The trouble with Ostarine: Jimmy Wallhead’s
16th March 2018
In the following two-part blog series, I will start by outlining a short typology of investors in football in recent years, in order to show the emergence of different varieties of investors who seek to use football as a means to a particular end. I will then in a second blog, explore the regulatory landscape across different countries, with a particular focus on the regulatory approach to multi-club ownership.
Before moving forward, I must offer a disclaimer of sorts. In addition to my research and writing contributions with the Asser Institute, I am the ‘Head of Advisory’ for Athlon CIF, a global fund and capital advisory firm specialising in the investment in global sports organisations and sports assets. I appreciate and hence must flag that I will possess a bias when it comes to investment in football.
It might also be noteworthy to point out that this new wave of investment in sport, is not exclusive to football. I have recently written elsewhere about CVC Capital Partners’ US$300 million investment in Volleyball, and perhaps the message that lingers behind such a deal. CVC has also shown an interest in rugby and recently acquired a 14.3 per cent stake in the ‘Six Nations Championship’, to the tune of £365 million. New Zealand’s 26 provincial rugby unions recently voted unanimously in favour of a proposal to sell 12.5 per cent of NZ Rugby’s commercial rights to Silver Lake Partners for NZ$387.5 million.
Consider also the apparent partnership between star footballer’s investment group, Gerard Pique’s Kosmos, and the International Tennis Federation. Kosmos is further backed by Hiroshi Mikitani’s ecommerce institution, Rakuten, and all involved claim to desire an overhaul of the Davis Cup that will apparently transform it into the ‘World Cup of Tennis’. Grassroots projects, prizemoney for tennis players and extra funding for member nations are other areas the partnership claims to be concerned with. As is the case with all investment plays of this flavour, one can be certain that a return on the capital injection is also of interest.
So, what are we to conclude from the trends of investment in sport and more specifically for this blog series, in football? A typology elucidates that a multiplicity of investors have in recent years identified football as a means to achieve different ends. This blog considers three particular objectives pursued; direct financial return, branding in the case of company investment, or the branding and soft power strategies of nations.
It is important to point out that the ability to use football as an investment tool is only possible due to the ways in which football has transformed from associations to corporations over recent decades. For the purpose of this short blog, I will give the simplistic and short story, though I would urge those interested to go beyond this blog on the history of football ownership models and trends.
Essentially what I hope to emphasise, is the influx of private ownership and the advent of substantial television rights deals cannot be divorced. At this pivotal turn for football ownership, private ownership had been taking place in some forms, often a hybrid model with members, and often the case was a private owner coming in and saving or at least supporting a club financially.
Whereas at the start of the 1990s when broadcast deals made headlines, private owners saw a commercial opportunity as football moved into a generation where broadcasting rights were the main source of revenue for clubs. By the early 2010s in Europe, ‘approximately three of four professional clubs were majority owned by private investors, and one in six clubs were owned by foreign investors’.1 Football club owners hence quickly became more business orientated and more market-driven due to the opportunities that broadcasters presented and the benefits leagues and organisers were able to conjure up. ‘The growing prize money of the UEFA Champions League, the escalating TV revenues for premium competitions, and the internationalization of marketing measures have strengthened the incentives’.2
Private owners saw member owned clubs as unable to maximise commercial opportunities, and it is the same kind of sentiment that is aimed towards the less commercially mature sports by Private Equity groups and other institutional players today. That being, yes, you may know your sport, but you do not know how to take it to the heights it could achieve in the commercial sense.
Private Equity firms are notorious for being able to identify undervalued businesses that they can further improve the value of by trimming unnecessary or wasteful expenses, as well as reconstruct operations and other inefficiencies. The priority, of course, is to make money and ensure a return for investors.
A variety of Private Equity groups have found football appealing in recent years as clubs look for non-traditional means of funding and in some extreme instances, rescue from bankruptcy. Larger Private Equity groups have come to be known to accrue a portfolio of football clubs and other sports asset investments in order to diversify their sports investment wings, and to maximise returns for investors.
