Investors Shifting Focus to Lower-Valued European Soccer Clubs

Investors Shifting Focus to Lower-Valued European Soccer Clubs

U.S. investors have started shifting their attention to European soccer clubs with lower valuations, as they aim to tap into the international sports market. Rather than targeting marquee clubs, some investors are opting for a multi-club model, investing in smaller clubs with more affordable deals. This trend comes as competition in the soccer investment space intensifies among deep-pocketed investors, including private equity firms and sovereign wealth funds.

Soccer has a more global appeal compared to many U.S. sports, making it an attractive investment opportunity for private equity and high net worth individuals. The sport’s popularity, both in Europe and the U.S., translates into higher revenue opportunities from broadcast media rights and merchandising. Major clubs such as Manchester United, Chelsea FC, and Newcastle have experienced significant revenue growth, resulting in higher valuations.

According to PitchBook, deal valuations across the top five European soccer leagues have skyrocketed from over $70 million in 2018 to approximately $5.2 billion in 2022. U.S. investors, including private equity and venture capital firms, back more than one-third of the clubs in the “Big Five” leagues. Recent high-profile acquisitions, such as the purchase of Chelsea by a consortium led by U.S. investor Todd Boehly and the takeover of AC Milan by Redbird Capital Partners and Elliott Management, have set new valuation standards and prompted club owners to consider selling to private equity.

While some firms invest directly in clubs, others have found alternative entry points into the European soccer market. For instance, Sixth Street Partners acquired the Spanish broadcast rights of FC Barcelona and invested in Real Madrid’s stadium operations. These avenues provide exposure to the sport’s financial upside without the complexities of club ownership.

Soccer clubs have been seeking fresh capital to offset the economic distress caused by the Covid-19 pandemic. The absence of fans in stadiums and increased costs have impacted revenue streams. This presents an opportunity for U.S. investors to inject capital into the sport. Fenway Sports Group, for example, sold a minority stake in Liverpool FC to Dynasty Equity, enabling the club to mitigate pandemic-related debt and finance infrastructure upgrades and player acquisitions.

Lower-tier leagues like England’s Championship League and League One are attractive investment opportunities due to their smaller valuations. These leagues offer potential returns through promotion to higher divisions. While the prospect of relegation presents risks, investors understand the upside of gaining promotion and are now more comfortable exploring these opportunities.

Another emerging investment strategy is the multi-club model, which allows investors to acquire multiple teams and create synergies between them. This model enables the transfer of players across clubs, nurturing talent and potentially selling them to higher-tier leagues. City Football Group, for example, owns Manchester City, New York City FC, and Melbourne City. By leveraging governance, technology, and data sharing, investors can find synergies between comparable clubs, whether on the same continent or globally.

As larger private equity firms target top-tier teams, middle-market firms are raising funds to pursue the multi-club strategy. This approach allows them to participate in the European soccer market and potentially generate attractive returns. One example is 777 Partners, which recently acquired a majority stake in Everton for approximately $685 million. The firm previously invested in Sevilla FC, as well as several other clubs worldwide.

The landscape of U.S. investment in European soccer is evolving. Investors are moving away from marquee clubs and focusing on lower-valued teams, exploring alternative entry points, and adopting the multi-club model. The appeal of soccer’s global fan base and revenue opportunities, combined with the need for fresh capital in the sport, present enticing prospects for U.S. investors. As the market becomes more competitive, it will be interesting to see how investment strategies continue to evolve and shape the future of European soccer.

Business

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