Private equity has been evolving in the world of sport for several years now, but the European Super League fiasco has shined the spotlight more than ever on the financing of teams and competitions.
“The announcement of the European Super League has been pushed back in a massive and very powerful way. It’s not supported by PE, but it put the financial investment in sport in a pretty negative light, ”said Dan Parr, Commercial Director of InSport Education.
But given some of the challenges that currently exist in the sports world, private equity will play an important role in helping rights holders and teams overcome the challenges of the pandemic and position themselves well for future growth and development. in the modern world of sports and entertainment, ”he said.
Some of the hottest deals of recent years include CVC Capital Partners Investment of £ 365million in Six Nations Championship, and Silver Lake’s $ 500million stake in Manchester City football club owner. Both were for minority stakes.
Silver Lake also recently made a $ 270 million offer for a 12.5% stake in the commercial rights of the famous New Zealand All Blacks rugby team, which was met resistance both fans and players. In fact, New Zealand rugby has agreed to meet with the country’s Rugby Players Association. to discuss a possible float of public shares instead.
But the involvement of private equity in sport goes well beyond these deals that make the headlines. The struggling US investment group Oaktree Capital has regained control French club Caen Last year; Italian football club Calcio Catani has been acquired by Sport Investment Group Italia; The Atlanta Dream US women’s basketball team has been sold to Northland Investment; and the South African rugby team The Sharks was acquired by MVM Holdings.
Many of the deals done behind the scenes are not for majority stakes, according to Adam Sommerfeld, managing partner of Certus Capital. Instead, most clubs choose to sell minority stakes, preferred stock, or debt deals, where they retain management control.
Meanwhile, the failure of the European Super League has helped raise some uncertainty for private equity buyers, according to Sommerfeld, who had potential investors in some deals he worked on worried about following rumors.
Mark Yeo, partner at Squire Patton Boggs, also added that debt-only games have become more common as some private equity firms see an opportunity to fall somewhere between a bank and a traditional buyout group, in terms of interest rate offered on their debt.
“ This model provides a way for sports businesses to access cash at a cheaper rate than that offered by traditional PE houses, but without having the psychological feeling that they are giving it a piece of the pie. ” , did he declare.
But some fans will still be concerned that a club will accept such loans, given the leverage a lender can exert on the club. “What if a payment isn’t made on time, does the lender have some control or some leverage?
“ Fans may fear that the lender may ultimately put the club under administration if they are not paid back. You wouldn’t have this worry without this debt. But if they don’t get an investment, maybe they don’t have a club, ” Yeo added.
There is so much activity right now because now is the perfect time for private equity to invest in a sector that is only set to grow. Many teams and organizations have been hit hard by Covid-19 and the restrictions that came with it.
This created an outside investment opportunity, necessary to support clubs unable to generate the expected income for months, and lowered prices. Clubs that may have previously avoided private equity are now open to him.
Although there have been some who have rejected the attentions of private equity, such as the German Bundesliga. CVC Capital Partners, Bridgepoint, Intermediate Capital Group and KKR have reportedly been among the bidders for the league’s international media rights, according to the Financial Times. But last week, football clubs in the country’s top two divisions voted against a deal.
Fans weren’t so forgiving either.
Private Equity’s reputation as a vulture fund that strips assets to their bones and then sells them for profit has raised concerns among fans who don’t want buyout groups in control of their sports. favorite.
This fan outcry over private equity ownership should be tested further, particularly in European football, as US buyout funds enter the fray to shift attention from the game itself to entertainment.
For Darren Bailey, consultant at the Charles Russell Speechlys law firm, there is an unprecedented battle between the American model and the European model of sports mixing. In the United States, the focus is more on the profitability and entertainment value of games, and this approach is expected to create tensions.
Yeo agrees. “Many PE houses in the United States feel they have a sophisticated model and strategy for marketing the sport and marketing football,” he said.
“ Many of these people have worked in organizations like the NBA, NFL, MLS and MLB and can see opportunities in European sport to improve … business income, including, for example, by drawing more women’s team party, setting up an e-sports team and other ideas on how the company can do better commercially to increase the value of what it invests in.
According to him, investors believe that many clubs’ brand is excellent, but the value of things like sponsorship and media rights will continue to increase and may also see an increase in the different media and channels through which the sport is consumed. which presents more advertising. Opportunities.
Regulatory change on the horizon
Many agree that this increased attention from private equity and discussions regarding the European Super League will lead to a change in regulation.
“There is a wave of interest in campaigning for better regulation of the ownership of football clubs at the moment,” said Yeo. “ The sport will want to strike a balance between ensuring better control over who can invest in clubs and how they can do it, while also ensuring that it is not too closed and difficult to find investors and owners. ”
He added: “From an investor’s perspective, they will ensure that their list of potential exit contenders is not drastically reduced in order to make the proposed initial investment less attractive. If club ownership is properly and fairly regulated, the environment for football as a whole will be more stable.
But any regulatory change shouldn’t completely block investment in the sport, according to Parr. Private equity can provide access to much-needed capital for organizations, in addition to providing expertise and management skills that can help move businesses forward, Parr said.
“ I think in a lot of the history and tradition of sport they play an important role, but they can also be an obstacle to progress and there is a general resistance to change in sport and you have often need an outside agency to make things happen. big and make that change that can’t be done internally, ”he added.
‘They [private equity] can, and that’s not necessarily a bad thing. What ESL has shown us is that fan power and respect for history is important and needs to be considered and should be part of this process.
“But this should not prevent the progress and the evolution and development of sports, teams and organizations. Private equity has a huge role to play, it can play a positive role if it is delivered and managed with the right motives in mind.