For the boutique firms, the strategies might be more considered and to the observer less audacious, identifying undervalued and underperforming smaller clubs with a history at the top tiers of football or the potential to get there. There may, of course, be other commercial motivations for specific acquisitions, such as the location of clubs. However, in a nutshell, these Private Equity plays are a matter of identifying undervalued football clubs with scope to grow in value, in turn providing an opportunity to make investments and acquisitions at a low entry point and to deliver substantial results for investors.
Whilst examples of Private Equity investment into football are a plenty, consider the following few for the purpose of this short blog. As an example of a multi-club ownership portfolio, New City Capital, fronted by Chinese American, Chien Lee, now boasts investment and ownership in Barnsley FC (England), FC Thun (Switzerland), KV Oostende (Belgium), AS Nancy (France), Esbjerg fB (Denmark), and is the former owner of OGC Nice (France); selling the club at the time for a record for a French football club.
Lee and his multiple co-investors bring strategies and philosophies to these clubs akin to the ‘Moneyball’ strategies made famous by Billy Beane. With a business background, the investors involved clearly fancy their abilities to maximise value of the clubs, but Lee is additionally conscious of his ability to grow the value of the clubs by the ways in which he has been able to tap into Asia and create new fans and revenue streams based on these connections. “We will try to ‘internationalize’ Barnsley, as we did with Nice. Before we invested in Nice, not many people in Asia had heard of them. Now in Asia – in China – people know the club.”
In terms of opportunistic timing strategies, as well as funding arrangements in order to complete an acquisition, one may consider another noteworthy example in the Private Equity space, that of ALK Capital’s takeover of Burnley. A leveraged buyout play, the sports investment arm of ALK, Velocity Sports Partners, acquired majority and controlling shareholding of 84% late 2020.
For its part, Redbird Capital has made a variety of investments into football, in a variety of ways. They took a direct stake into Toulouse FC, but have also made an interesting investment into the Fenway Sports Group that owns Liverpool FC. This ultimately highlights an overarching view that football is a good bet for the firm, yet also showing that investment into the world game may come in many shapes and sizes.
It is the case that with the aforementioned examples, the investments have been a success insofar as the assets and portfolios of these firms have experienced growth in value. For example, New City Capital sold OGC Nice for a handsome return. However, one must also point at investment failures such as King Street Capital with Girondins Bordeaux. Some of the identifiable distinctions between those firms able to achieve their objectives or at least stay the course and the King Street Capital debacle, appear to be (among other things) a fractured relationship with local government and the distance between the firms ambitions, control over that ambition and those running the club (Covid-19 to an extent as well).
Insofar as football remains the world game, nations are acutely conscious of the consequent power in nation branding via football investment. Nation branding, according to Dinnie’s summary, consists of three key objectives; to attract tourists, to stimulate inward investments and to boost exports3. For a nation like Qatar, it is additionally about security and standing on the international scene.
To attain such objectives requires certain image and branding achievements. In recent years, it is notable that a variety of States have been using their financial power to invest in football, not for the sake of profit, but in order to improve their image internationally.
State branding via soft power strategies, such as investment in football, has come to be known widely as sports diplomacy. A variety of nations have identified sports diplomacy as way in which to be viewed favourably by other nations and to create positive imagery around an investment that in turn reflects positively on the nations image.
Soft power and sports diplomacy has been endorsed by scholars as legitimate strategies, given they are non-military instruments used to compete with much larger and militarily capable states.4 This is key to a nation such as Qatar, which desires to move away from oil dependency and has to compete with much larger neighbouring nations. Branding is designed to make a distinction between one brand and another. For Qatar, it is perhaps it’s ultimate struggle to differentiate and distinguish itself from its neighbouring countries.
