European soccer clubs ripe for private equity investment
By Euan Cunningham
The time has come for private equity to take its involvement with, and investment in, top-tier European soccer to the next level, the head of one leading sports capital advisory firm has told Sportcal.
The professional game has ground to halt across Europe (only the Belarus league is in operation) because of the coronavirus pandemic, and with no guarantee as to when play will resume, finances are stretched to breaking point at a number of clubs.
As such, many club owners will likely be looking to offload what could be distressed assets in the near future, private equity firms will have an opportunity to ramp up their involvement, and pick and choose their investments.
Fausto Zanetton (pictured), the chief executive of Tifosy, a UK-based sports advisory firm which also provides capital solutions to clubs across Europe, told Sportcal: “I know a lot of private equity firms have been looking at opportunities and scouting over the last six months or so, and these groups may well see this crisis as a catalyst for furthering their involvement.
“They are awash with cash, and volatility is their friend… People are very negative sometimes about private equity, but what it does give you is financial discipline.
“I think the industry could definitely do with some more sophisticated capital entering the sector.
“The sector has been growing nicely, as has the overall profit margin, so inevitably as more money comes in these specific clubs need more sophisticated asset management structures to come in.”
Zanetton, who spent over 15 years as an investment banker at Goldman Sachs and Morgan Stanley, added: “Potential investors will probably be able to pick and choose all over Europe and make some good investments, given that owners who would have previously wanted crazy money will now be a lot more reasonable.”
While several clubs across the continent do count private equity groups as their main owners, notably Liverpool of England’s Premier League, it is not yet particularly widespread.
According to Zanetton, who expects the valuation of top-tier teams across Europe to go down “between 20 and 30 per cent”, this may now change, with many existing owners looking for an opportunity to offload properties they feel are too risky.
He said: “The sellers will have potentially undergone significant economic damage because of the crisis, or they will have looked at the risks involved with owning a club and baulked at that… Owners will end up wondering how much more capital they want to deploy after having seen the risks attached.
“Short-term, it will definitely be a buyers’ market, and they will be able to exploit the financial weakness that will be there."
Tifosy, which works to bring investors and clubs together and has done so for English Premier League clubs such as Everton and Norwich, and for Italian Serie A clubs including Sampdoria and Parma, believes the crisis is an opportunity for soccer to evaluate whether its business model makes sense from a financial point of view, and Zanetton said that in his organisation’s opinion, it had “certainly exposed vulnerabilities.”
He continued: “Frankly, as a whole, the industry needs to sit down and work out whether this all makes sense, as we’re in a situation where clubs, after just six weeks of not playing, are at serious risk of bankruptcy.
“In order to increase revenues to stop this happening again, one of the steps we would recommend is that clubs do more in collaboration with their leagues, as in several US-based sports where centralised deals are in place.”
Centralised commercial activity is a model which North American sport champions, and Zanetton sees the benefits of this less individualistic approach.
He explained: “Most leagues leave financing and financial control down to the specific clubs, but we think a lot more could be done on a more centralised basis. That way, the money goes centrally and gets distributed from there, and the smaller clubs would definitely make more from their commercial revenue that way.”
In terms of analysing if the sector’s growth will ever return to its pre-coronavirus trajectory, which has seen broadcasting rights fees, as well as revenue derived from sponsorship deals and matchday income, increase substantially during the last decade, Zanetton sees two sets of contrasting fates.
He said: “We expect a lot of divergence in how large clubs fare during this crisis compared to small clubs.
“Bigger clubs will always do better in terms of crisis - they attract more capital, they keep their heads above water.”
The former investment banker admitted that despite many teams from Europe’s top leagues having reputations as financial giants, some would be in serious financial strife if soccer’s shutdown continues much longer.
Various clubs have already furloughed non-playing staff, while a handful have made redundancies.
He said: “I think that this is most likely to take out a lot of clubs from their current level, put them down to lower divisions, potentially even putting them out of existence. That does include top-tier teams… If we have to stay at home for a long time and we end up with a continent-wide economic crisis, I think some major European clubs will be in big trouble."