English football clubs have long had a reputation as glorified money pits — playthings of Russian billionaires and vanity projects for Arab sheikhs.
But in the past few weeks, a new pattern of ownership has emerged, with private equity investors taking a renewed interest in Premiership clubs.
AFC Bournemouth sold a 25 per cent stake to PEAK6, the Chicago-based investment vehicle run by veteran financier Matt Hulsizer.
Days later, the owners of Crystal Palace FC closed in on a deal to sell minority stakes to Josh Harris and David Blitzer, two US private equity executives with a history of buying into sports teams.
Though not the first Americans to invest in English football — Manchester United, Arsenal and Liverpool are all US-owned — the two moves mark the first time that professional investors have taken minority stakes in clubs.
People involved in the game point to two driving factors: fast-rising income at Premier League clubs and better cost control.
That means wider profit margins and safer investments, going some way to explain why Manchester United’s New York-listed shares have risen almost a fifth this year, while the S&P 500 has been flat.
“A corner has been turned,” says Dan Jones, head of sport at Deloitte. “After two decades of being very successful at generating revenue, football clubs are now finally able to retain some of that revenue. It’s quite hard now not to make money in the Premier League.”
That said, Chelsea, the reigning league champions, on Monday reported a £23m loss for the 2014/15 season, although the club said that new television and sponsorship deals would likely produce record revenue for the current year.
The Premier League’s operating profit of £614m last year was, however, almost treble the previous record set by Germany’s Bundesliga in 2012/13. Deloitte’s research shows that all bar one of the 20 Premier League clubs made an operating profit in 2013/14, the last year data are available for.
The financial gains from entering the Premier League provide a stark indication of its pull. During 2013/14, Crystal Palace’s first season back in the Premier League, players’ wages at the south London club more than doubled. But revenue, mostly television rights, prize money and sponsorship, was up more than 500 per cent.
In the past, wages and transfer fees have risen faster than revenue, leaving smaller clubs with little option but to borrow to compete.
Some of those that did, such as Leeds United and Portsmouth, spent heavily in an effort to join Europe’s elite, gambles that resulted in crippling debt and financial collapse. Leeds entered administration in 2007 and Portsmouth followed two years later. Both have languished in England’s lower leagues since.
A new TV deal, agreed earlier in February and set to come into effect next season, will provide a further boost to top-flight clubs. Under the new terms, the prize money for finishing last, at more than £100m, will eclipse that currently earned by being crowned champions.
The UK rights deal alone is worth £5bn, a 70 per cent increase on the previous agreement, while international rights will make the league even richer.
Rising revenue is not a new phenomenon. The problem in the past has been keeping costs in check. Wages and transfer fees have typically risen at the same rate as the money comes in.
However, the introduction in 2011 of the Financial Fair Play rules, which limit spending as a proportion of income, has changed the equation. Clubs are now far less likely to overstretch their finances, and can be punished if they do.
“If you can’t mortgage your future, all of a sudden it’s a different model”, says Trevor Watkins, partner at Pinsent Masons. “The ability of a club to play itself into trouble and go bust is considerably less than 10 years ago.”
He estimates that a typical Premier League club, aside from the top four, is now worth £120m-£150m, compared with the £62m that Aston Villa’s owner Randy Lerner paid for the club in 2006, or the £100m valuation put on West Ham when it was bought in 2010.
That firmer financial footing means owners are in a stronger position, making it easier to negotiate deals that bring in new investment while retaining control.
The Premier League’s increasing popularity overseas is also an attraction, particularly for those with interests in sports teams elsewhere, as is the case for Mr Harris and Mr Blitzer at Crystal Palace and Mr Hulsizer at Bournemouth.
Writing to fans in the match-day programme on Monday, Steve Parish, Crystal Palace’s co-chairman, said that he believed the current owners and the new investors can “work together”, but that it was important that control remained in the hands of “people who love [the club] as much as we do”.
Mr Harris and Mr Blitzer both own stakes in the National Basketball Association’s Philadelphia 76ers and the National Hockey League’s New Jersey Devils, while Mr Hulsizer is a minority owner of NHL team Minnesota Wild.
Adding football to their investment stable offers the chance to work with existing partners, such as advertisers and sponsors, in new markets.
Bournemouth FC has said that it believes Mr Hulsizer will bring with him “strategic insight and international presence”. It did not divulge whether he understood the complexities of the game like the offside rule.
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