The world of sports business is appealing. Institutional investors, particularly private equity funds, are aware of this and have been competing for years to acquire soccer clubs (and other sports) and facilities. This silent but profound transformation is rewriting the economic balance of entire professional leagues, clubs, and championships. Suffice it to say that the total value of private equity transactions in the sports sector exceeded $51 billion globally in 2023 alone, a sharp increase from $23 billion in 2021.
Europe, in particular, is experiencing a period of great turmoil. Operations such as CVC Capital Partners' entry intoSerie A, La Liga, and more recently international rugby, testify to the growing interest of funds in a sector traditionally linked to family ownership. The reasons? Portfolio diversification, long-term returns, media visibility and, last but not least, the still untapped monetization potential of assets such as media rights, brand licensing and digital entertainment.
Meanwhile, the Italian market is also becoming more attractive. In addition to the aforementioned investments in Serie A soccer, other clubs in sports such as basketball and volleyball are seeking private capital to raise their competitive level and strengthen their infrastructure.
Private equity is a phenomenon that initially took hold in the United States and then spread to Europe over time. We are clearly more attentive to what is happening on our continent and in particular in our country, where we have seen firsthand the arrival of funds, especially in the most dynamic sector in terms of sports, which is soccer. It is in this area that the largest amounts are involved, generating great interest in PE both in Europe and overseas," says Alberto Crivelli, lawyer and Founding Partner of AMTF Avvocati.
The idea of investing in sports originated in the US, the leading country in this regard, because it has always made non-sporting activities a fundamental part of its policies. Whether through marketing, fan loyalty via branding, or the construction of new stadiums and infrastructure, new strategies have increased revenues, attracting the interest of funds. However, the world of private equity and funds operates to multiply the initial capital. In a highly specific sector such as sports, this means dealing with unique elements that differ from the usual investments in the industrial or financial world."
Please explain further...
When a company changes hands, especially large entities or multinationals, employees perceive the change in ownership, but without any real immediate difference in terms of their daily lives. There are often changes and modifications at the governance level, which may or may not be felt at the level of employment, customers, and suppliers. In soccer, on the other hand, there is a very strong connection with third parties in relation to the team, namely the fans.
Investors must also contend with the sentiments and desires of the public, which tends to pay little attention to budgetary policy and financial health, preferring instead to invest with a view to pure sporting results. These usually require huge expenditure, with uncertain returns as they are based on sporting performance. Fans want champions on the field, but this leads to huge costs. If you don't have key assets such as your own stadiums, solid merchandising on a continental and global level, or high TV rights revenues, the risk of financial instability becomes high. The individual entrepreneur is very attached to the feelings of the fans. As we have always seen in Italy with these patrons who have operated on a more passionate basis, sometimes to the detriment of the balance sheet.
For some years now, however, private equity and funds have been bringing a culture to the world of sport that is more focused on balancing the books – or rather, on "winning" – and therefore on profits. As a result, the bar is being raised and attention is also increasing for properties that are not investment funds. In short, together with the introduction of stricter rules by institutions (think, for example, of the introduction of financial fair play), there is a general sense of greater attention being paid to the balance sheets of sports companies.
Are there any Italian examples that illustrate this point?
"For now, the situation in our country is rather atypical. It is certainly attractive due to the history and prestige of the top league, as well as the excellent marketing work that the Football League has carried out in recent years, but it remains to be seen. Let's take the two examples of Inter and Milan and the respective transactions in which the clubs have recently been involved. It is interesting to note that in both cases, the usual acquisition mechanisms were not used. Instead, ownership was transferred following the enforcement of loan guarantees made to previous owners. The experience of the American fund 777, which purchased Genoa, was short-lived due to international issues, which also impacted the specific investment."
Private equity often has a very return-on-investment-oriented vision. How does this mentality fit in with the "emotional" and "passionate" nature of sport, especially in a country like Italy?
"In the short term, it has been and continues to be very complicated. But I also believe that in the long term, sport in general and soccer in particular will benefit from it. After all, there are already some positive examples in Serie A of teams that have always managed to sell their best players and make a profit while remaining competitive. I am thinking, for example, of Atalanta, Bologna, and Fiorentina. Fans are gradually becoming more and more proud if their team is not only strong but also financially healthy.
