingency, with a certain portion of the purchase price – typically 20-to-30 per cent – held back and provided only if the club meets certain “relegation/promotion metrics”.

Last year’s sale of Aston Villa was an example of such a deal. The NSWE group purchased a controlling 55-per-cent stake in the club, which won promotion back to the Premier League in May, triggering the remainder of the purchase price to be paid. “This type of structure in a deal is becoming increasingly common,” says Baker.

Challenges for investors

At the FT Business of Football Summit, held in London on May 31, Goldman Sachs managing director Gregory Carey said it is still extremely challenging for investors in English clubs outside of the elite to grow the value of their investments.

“There is a lot of competition for very few spots,” he said. “Some teams that you think should be playing in the Premier League have been relegated, so it’s very tough. People think they understand the space, but they are realising how hard it is.”

Carey pointed to the example of Swansea City, who were relegated from the Premier League in 2017-18 after seven consecutive seasons in the top flight. A consortium of American businessmen had acquired a controlling 68-per-cent stake in the club in July 2016.

Swansea owners Steve Kaplan ( left) and Jason Levien (r) look on before the Premier League match between Swansea City and West Bromwich Albion at Liberty Stadium on May 21, 2017 in Swansea, Wales (Stu Forster/Getty Images)

“It’s a lot easier to buy a mid-level club in Italy than an English Championship club because you have a much better chance of staying up,” Carey said.

However, Traub observes that other challenges exist in Italy and elsewhere in Europe, and points to the chronic delays in the building of AS Roma’s new stadium as a prime example.

James Pallotta, Roma’s American owner and president, presented plans for the new ground in March 2014 and targeted the 2016-17 season for its opening. Construction has still not started, with the project suffering a number of setbacks including the arrest of nine people linked to the building of the stadium.

Traub said that owners of Premier League clubs are likely to find fewer obstacles to driving growth and will “feel like the destiny is in their own hands”.

Leveraging investment

Traub adds that multiple ownership of clubs is a way for additional value can be unlocked, with the City Football Group, which along with Manchester City owns parts of clubs in the US, Australia, Japan, Spain, Uruguay and China, leading the way.

Traub notes that City are formalising the multiple ownership of clubs done already elsewhere, for instance by the Pozzo family. “Manchester City have a thesis to institutionalise football ownership under one umbrella,” he explains.

Other similar developments are likely to emerge soon. “We are seeing a much healthier want by new investors to look at consolidating a number of clubs,” Traub reveals. “We know of three or four parties that are looking to drive that same thesis.”

President of Olympique Lyonnais Jean-Michel Aulas attends the 2019 FIFA Women’s World Cup France Round Of 16 match between France and Brazil at Stade Oceane on June 23, 2019 in Le Havre, France (Jean Catuffe/Getty Images)

Ebru Köksal, senior advisor at investment management firm J. Stern & Co. and former chief executive at the Galatasaray Group, says that women’s football also represents a valuable opportunity for clubs, pointing to Lyon, whose women’s side has won six Uefa Women’s Champions League titles, including the last four in a row. Lyon is owned by French businessman Jean-Michel Aulas, and Köksal says the club’s women’s side “has been one of the best investments of his life”.

Köksal adds: “If I had €10m I would definitely go for a women’s club because the growth potential there is tremendous. Also, there is less competition and it’s easier as you are starting with a blank page.”

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Streaming boom becomes ‘holy grail’ for resurgent music industry | Anthony S Casey Singapore

After years of erosion, music sales are on the rebound — thanks in large part to a massive boost from worldwide streaming.

Once shunned by a number of high-profile artists, digital music is starting to pay dividends to big-name acts and smaller artists alike, experts say. One reason is that old industry standards have been streamlined for the digital era, ensuring that musicians are more fairly compensated for their music.

The other is the white-hot streaming industry, which has led consumers to pay for music via subscriptions. BuzzAngle Music, a firm that tracks industry performance, found that on-demand audio streaming soared 41.8% in 2018, topping 534 billion streams.

Yet as the industry reverses a decline in sales, questions remain about how much more impact streaming will have on the industry.

There’s a lot at stake — especially as juggernauts like Spotify (SPOT), Apple Music (AAPL), Amazon Music (AMZN) and YouTube (GOOG) significantly boost market share in an industry once dominated by AM-FM radio and large record stores.

According to Ben Swinburne, a managing director of research at Morgan Stanley (MS), it’s all about global growth and converting consumers from free platforms to paid.

“It’s a growth industry, and we expect that growth to be driven by 20% growth in subscription streaming revenue. That’s really the driver,” Swinburne told Yahoo Finance in a recent interview.

“The streaming companies are global companies concerned with global growth,” he added.

Over the last several years, consumers have increasingly opened their wallets on recorded music, which as a category saw revenues surge by 12% last year to over $9 billion, according to Recording Industry Association of America (RIAA) data.

The driver behind that surge were paid streaming subscriptions, the RIAA noted.

“Growth of streaming services is amazing, subscription streaming is very positive for us,” Richard James Burgess, the CEO of the American Association of Independent Music (A2IM), told Yahoo Finance recently.

A2IM helped champion the legislation that updated copyright laws, which are now more lucrative for independent artists.

“In general, there’s very high optimism right now,” Burgess said on the sidelines of the Libera Awards, a celebration of independent music that was the culminating event of A2IM’s Indie Week.

