July 26, 2022
Does buying Chelsea for £2.5billion make financial sense?

The latest accolade bestowed by 19-year-old Roman Abramovich ownership might be the most remarkable of all: Chelsea Football Club is now the most expensive sports team in history.

A group led by US billionaire Todd Boehly and Santa Monica-based private equity group Clearlake Capital have pledged £4.25bn – £2.5bn for the club itself, plus £1.75billion for investment on and off the pitch over the next decade – to acquire the reigning world champions, despite the difficult nature of the sale process, the complicating factor of the British government involvement and Abramovich’s sanction which removed the need for any conventional auction.

Nor were Boehly and Clearlake the only consortium bidding at such a historic high; groups led by Stephen Pagliuca, Sir Martin Broughton and Sir Jim Ratcliffe all made similar offers, while the Chicago-based alliance of the Ricketts family and hedge fund billionaire Ken Griffin was also more than able to compete financially before to withdraw its offer.

Why have the numbers involved in buying Chelsea soared so high, and do they make financial sense? Not at first sight, according to Kieran Maguire, football finance expert and author of The Price of Football. “I made an assessment of Chelsea, saying that based on fundamentals he was worth around £1.5bn,” he said. Athleticism.

“(The actual purchase price) seems high, and I’m saying that due to the lack of listed clubs, the benchmark for Chelsea would be Manchester United. If you look at their share price, the club is worth less than when it was floated by the Glazers a decade ago I don’t think it’s hard for Chelsea to say United have a bigger brand United’s shares are worth around £1.8 billion sterling.

Chelsea, Todd Boehly


Chelsea chairman Bruce Buck (left) with new owner Todd Boehly (Photo: Adam Davy/PA Images via Getty Images)

“If you add the debt, which is around £500m, that generates a value of around £2.3bn. If they’re worth that, how can Chelsea be worth more?

One answer is scarcity. Chelsea ranked eighth in revenue in the Deloitte Money League last year. None of the other clubs in the top 10 have changed hands or even been put up for public sale in the past 10 years (the most recent is seventh-placed Paris Saint-Germain, acquired by Qatar Sports Investments in 2011). The three top-ranked clubs – Barcelona, ​​Real Madrid and Bayern Munich – are all governed by fan or member models that prevent a private takeover. Opportunities to buy European football clubs the size of Chelsea, with huge international profiles and a recent track record of success at elite level, are extremely rare.

“Normally when a business is taken over, you pay a premium for the privilege of being able to control it,” adds Maguire. “But even so, if I added 20% to United’s value it would bring it to £2.7bn, so a figure of £2.5bn for Chelsea seems very heavy. That’s before you factor in that Chelsea lost £900,000 a week for 19 years under Abramovich.

“On business fundamentals, where you value a business on its ability to make a profit or make money, the price paid seems excessive. Then you must ask yourself why. Maybe these future owners have spotted something in Chelsea that we don’t have.

Another answer lies in who has pushed their interest in Chelsea the most. Aside from Ratcliffe’s dramatic late intervention, three of the four deals shortlisted by New York investment bank Raine Group included major players in the US private equity world: Clearlake, Bain Capital co-chairman Pagliuca and co -founder of Apollo Global Management Josh Harris. The other was owned by Griffin, founder of US hedge fund giant Citadel LLC.

Private equity firms and investors often target troubled assets and while Chelsea weren’t quite that when the UK government sanctioned Abramovich in March, the process that followed was certainly labeled a distressed sale. . But beyond the unique circumstances, European football clubs of varying sizes are becoming increasingly attractive for significant investment from across the Atlantic.

Premier League takeovers since 2003

Crew Trade-in price Buyer Year

£2.5 billion

Todd Boehly/Clearlake Capital

2022

£1.8 billion

Stan Kroenke

2018

£770 million

Glazer Family

2005

£305 million

FIP

2021

£300 million

Fenway Sports Group

2010

£210m

Abu Dhabi United Group

2008

£175m

Farhad Moshiri

2016

£140 million

Roman Abramovich

2003

£134 million

mike ashley

2007

£100 million

sports republic

2022

That’s partly because, compared to American sports franchises, European soccer clubs are relatively cheap to buy. That goes even for Chelsea who, at £2.5billion, sold around five times their turnover; in recent years, it has been common for NFL or NBA franchises to demand prize money between seven and ten times their revenue in order to change hands.

