Football has evolved over the years, with the emergence of new players such as investment funds, as well as new competitions. The economic prospects are significant, but the visibility that football can bring in terms of business or simply international influence is also important.
Since the financial crisis, European professional football has seen a few changes to the governance of clubs and leagues. These changes have come in response to the ongoing need for financing. Investment funds are increasingly interested in taking equity stakes in football clubs and leagues. This major sport is evolving rapidly, as evidenced by ever-increasing transfer fees, increasingly expensive tickets, and many clubs building their own stadiums. This sector is undervalued and is set for strong growth. By investing in professional clubs, hedge funds seek to diversify their portfolios and avoid putting all their eggs in one basket. It also allows them to shine on the international stage. Their primary objective, however, remains to generate a return by selling their shares later, but like any business, the success of this type of investment depends not only on the financial aspect, but also on extra-financial strategies.
Different types of funds
There are different types of funds in the football world, such as sovereign wealth funds and private equity funds. Sovereign wealth funds are increasingly present on the sporting scene, with the aim of making their profits from the economic activity of their countries bear fruit. Another aspect of these investments is to broaden their soft power: these clubs give them a foothold in Europe, enabling them to do new business while raising their profile. To raise their profile, the clubs are sponsored by subsidiaries of these sovereign wealth funds, like PSG with Qatar Airways. What's more, this dual role of sponsor and club owner enriches sporting events, which become meeting places for businessmen, politicians, economic decision-makers and financiers, fostering the development of relationships for long-term business deals.
Private equity or hedge funds have much more financial objectives. Regardless of the type of business, they focus on and invest in sectors with growth potential. Their investments are part of a diversification strategy aimed at realizing capital gains on undervalued clubs and collecting part of their income.
Many reasons to invest in football
The entry of funds into this sector is essentially a strategy for diversifying their assets. Funds are mainly looking for investments with an optimal risk/return profile. In this period of health crisis, the global economy is in retreat, and the uncertainty associated with investments has encouraged funds to invest in football clubs. What's more, the valuation of football clubs is only weakly correlated with that of other, more traditional assets. Investing in these clubs therefore makes it possible to reduce the overall risk of their portfolio without reducing performance.
Most funds interested in European football are American. This phenomenon can be explained by the fact that football clubs in the Big Five (the five biggest European leagues: Germany, England, Spain, France and Italy) are undervalued compared to franchises in the traditional American king sports: basketball, baseball, hockey and football: Germany, England, Spain, France and Italy) are undervalued compared with the franchises of the traditional American king sports: basketball, baseball, hockey and American football. Funds on the other side of the Atlantic therefore believe they can apply the various management methods that have worked in the USA to make a club more attractive and benefit from a capital gain on resale, especially as football's appeal has grown significantly in recent years. Moreover, football is an ultra-competitive sport in which only the big teams from the Big Five compete in major competitions such as the Champions League. The fact that so few clubs are selected for these prestigious tournaments creates de facto value in the clubs in question.
By acquiring a stake in football clubs or leagues, investment funds hope to receive a share of the clubs' revenues, whether from TV rights, commercial or ticket sales. As far as ticket sales are concerned, the fact that a club owns its stadium is a real advantage for an investment fund, as match revenues go directly to the club. Owning the stadium is also an asset in the sense that the funds will be able to exploit it to the full and develop the stadium culture, as is the case in the United States. The funds can earn income from the recruitment and training units. In fact, training players and then selling them generates a lot of revenue. Each time a player is transferred, his former clubs receive a percentage of the transfer fee known as a ‘training bonus’. With the inflation in transfer prices, having a training centre or recruitment unit with an international reputation is becoming a major challenge for investment funds wishing to acquire a stake in a club. These will enable a better exchange of players. The emergence of cryptocurrencies in the world of football also presents a new opportunity. All of this helps to attract new people while generating profit.
Selection criteria
It is important to stress that not all clubs are attractive to investment funds. They cannot afford to invest in activities that will make them lose money, whether it is a company, a club or a football body. Running a club is like running a business.
Accounting periods may be loss-making, but if the financial structure remains viable and the prospects for returns and asset growth match the funds' objectives, they are preparing to enter the market.
The funds do not stop at financial criteria alone. Numerous qualifying criteria are also considered when selecting clubs. As we know, factors such as the club's reputation are important, as it is a high-profile sector, but so are its infrastructure, the quality of its training centre, the economic strength of the area in which it is located and its debt structure, for example.
Before deciding to invest, these funds carry out market studies and business plans. The football sector is an investment like any other that requires a great deal of preparation. Investment funds are accountable to their investors/subscribers for their future performance. They cannot therefore act arbitrarily and must follow the business plan drawn up in advance as closely as possible. Football clubs are therefore businesses, and like all businesses, they must strive to have a sustainable and sound business model.
Comments