One of Qatar’s headline soft power through investment in football strategies is the acquisition of, and post-acquisition operation of European giants, Paris Saint-Germain (PSG). It is almost impossible however to disconnect Qatar’s sports diplomacy strategies with PSG from its strategies with BeIN Sports the broadcaster, along with being awarded World Cup 2022.
The Qatari’s acquired PSG in a less than ideal state, but have since managed to turn the club into one of the richest and most successful on the planet. PSG’s image remains a priority, because in turn it is seen that Qatar’s image is the beneficiary.
The importance of this for Qatar might be best measured by the size of the spend on players since taking over the club. Putting the likes of David Beckham and Zlatan Ibrahimovic aside for the moment, PSG paid both the number one and number two world record transfer fees for Brazilian superstar Neymar (a reported €220 million) and French wonderkid, Kylian Mbappe (a reported €180 million). One media report said: ‘The colossal Neymar deal, funded by Qatar Sports Investments, shows how far governments will go to secure global influence’. That article was headlined – ‘A £198m transfer is not about football. It’s about soft power’.
Next, consider the United Arab Emirates (UAE) and how it yields power through the following subsidiaries and stakes therein: Manchester City FC (100%), Melbourne City FC (100%), Montevideo City Torque (100%), Lommel SK (99%), New York City FC (80%), Mumbai City FC (65%), Girona FC (44.3%), Sichuan Jiuniu FC (29.7%), Yokohama F. Marinos (20%), Troyes AC (100%), City Football Academy, City Football Marketing, City Football Services, City Football Japan, City Football Singapore, City Football China, City Football India, CFG Stadium Group, and Goals Soccer Centers.
Manchester City FC is certainly the golden child of the group and much like PSG for Qatar, the successful imagery around Manchester City cannot be disconnected from the desired branding in a global sense for the UAE. The growing list of investments of CFG highlights that the UAE is intent on soft power strategies and using sports diplomacy to brand itself widely as a legitimate and well organised nation. Was it a coincidence that just as the City Football Group was arranging its stake in the Chengdu based football club, Sichuan Jiuniu, the UAE’s national airline Etihad announced it ‘would be enhancing its links with Chengdu’s airport‘? That is to say nothing of the Chinese investment into CFG.
Questions remain about whether these soft power strategies have been successful in light of, for instance, the widely reported atrocious treatment and deaths of migrant workers in Qatar, or the ongoing reports of slavery in the case of the UAE. In an ugly sense, the success of the soft power investments of these nations in football, is whether they are loud enough to drown out the noise of the atrocities associated with their nations.
The paradox for Qatar, is that before using football as a diplomatic tool and winning the right to host the World Cup, the exploitation of migrant workers was not making headlines. Ironically, it is this active use of football as a diplomatic instrument that has shone a light on the issue and effected Qatar’s image substantially. Black and Peacock point out that when it comes to soft power sports diplomacy, one ought to be aware that the values publicly portrayed and associated with an investment in football (i.e. success, courage, commerciality, aspiration) will often not be the actual values of a State, but rather merely the values with which a state would preferred to be associated with to fulfil wider objectives5.
The other type of investment aimed primarily at improving the image of the investor (and not recouping a profit directly from the club as an entity) is company branding. In a way, it is the ultimate move of a sponsor, instead of paying an annual yearly contribution to the club, the sponsor takes control of the management of the club in order to maximise the image return for its brand.
The paramount example of such a strategy is embodied by Red Bull’s investment in football clubs around the world. The regulatory complexities will be left for blog 2, but it is Red Bull’s stake and influence in four clubs (Red Bull Salzburg, RB Leipzig, Red Bull New York, and Red Bull Brasil) that renders it the ultimate example of a company that found investing in football as way to brand at scale. Despite the success that Red Bull football clubs have experienced, sporting and commercial, the purpose for Red Bull investing in football is of course to further promote the brand and sell energy drinks.
