The writer is an investor and the author of ‘Two and Twenty’
Together with other forms of private capital, private equity firms now manage more than $10tn in assets globally. Private equity is active in every sector of the economy. And in recent years, it has emerged as a key suitor to acquire some of the most prestigious clubs in football, particularly in the English Premier League.
Like football, private equity is a people business. It relies on the judgment of key individuals who underwrite cheques for billions of dollars. The best investment professionals eat what they cook, and they’re aligned with their investors, such as the pension funds who put up the cash they manage and to whom they charge fees. They are attracted to complexity as a source of value, and they recognise how market chaos can be profit in disguise. They have the temperament to be patient with results and have the humility to pivot when the data suggests they’re likely to be on the wrong path.
At the heart of this dispassionate approach, however, lies a cold reality that may not sit well with every stakeholder in football: ultimately, the investment is a transaction. There’s no sugarcoating the truth that at some point, the investors will require a return to compensate them for the risks they are taking. Pension funds make payouts to retirees in cash, not in signed football shirts.
The menu of how an investment can be monetised is broad — these days, private equity doesn’t even need to fully exit. The vehicle holding the club can sell it to a newer vehicle run by the same firm with a different mix of investors. Or the asset can be put into a longer-term, “permanent” vehicle with a new set of investors eager to get involved. This kind of “perpetual” ownership can allow the firm to reap gains for decades — like the gift that keeps on giving.
What changes need to happen at clubs owned by private equity for the investors to double their money or more? Leveraged buyouts might be a thing of the past, because private equity will probably accept demands from astute fans and concerned sellers such as no dividends or debt financing, commitment to a new stadium, investment in the women’s game and a youth academy. Therefore, if financial engineering is ruled out as a key driver of value, precisely how will value be created?
For example, if English football is poorly run, what fresh football expertise will be brought in to drive value? And will this better football management lead to trophies? These considerations are relevant for the Premier League right now. Chelsea was acquired in May by a consortium led by successful US financier Todd Boehly and California-based investment firm Clearlake Capital. And Manchester United, Liverpool and Tottenham Hotspur have reportedly each been analysed by private equity. It’s likely that more clubs will, too.
The situation is striking because of the contrast between private equity and the other group of club owners to have emerged in recent years: sovereign funds, in particular from Qatar and Saudi Arabia, and billionaire titans with an industrial or sovereign background. Similar to creative private equity bidders, this group can propose a deal involving no debt or dividends and major investment — but they can also promise to reinvest all of the profits back into the club. They can hold the club in a foundation and offer its fan base representation. Put simply, they can undertake that the club will be not-for-profit. The allure of this idea is easy to grasp.
For the UK government and the proposed new independent football regulator, the connective tissue running through all of this is the cultural significance of clubs, which are part of our social fabric. Policymakers need to engage on these issues before ownership changes take place. Why? Because we all have skin in this beautiful game.