In the particular case of Clearlake — which Athleticism understands he will own around 62% of Chelsea and joint control rights with the Boehly Group – this also contributes to European football being a significantly less regulated environment. Private equity firms are not allowed to hold majority stakes in NBA, MLB, or NHL teams, and the NFL does not allow private equity investments at all.

But the main reason a £2.5billion asking price has been deemed reasonable by all of Chelsea’s most serious bidders is that they believe the financial pie of football is going to get much bigger.

In short, they share the bullish confidence in the sport’s future growth embraced in April by Raine Group co-founder Joe Ravitch in an interview with the Financial Times: “I guess Chelsea and all the top clubs in the Premier League will probably be worth more than $10bn (£7.9bn) over five years,” he said. “So I think anybody who buys Chelsea today at the prices we’re talking about gets it. for a flight.”

Athleticism has been told that Chelsea’s new owners believe this growth can be achieved through smart investment in the club’s infrastructure – namely the modernization and expansion of Stamford Bridge – as well as a greater focus on the academy to help ensure that the first men’s and women’s teams continue to be successful. This continued success should lead to increased commercial revenue, while positioning the club to earn a greater share of the profits from more lucrative broadcast and digital streaming deals.

But this kind of virtuous cycle in sport alone doesn’t seem likely to generate the kind of astronomical growth predicted by Ravitch. More focused global fan engagement will likely also be needed, perhaps supercharged by new, still relatively abstract digital technologies such as non-fungible tokens (NFTs) and the metaverse.

Maguire details a potential storyline being discussed in football and tech circles. “We know that Chelsea have fans in Asia, Africa, the United States, etc.,” he explains. “We know we can’t get these people to Stamford Bridge, but can we get them to Stamford Bridge through the use of virtual reality, augmented reality etc.?

“What they are hoping is that someone will shell out for a VR headset and be willing to pay extra to have the experience of sitting at Stamford Bridge on match day. They are convinced that there are many people ready to do it and that the technology is almost there. This could be one of the additional sources of income.


The owners believe women’s football will grow (Photo: Marc Atkins/Getty Images)

“Clubs also seem to think NFTs could be a source of revenue, but Liverpool tried it last month and 90% of theirs weren’t sold. If you believe in these things, and many of these investors do, there could be an opportunity to make more money with the club – in which case a purchase price of £2.5billion doesn’t seem too expensive.

But there’s no guarantee these new revenue streams will materialize, and not everyone in the world of football funding shares Ravitch’s optimism.

“Since the beginning of the Premier League, football clubs have been trying to find the goose that lays the golden egg,” says Maguire. “We know Chelsea have tens if not hundreds of millions of fans around the world but they don’t make any money from them. Before COVID United generated 57p per fan they claim to have per year. If you can turn that 57 pence into £1 all of a sudden you have doubled your income and you are making huge profits but doing it is not easy because if you did someone l would have done already.

“United are worth 10% less than they were 10 years ago, according to the stock exchange. If American markets think football is worth less today than it was ten years ago, how can a club like Chelsea increase its value of £2.5bn to £10bn over the next decade?They place enormous faith in unproven technologies for which we don’t know there is a market.

In the short term, there are financial fruits at hand for Boehly and Clearlake. Chelsea’s inflated wage bill – £333million according to accounts published in December – contains plenty of fat to cut, while the £120million Abramovich paid to compensate sacked managers and their various behind-the-scenes workers for 19 years of ownership is a powerful reminder to the new regime of financial stability benefit.

Beyond that, whether or not Chelsea’s new owners have secured a bargain will remain open.

(Top photo: Chloe Knott – Danehouse/Getty Images)

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