Investment in football begins taking off
At a time when financial markets might be starting to dry up and scale back their operations, investment in sports seems to be going in the opposite direction, perhaps embarking on a golden age of growth. According to data from Bloomberg, the volume of transactions in the sector has already exceeded €17 billion in 2022, far outpacing the nearly 10 billion recorded in 2021 and the 7.5 billion in 2020. The most surprising thing is that it doesn’t appear to be slowing down, but rather the opposite, and it may accelerate significantly. For example, companies such as Arctos Sports Partners and Ares Management have recently raised funds of nearly 5 billion euros each to invest specifically in sports. This is in addition to, among others, the nearly €16 billion that, according to the website Sportico, American SPACs have accumulated in cash in search of assets in the sector.
A specific case in sports is, of course, the remarkable buzz of buyers and sellers in the world of football. In the world’s top sport, football teams had traditionally been considered poor and unpredictable investments. However, today they see themselves being ranked among the world’s most sought-after assets. There are several reasons for this, particularly the increased revenues flowing from television rights, the implementation of more restrictive financial discipline measures, and the arrival of more sophisticated managers aiming to streamline management of these assets. We have recently seen an avalanche of news about new investments in European football, at prices way in excess of anything we’ve seen up to this point.
Everything began when an American group purchased Chelsea for more than €5 billion. Likely enticed by this figure, it has come to light that other big clubs are considering putting themselves up for sale, in part or whole. The first to step onto the field was fabled Liverpool FC, with rumors of a €4 billion price tag. Then came their staunch rivals Manchester United, which could even break Chelsea’s record and exceed €6 billion if sold, significantly more than the almost 900 million its current owners once paid. Lastly, we’ve learned that Paris Saint Germain is reportedly looking to sell 10% of its shares at a club valuation of nearly €4 billion. These figures would have been impossible to imagine not so long ago.
In addition to all this, there are other transactions at major league clubs for increasingly high values. For example, the American investment fund 777 Partners, which already had an ownership stake in other teams from different countries, has announced the purchase of a majority stake in Hertha Berlin of the German Bundesliga. While the price paid has not been made public, we do know that, between 2019 and 2020, the previous owner had paid approximately €375 million to acquire 64.7% of the club. In other words, if we assume that there is no debt or other significant adjustments, the total value would have been nearly €600 million at that time. It can be assumed that the sale to 777 Partners would have been for a significantly higher price than that.
We also witnessed American investment firm RedBird Capital acquire the Italian club A.C. Milan for €1.2 billion. John Textor, owner of Brazil’s Botafogo and shareholder in Crystal Palace, placed a bid of €800 million for Olympique Lyonnais. The American VC fund Silver Lake, which specializes in technology, has increased its share in City Football Group, the holding company that owns Manchester City and other teams. And it’s not only the clubs receiving this interest - Abu Dhabi-funded Mubadala Capital has recently announced that it’s negotiating to take a 20% percent stake in the commercial rights of the Brazilian league for close to a billion euros. This would join other similar operations, such as the agreement between La Liga and American company CVC Capital Partners.
However, it’s quite remarkable that this investment frenzy in the world of football hasn’t been reflected at all in the market valuations of publicly-traded clubs. For example, the share price of Borussia Dortmund, the largest position in the investment fund I manage, exceeded €9 in 2019 before falling to €4.5 in March 2020 and currently sits even lower at around €3.5. This translates into a current market cap of less than €400 million, far less than even the price paid by the previous owner of Hertha Berlin, its rival in the Bundesliga, as we saw previously. However, Borussia Dortmund owns its stadium with a book value of more than 300 million, and has player like Jude Bellingham in its lineup, whose transfer value could be in excess of €100 million.
This striking trend includes other publicly traded clubs, like Amsterdam’s Ajax, which we also own shares in. The Dutch team’s shares were trading at more than €20 before the pandemic, far above the current €12. It’s very surprising that, far from being affected by the investment frenzy that’s impacting the world of football, the shares of quoted clubs are still significantly below pre-COVID levels. Those of us working in financial markets know that these inefficiencies can happen from time to time in any asset type. But they also tend not to last forever.
So, are we seeing a unique investment opportunity in some publicly-traded soccer clubs? Will other teams jump into the stock market to attract the eyeballs of a broader base of potential investors? We’ll certainly be hearing more and more about these and other financial issues in the near future. Although football has been around as a sport for more than 150 years, its transformation into an economically professionalized sector has just begun, with all the challenges and opportunities that this entails.
Luis García Álvarez, CFA
Manager of the MAPFRE AM Behavioral Fund