A smartphone and a headset are seen in front of a screen projection of Spotify logo, in this picture illustration taken April 1, 2018. REUTERS/Dado Ruvic/Illustration

A smartphone and a headset are seen in front of a screen projection of Spotify logo, in this picture illustration taken April 1, 2018. REUTERS/Dado Ruvic/Illustration

‘Right song at the right time’

Streaming services look like a good investment if they can continue to innovate and drive music discovery, which is another way in which they’ve remade the business. A significantly larger catalog of music is now available for music consumption in a way that it never has been before.

“Music discovery is the holy grail for any music business. How do you as a distributor, and for that matter as an artist, find the right listener and deliver the right song at the right time?” asked Morgan Stanley’s Swinburne.

“In a world of 40 million tracks, it’s overwhelming to try to navigate that,” he said. “For a lot of people, they don’t have time to figure out who’s cool and what’s hot.”

That’s why services like Spotify’s “Discover Weekly” playlist, which curates songs from artists based on users’ listening habits, have allowed many more artists to find their way to having their music heard.

“Some of the things that technology brought really decimated the industry, and really was responsible for a lot of the drop-off, said Michael Huppe, president and CEO of SoundExchange, the premier digital performance rights organization in the world.

Now, “that technology is part of the recovery,” Huppe added.

While the business used to be built around a model in which labels were just attempting to drive sales of records, listening itself has become increasingly important, he added.

It’s “the whole kahuna,” Huppe said.

Artists vs. Streamers

MANCHESTER, TENNESSEE - JUNE 14: Courtney Barnett performs onstage at That Tent during the 2019 Bonnaroo Arts And Music Festival on June 14, 2019 in Manchester, Tennessee. (Photo by FilmMagic/FilmMagic for Bonnaroo Arts And Music Festival )

Courtney Barnett, the winner of the 2019 Libera Award for Best Rock Album, performs during the 2019 Bonnaroo Arts and Music Festival on June 14, 2019 in Manchester, Tennessee. (Photo by FilmMagic/FilmMagic for Bonnaroo Arts And Music Festival)

Ed Sheeran earns $750m from record‑breaking tour | Anthony S Casey Singapore

Ed Sheeran on the opening night of his Australian tour in Perth last year
Ed Sheeran on the opening night of his Australian tour in Perth last yearMATT JELONEK/GETTY IMAGES

The idiosyncratic charm that propelled Ed Sheeran from homelessness to global pop star has put him on course for the highest grossing concert tour in history.

Between March 2017 and the end of last year the singer-songwriter from Suffolk generated $555 million in ticket sales and by the time the Divide Tour ends with four nights at Chantry Park, Ipswich, in August it is expected to have surpassed $750 million.

That would put Sheeran, 28, ahead of U2’s 360 Degree tour in 2011, which made $735 million, according to Pollstar, a publication for the live events industry. Sheeran has already beaten the Irish band’s record tour attendance figures, selling 8.8 million tickets as of the beginning of this month, against their 7.3 million.

Amazon to show four Premier League matches on TV in one day | Anthony S Casey Singapore

Amazon Prime is planning a Boxing Day marathon over ten hours
Amazon Prime is planning a Boxing Day marathon over ten hoursBEN STANSALL/AFP/GETTY IMAGES

Armchair fans will be able to watch four Premier League matches back to back for the first time next season with Amazon Prime planning a Boxing Day marathon of programming from midday until 10pm.

The streaming service has won the rights to broadcast two entire rounds of fixtures for the next three seasons and reached an agreement with the Premier League to schedule four different kick-off times for the Boxing Day programme, including a televised match at 3pm for the first time.

Amazon Prime will make all ten matches available via the red button on both of their packages, with the first being a midweek round on December 3 and 4.

Manchester United’s shock transfer war chest revealed | Anthony S Casey Singapore

Solskjaer Glazers TEAMtalk

Manchester United boss Ole Gunnar Solskjaer has been given just £100million to strengthen his squad this summer, claims a report.

It was widely expected that Norwegian boss Solskjaer was planning a major overhaul to his ailing squad, but ESPN report that United’s war chest is not as considerable as many thought.

The report claims United will have just £100million to spend on new recruits, plus any money they receive from player sales.

United have already added Dan James for an initial £15million, while the Daily Recordyesterday claimed the United had agreed a fee of around £55million for Crystal Palace defender Aaron Wan-Bissaka.

United did receive £10.5million from the sale of Marouane Fellaini to Shandong Luneng earlier this year.

However, based on the figure reported by ESPN, United’s summer overhaul will depend on sales – with Romelu Lukaku, David De Gea and Paul Pogba’s futures all up in the air.

Lukaku looks like being the player most likely sold this summer with Inter Milan heavily linked with his services with United hoping for a fee of around £70million.

Earlier this month, Lukaku said: “I am going to enjoy my holidays with my family now. I know what I’ll do, but won’t say it. We’ll see. Do I expect a busy summer? Yes.”

The Belgium striker has also been urged to move by his national team boss Roberto Martinez, but the exits of Pogba and De Gea are not guaranteed and likely to prove complicated.

And the report suggests that the “view within the club” is that if they retain Pogba and De Gea, in particular they will be able to recruit enough emerging talent to compete for a top-four finish.