But that's not all, because he is beginning to realize that a single spectacular season doesn't make much sense if the club is suffering financially. And with the transfer market now active in many windows, it immediately becomes apparent if the finances are not healthy. In this sense, with the rules introduced by the institutions, even huge clubs such as Barcelona have had to face severe restrictions in certain transfer windows, which was unthinkable years ago.
What progress do you see and where can further action be taken?
"We cannot ignore the issue of stadium ownership. This new focus on profitability, in a sport as expensive as soccer is even at the mid-level, must be accompanied by infrastructure managed by the teams. But I am also thinking of ancillary activities related to the brand, which can allow clubs to generate additional revenue. As mentioned, the Italian Soccer League is making great strides in this regard. To help all professional teams with marketing tools, thanks to a team that has been working very well for several years. Bringing the Serie A brand around the world.
Progress has also been made in the fight against copyright piracy. This is an essential aspect for the funds, given that television rights revenues are an important source of income. I also note that, based on lessons learned in the past, there is now much greater involvement of leading law and tax firms in many transfers of important players, which are in fact cross-border transactions. There have been numerous problems related to player capital gains, involving many clubs, with some investigations still ongoing.
In which sports do funds invest the most?
"Over the last 3-4 years, we have seen further developments in soccer, but not only there. They are also very active in other sports. Take golf, for example, with the Arab fund PIF setting up its own league, the LIV. They are spending billions of euros and signing up some of the best players in the world. Or tennis, with the Six King Slams event in Saudi Arabia. Not to mention Formula1, perhaps the most financially expensive sport for owners, but with huge returns.
Sport in general, now as in the past, is used as a powerful marketing and communication tool, given the enormous media coverage it receives. Nowadays, to compete at the highest levels, it is not only important to have the so-called broad shoulders. You also need to be able to count on perfectly structured organizations, with competent managers for each individual sector, both sporting and managerial. This means investing in the structure behind the scenes, and not just in the more visible front line of the athletes.
Are there significant differences between private equity investments in the sports sector in Italy compared to those in other countries?
"Several laws have been introduced in this regard, such as the Flat Tax (commonly referred to as the Ronaldo Law). This provides benefits to high-earning foreigners who come to Italy, such as foreign soccer players. Abroad, I believe Spain was the first to introduce policies of this kind. All this inevitably favors some countries over others, which is significant because it risks creating an imbalance in competition."
How does the recent increase in attention to corporate governance in sports clubs intersect with the entry of private capital?
"Let's say that there are certainly differences because, if the individual, who is both owner and entrepreneur, is accountable only to himself, he may also be more independent and 'emotional', not having to answer to third parties such as other investors, partners, and so on. He may therefore tend, in some cases, to be less careful and less balanced in his management decisions. On the other hand, from this point of view, although focused on profit, private equity funds have complex decision-making processes that involve various stakeholders, to whom they must justify their choices. For this reason, they are by nature already inclined towards more in-depth and less emotional analysis.
However, this difference is becoming increasingly narrow. This is partly because entrepreneurs today know that if they want to maximize their investment in the future, perhaps by offering to sell their team to a fund, they will have to come to the table with their accounts in order and a solid organization. In any case, we are moving towards a world where increasingly high-level aggregations are being established in terms of sports competitions. These are the preserve of only a few of the existing teams. Small and medium-sized teams will be able to aspire to enter these larger circuits, but only by implementing management policies similar to those of private equity funds.
In conclusion, what should clubs do to maximize the opportunities offered by this type of financing without compromising their sporting identity?
"That's a good question. It will depend a lot on the precursors, in the sense that positive examples, and therefore exits with multiple values, could lead to ever-increasing interest. Everyone is realizing, in soccer and beyond, that it is not an investment like any other, but one that brings with it significant differences. I believe there will definitely be expansion, but not immediately. It is unlikely that there will be a rush by funds to acquire teams. Rather, each case will be evaluated on its own merits, taking into account the history, the brand, how it is perceived, and above all, the potential for expansion at European and global level."©
Source: IlBollettino.eu