Red Bull had previously and in a revolutionary way, tapped into branding via sport and had worked out a way to brand at large using the content production arm of the company. Utilising extreme sports, Red Bull campaigns focussed on associating itself with elite sport, perhaps thus conflating the alleged performance enhancing capabilities of its beverages or at least that its product was trendy and fashionable to drink in the context of sport.
When it came to football, Red Bull followed an ownership strategy rather than a traditional sponsorship method, opening up both the benefits of the ownership over traditional sponsorship models, and, the size, scale and reach of football as opposed to the more niche extreme sports. Branding through football is seen as almost more covert, as the consumer is less aware that when they watch a branded club in a branded stadium, they are being advertised to:
‘The consumer does not perceive that the content is branded. Sport content is predestined for branded entertainment. Engaging sports fascinate and attract people and have proven to be capable of transferring positive images… many niche sports still lack the attention of sport consumers or sponsors and are not covered extensively by the media. Branded entertainment, therefore, can provide niche sport enterprises, athletes, and teams as well as sponsors with consumer attention and prosumer engagement.’6
Per the title of this blog, the typology of investors listed above is not exhaustive, though perhaps includes the most relevant as I segue into the regulations around multi-club ownership. However, a short note on the membership model clubs is worthwhile.
Member owned clubs still exist widely and some are in fact popping up in protest over a perceived hyper commercialisation of football. SV Austria Salzburg is a newer member owned club, established in response and in protest to the Red Bull ownership of the former SV Austria Salzburg – Red Bull subsequently changed the name and colours.
Member owned clubs can be funded by paid memberships and more traditional revenue streams like ticket sales and sponsorship. Control wise, however, the members maintain the controlling stake and more importantly perhaps, the controlling vote. The hybrid model between private ownership and member ownership remains interesting, given what can be maintained in terms of history and culture, and what can be brought in in terms of commercial expertise and the reality that the need and desire for profits can drive success of a football club.
As is hopefully apparent from the above, the types of investors and indeed the motivations come in all shapes and sizes. It is also worth pointing out that when it comes to the Private Equity groups and the nations and companies concerned with branding, the main reasons for investment do not render them as the exclusive reasons.
Qatar will take the commercial benefits of PSG, BeIN sports and the World Cup. Part owners of CFG, China Media Capital/CITIC Capital (12%) and Silver Lake (10%) would not have invested with such alacrity based on the soft power strategies and state branding aspirations of the UAE. Rather, those groups are more interested in the commercial benefits.
Separate from selling more energy drinks than ever, Red Bull is undoubtedly pleased with taking RB Leipzig from the 5th tier to the Bundesliga. As the club is now valued at €560 million, Red Bull has an extremely valuable asset. Likewise, the big funds and institutional players are aware of the positive branding that sport affords them when their football investments are successful. In the next blog, I will consider the current regulatory landscape regarding investment in football with a particular focus on regulations that address multi-club ownership.
• This article was originally published on the Asser International Sports Law Blog on 6 July, 2021. Click here for the original.
1. Marc Rohde and Christoph Breuer, ‘The market for football club investors: a review of theory and empirical evidence from professional European football Institute of Sport Economics and Sport Management‘, (German Sport University Cologne, Köln, Germany) European Sport Management Quarterly, 2017 VOL. 17, NO. 3, 265–289.↩
2. Ibid. P267.↩
3. Keith Dinnie, ‘Nation Branding, Concepts, Issues, Practices‘, Butterworth-Heinemann, 2008.↩
4. Romain Herbreteau, ‘The use of a football club as a means of state branding: The mixed results of Qatar’s promotion in France‘ Leiden University – Master Thesis, Master of Arts International Relations, Supervisor: Dr Camillo Erlichman (2018)↩
5. David Black and Byron Peacock. ‘Sport and Diplomacy‘. Oxford Handbooks Online (2013) 1-21↩
6. Reinhard Kunz & Franziska Elsässer & James Santomier, ‘Sport-related branded entertainment: the Red Bull phenomenon’ (2016) Sport, Business and Management: An international Journal, 6, 520-541.↩
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