Private equity is now a key player in the football world, having acquired some of the most prestigious clubs in Europe and particularly in the English Premier League (EPL). However, the track record of businesspeople in football isn’t encouraging. Few have managed to repeat the success they’ve enjoyed in other sectors. Moreover, the spiralling cost of competing in the likes of the EPL means that the task is getting ever harder.
Why private equity’s entry into football may prove an own goal
Shooting for the stars
Private investment firms now own or are the major shareholders in 12 of Europe’s top leagues, according to Bloomberg.1
The riches of the EPL appear particularly enticing to private investors. The League generated revenues of £6.4 billion (bn) in the 21/22 season, the latest period for which figures are available. The next wealthiest league, La Liga in Spain, produced revenues of just £3.2 bn by comparison.
In 2022, Chelsea became the latest club to be taken over by private-equity investors, when Clearlake Capital joined forces with billionaire Todd Boehly in a £2.5 bn acquisition. Earlier, in 2021, RedBird Capital Partners bought a stake in Liverpool FC’s US owner. There is speculation that it could take full control at some point. Tottenham Hotspur and Everton have also been analysed by private-equity investors, while Crystal Palace and Aston Villa are already part-owned by private-equity interests. Manchester United owners are said to be considering offers from a variety of sources, including the sale of minority stakes to the US private-equity business Carlyle.2
Funds build control over European football
Out of their league?
Yet the Premier League’s ability to destroy wealth is astounding. The 20 elite-tier clubs posted aggregate pre-tax losses of £1.66 bn during the pandemic-disrupted seasons ending in 2020 and 2021.3 The League has long been accused of paying unsustainable wages, while transfer fees continue to spiral upwards.4
It’s also long been argued that businesspeople seem to lose their acumen when they venture into football, a world in which they have little if any experience. Len Shackleton, an English star of the 1940s and 1950s, famously included a chapter in his autobiography headed ‘The Average Director’s Knowledge of Football’. It consisted of a blank page.5 The highly successful businessman Alan Sugar says his decision to buy Spurs in 1991 was the worst mistake he ever made:
“I often think that instead of spending 10 years worrying about Carlos Kickaball on the pitch and getting criticised by the fans, I could have done something more lucrative. I was still a young man then.”6
Meanwhile, Simon Jordan, who built a fortune in the telecoms industry, bought Crystal Palace in 2000 – becoming the country’s youngest football-club owner, at 32 – in the belief that he could run it on business lines and make another fortune. Ten years later, Crystal Palace plunged into administration and, as Jordan puts it, he became ‘the former owner’ of £75 million, around half of which disappeared into ‘The Eagles’.7
Getting the blues
More recently, the new owners of Chelsea have spent more than £600 million to sign 17 players over the 12 months ending in May 2023, to very little effect. Chelsea finished in 12th-place in 2022/23, the team recording its lowest points tally since 1987-88, when it was relegated. The ‘Blues’ are already on their fourth manager under the new owners, are trophyless in a season for only the second time since 2016, and will miss out on the highly lucrative Champions League in 2023/24.8
Yet private equity appears to believe that there is huge potential to increase profitability, and they may be right. The University of Liverpool, for example, says that Manchester United’s £583 million revenue represents only 55 pence per follower per year. Advances in technology, such as ‘the ability to sell virtual tickets to watch games in 3D as if you were there’, are an opportunity to further ‘monetise’ the fan base, according to the Business Standard.9
Running to stand still
However, the cost of competing in the Premier League grows every year as owners with very deep pockets take over one team after another. Even private-equity owners will struggle to match the resources of teams such as Newcastle United, now backed by the sovereign wealth funds of Saudi Arabia.
In a bid to remain competitive, teams are also getting ever deeper into debt. The total net debt of all Premier League teams stood at £4.1 bn ($5.2 bn) in 2021, up from £3.9 bn ($4.9 bn) a year earlier, according to figures from Alliance Fund published in April 2023.10
Alliance Fund chief executive Iain Crawford was reported by Sportspromedia as saying:
‘Survival within the Premier League has become an increasingly costly endeavour for teams in the top flight and as if the cost of remaining competitive wasn’t high enough already, many are still struggling to overcome the severe financial pothole that saw matchday revenues all but vanish throughout the pandemic.’11
Moreover, two-thirds of clubs are loss-making, with those in the red accumulating £1.2 bn ($1.6 bn) in losses during 2021/2022, according to Sportspromedia, citing data from the financial services firm LCP. It also quoted LCP as saying teams owe £2.6 bn to their owners.
This all begs the question of whether private equity will become the latest business owner to be dumbfounded by the peculiarities of the football world. Moreover, it’s not only investors’ wealth that is at stake. In the late 1990s, the businessman Peter Risdale gambled all on trying to restore Leeds United to its former glories of the 1960s and 1970s. He recently charted the price he paid for failure. This included death threats, attacks in the street, being driven to drink, health worries and public advice to end it all with a loaded revolver and a locked room.12 Football might only be business for the owners, but it is also far from just a game for the fans.
1 https://www.bloomberg.com/graphics/2023-european-football-owners-premier-league-la-liga-serie-a/
2 https://www.bbc.com/sport/football/65285468
3 https://www.tbsnews.net/thoughts/what-does-private-equity-see-football-598178
4 https://www.tbsnews.net/thoughts/what-does-private-equity-see-football-598178
5 https://www.theguardian.com/news/2000/nov/29/guardianobituaries.football
6 https://www.spurs-web.com/spurs-news/lord-sugar-reveals-his-tottenham-hotspur-regret/
7 https://www.independent.co.uk/news/people/profiles/simon-jordan-buy-a-football-club-and-lose-a-fortune-the-jordan-way-7813447.html
8 https://www.espn.com/soccer/story/_/id/37759661/one-year-boehly-chelsea-four-managers-600m-spent-upheaval-stamford-bridge
9 https://www.tbsnews.net/thoughts/what-does-private-equity-see-football-598178
10 https://www.sportspromedia.com/features/english-football-finances-man-city-newcastle-premier-league-efl-owners-pif-saudi-arabia
11 https://www.sportspromedia.com/features/english-football-finances-man-city-newcastle-premier-league-efl-owners-pif-saudi-arabia
12 https://www.walesonline.co.uk/sport/football/football-news/peter-ridsdale-vilification-death-threats-2215221
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