Investing In Football Isn't Just About What Happens On The Pitch

Private equity has had an increasing interest in sports and that shows no signs of slowing down. From traditional ownership as an asset - or assets as a plural if you are a company like City Football Group - to investment in the infrastructure that supports sports such as sponsorship, marketing, and media, the potential return on investment often remains unmatched by alternative options. Take the United States as just one example; the valuations of sports teams have outpaced the S&P 500 over the past decade. If we shine the spotlight on football in particular, 15 of the 29 teams in Major League Soccer now boast significant private equity investment. Across the Atlantic, European football has also seen a surge in private equity interest. Recent data highlights that a significant portion of clubs in Europe's "Big Five" leagues now enjoy financial backing from private equity, with billions of euros invested in the last year alone.

Football is uniquely positioned as an investment in the world of sports investments. Firstly, it’s probably the only sport that can claim to be truly global, with an estimated 3.5 billion fans worldwide - 43% of the global population. Football also has the capacity to remain largely unaffected by economic downturns and shifts in consumer preferences, which positions it as a stable asset class; attractive to PE firms looking for long-term returns. This stability is accentuated by the growing trend of multi-club ownership - as we see with the likes of City Football Group - allowing investors to diversify their portfolio across different leagues, geographies, and demographics. However, there is so much potential off the pitch too. 

What Happens When The Ball Goes Out Of Play?

Football investment stretches far beyond the excitement of match day. Media rights, commercial rights, and revenues from player transfers are just a few pillars of football finance that draw keen interest from investors. Media rights are particularly lucrative; you only need to look at the  landmark deal that saw CVC invest €2 billion in La Liga’s media rights, securing an ownership stake in a newly formed holding company that locks in revenues from media and sponsorship rights for the next fifty years. There is so much potential for investment beyond mere ownership.

The strategic trading of player rights showcases another lucrative avenue. Clubs like Sporting CP, FC Porto, and SL Benfica have demonstrated the financial efficacy of developing and trading player talents, and boast substantial trading balances. This approach not only underscores the commercial viability of nurturing in-house talent but also highlights the acumen in identifying and capitalising on the potential of young, promising players. 

Football clubs are also tapping into their unique brands and the rich cultural heritage of their cities to open new revenue channels. A prime example of this strategy's success is the collaboration between Paris Saint-Germain (PSG) and the iconic Jordan Brand. Initiated by an equity investment from Qatar Sports Investments in 2011, PSG set out to capitalise on the distinct charm of Paris. This effort led to a landmark partnership with the Jordan Brand in 2018, merging the audiences of streetwear and football to great effect. The partnership transformed PSG's merchandise revenue, skyrocketing it from €26 million to an impressive €366 million over eight years, marking an incredible 1,300% increase. This dramatic surge in revenue illustrates the effectiveness of integrating a football club's brand with the cultural and historical essence of its city. PSG has not just expanded its global appeal but has also positioned itself as a lifestyle brand, far beyond the confines of football.

Commercialisation Versus Tradition 

Of course, this shift towards commercialisation brings with it the challenge of preserving the traditional values and fan loyalty that lie at the heart of football's appeal. Innovative fan engagement strategies, such as virtual experience platforms and loyalty programs, alongside investments in technology, play a vital role in balancing financial objectives with maintaining a strong connection to the club's fanbase. These efforts underscore a forward-thinking approach to club management, enhancing both the on-pitch performance and the overall fan experience.

The challenge of aligning private equity investment strategies with the cultural and emotional fabric of football is notable, with mixed reactions from fans across different leagues. Successful navigation in this domain requires a focus on transparency, community engagement, and investments that resonate with the club's core values and long-term vision. In our experience, we’ve seen the importance of immersing ourselves in the local culture and working closely with clubs and their communities to align our investment strategies with their heritage and fan expectations.

A notable example of the complexities involved is the reaction to the German Football League's (DFL) decision in 2023 to allow private equity investment in Bundesliga media rights for 20 years. This move faced significant opposition from fans, highlighting Germany's unique "50+1" rule that restricts commercial rights and external investments, underscoring the importance of understanding and respecting the fanbase's perspective in investment decisions. Such instances emphasise the critical need for PE firms to carefully consider the cultural and historical significance of football clubs to their supporters, ensuring that investments support sustainable growth and respect the traditions that make the sport unique.

The entry of private equity into the football arena brings a wealth of benefits, breathing new life into a sport deeply rooted in tradition and community. This infusion of capital offers more than just financial stability; it introduces innovative business practices and growth initiatives that can rejuvenate clubs and enhance the fan experience. By leveraging the vast resources and expertise that private equity firms possess, football clubs can embark on transformative projects ranging from infrastructure upgrades to the acquisition of top-tier talent and the implementation of cutting-edge fan engagement tools. Importantly, private equity's involvement also opens doors for lower-tier clubs, providing them with the capital injection needed to climb the ranks and compete at higher levels. This evolution from traditional, often familial ownership towards more institutionalised investment models marks a pivotal shift, promising to propel the sport into a future where financial robustness and competitive excellence go hand in hand.

For those looking to navigate the intricacies of football investment successfully, the key lies in partnership and expertise. The growing allure of football as an investment target has indeed made the market more complex and competitive. To avoid the pitfalls that come with this increased interest, aligning with seasoned experts who understand the nuances of the sport's commercial, operational, and cultural dimensions is crucial. Football isn’t a sport to dip your toes into - commitment is needed, as is the fostering of collaborations that bring together the best of the athletic, business, and investment worlds. Aspiring investors should prioritise deep market knowledge, operational savvy, and a keen understanding of football's unique ecosystem to identify and capitalise on the most promising opportunities. In doing so, they can contribute positively to the sport's growth while steering clear of the speculative hazards that can sometimes accompany high-profile investments in football.