Serie A’s past contracts with broadcasters have been far less profitable than deals secured by the other top European leagues, and this is something the clubs and the potential private equity partners will be looking to change
Susie JarroldSusie Jarrold is a senior associate in the corporate, commercial & partnerships legal practice at law firm Lewis Silkin. She works with clients including rugby and soccer clubs, players and agents, providing corporate, finance and regulatory advice.
In early September, the 20 Italian Serie A clubs voted in favour of the creation of a new company to manage the league’s media rights, and to consider two private equity bids for a 10 per cent stake. As reported, one offer, for investment of at least €1.625 billion ($1.908 billion) is a joint bid from CVC Capital Partners, Advent International and Italian state-backed fund FSI, and the other, for investment of €1.35 billion, is from a group including the Bain Capital and NB Renaissance firms.
The fact that private equity houses are willing to team up in their efforts to secure a minority stake in the company shows just how valuable an investment the league is considered to be, and the partners could be chosen at a general assembly at the start of October.
Serie A’s revenue has for some time lagged behind that of other European leagues such as the Premier League, La Liga and the Bundesliga. However, the Italian top flight, which was founded over 90 years ago, has a rich history and following and offers a lot of growth potential.
The new company will control the league’s international trademark and commercial development and, probably most importantly given current viewing habits and the fierce competition between content providers, its broadcasting rights. Serie A’s past contracts with broadcasters have been far less profitable than deals secured by the other top European leagues, and this is something the clubs and the potential private equity partners will be looking to change.
We have observed an upward trend in private equity investment in sport over recent years at both club and competition level. There have been numerous deals, but notable examples have included CVC paying £200 million ($257 million) for a circa 27 per cent stake in England’s Premiership Rugby in 2018 and the $500 million investment by Silver Lake for a circa 10 per cent stake in the City Football Group, which owns Manchester City last November. Indeed, CVC has become a serial sports investor, having also bought into rugby union’s Pro14, and previously owned Formula 1.
While it may not be suited to the traditional private equity investment model in which the aim is to cash out after three to five years, sport does offer potential long-term profitability although any investor will still, of course, want an exit route it can make use of at the appropriate time. Private equity investors are becoming more and more attracted to the increased sophistication and diversity of sports revenues where previously they were seen as a pure talent play.
The disruption to the sporting calendar caused by coronavirus has had a devastating effect on the finances of many clubs, so for some private equity investment may offer an invaluable injection of cash. For private equity investors, there may be opportunities to capitalise on reduced valuations as a result of the pandemic. It may seem risky to invest in a business that may be in a precarious financial position, but the overall consensus seems to be that the industry will recover and resume its growth.
Any company taking on outside investment is going to be mindful of giving up too much control so this kind of power struggle is by no means unique to sports-based businesses, but the sheer number of stakeholders involved will make brokering a deal more complicated
There is added complexity when investing in a league such as Serie A. While the unanimous support of the clubs has given a green light to the possibility of private equity investment, the successful bidders must still secure the votes of 14 of the clubs which are themselves competing businesses and will not necessarily be aligned.
For some, private equity investment will be viewed as a welcome prospect after a season marred by coronavirus and with many of the league’s stadia in dire need of modernisation. Others, however, are wary of the threat to the control otherwise enjoyed, with a number of clubs reported to have been more in favour of debt financing.
Any company taking on outside investment is going to be mindful of giving up too much control so this kind of power struggle is by no means unique to sports-based businesses, but the sheer number of stakeholders involved will make brokering a deal more complicated.
A cap, introduced in July, serves to prevent any private equity firm/consortium acquiring more than 15 per cent of the new media company. However, while a minority stake may, on the face of it, suggest less control being ceded by the clubs, any investor is going to seek robust contractual protections.
These will in all likelihood include (at a minimum): the right to appoint a proportion of the board; specified rights to financial and other information; the ability to block certain constitutional and operational decisions; and control over how the investment funds are to be used. Thought will also need to be given to the interaction between the commercial and regulatory priorities of the league given that the proposed structure will involve separating these into standalone entities which may not always be united in their aims.
Any private equity investor will bring a high level of financial expertise and is going to have a keen eye on further professionalising the league and increasing efficiencies and profitability as a priority. Tightening governance, coupled with maximising the exploitation of commercial rights, may be the key to unlocking the league’s revenue potential. It will be interesting to see which suitors the Serie A clubs opt for in the coming days and what level of control will actually be exerted. As always, the devil will be in the detail.