Exploring the Business Side of Football!

October 18, 2023

Everybody loves the sport, but how is it a business?

Today, we cover:

  • The Business Side of Football

  • PE Interest in Football Business

____________________________________________________________________________

The Business Side of Football

Let’s start from the topline: Revenues.

A football club earns its revenues from broadcast rights, shirt sales, matchday spends, and sponsors. It’s estimated that SkySports pays $1.3Bn to the EPL to show matches in the UK.

Very lucrative.

A diverse revenue base that is showing signs of further improvement in one major way - commercialization.

Teams in the La Liga, or Bundesliga, have adopted stadium naming rights as an alternative source of revenue, The Premier League is still behind on this. Why?

In my view, they have a form of cultural attachment to each stadium because it’s been around for many decades, so it cannot be commercialized.

In fact, only Arsenal and Manchester City have seen their stadium names change because of new infrastructure built in the last decade.

Another lucrative, and new, revenue stream: Amazon All or Nothing documentaries. How do they work?

It serves as a diversified way of cutting the revenue profile, where a club allows Amazon to document their season in exchange for broadcasting rights. Subscribers get to view the behind-the-scenes action of their favorite football club while getting access to snippets of other Amazon original content.

This is important because of the age distribution that views this content. The average age of fans attending a premier league game is a BIG 52. A younger audience wants to watch highlights with behind-the-scenes footage that summarizes a season. This does exactly that.

As a result, Amazon gets more users in the 16-24 age range on their platform while football clubs get to maximize the lifetime value of a fan at an earlier age.

Now, the Cost Structure of a Football Business:

Major CAPEX: Stadium and Training Facility

Opex: Wages, and Equipment

Stadiums are usually renovated to upgrade the capacity to bring in more revenues and streamline the ticketing process while improving the fans’ overall matchday experience.

But, it’s a huge investment that would take at least 25 yrs to be paid back. However, it must be done to keep up with the competition and provide a better experience. I believe it only lifts the revenue profile marginally given the high investment upfront.

____________________________________________________________________________

PE Interest In Football Business

Today, private equity from the US is a major mover.

  1. Clearlake Capital made a $5.3bn acquisition of Chelsea.

  2. RedBird Capital Partners completed a €1.2bn acquisition of AC Milan.

  3. Fortress Investment Group founder Wes Edens is a co-owner of Aston Villa.

  4. Crystal Palace is part-owned by Apollo Global Management’s co-founder.

According to a Football Benchmark report, the aggregate enterprise value of the 32 most prominent European football clubs has increased by 96% in the seven-year period from 2016 to 2023.

Who wouldn’t want to own a football club after hearing this stat?

What’s fascinating about PE in football is their timeline.

They usually hold companies for 5 years before making an exit to earn a ~2-3x cash-on-cash multiple.

In football, with large investments, that might be hard to achieve.

So, what do they see?

Obviously, they look at it as an undervalued asset class because they can:-

De-risk their existing portfolio

Collect broadcasting revenues that protects a big team’s position in a league

As a result, it could be viewed as a riskless asset with recurring revenues.

There are also structural benefits for PE firms.

European football business provides varied investment opportunities, including options for minority investment, providing debt, and the chance to buy out specific assets within one club, like its media rights.

Furthermore, PE firms might just come in to make football more efficient because they have a track record of cutting costs to boost the bottom line.

The question are: How long will it take until their patience dies out? How effectively can they do this with transfer budgets, salaries and player sales?

Only time will tell.

See you next week.