18th September 2023.
There is never a dull moment in football. We could write about the travails of the bond markets or even the potential debt crisis that we think will negatively impact corporate earnings and thus stock markets over the next 12-18 months as inflation refuses to be tamed. Yet we are drawn back to the beautiful game because events have once again moved on to the next instalment in what we see as the slow demise of the Premier League and English football as we currently recognise it.
The initial stand-out item is the apparent withdrawal of Manchester United from being available for sale. But it was never apparent that Manchester United was for sale. The Glazers had announced back in November 2022 that they were exploring ‘potential sources of outside investment‘. Slow-forward to September 2023 and the Glazers have remained silent but the media has convinced itself that a sale, if ever there was one, is now off the table. In that period of time, the share price has gone from $13.13 to $26.84 and back down to the current level of $19.09.
There has been plenty of speculation and reporting about Sir Jim Ratcliffe’s interest in taking a controlling stake in the club whilst a mysterious and largely anonymous Sheik from Qatar has reportedly made up to five bids to buy the club outright. The asking price was reputedly £6bn ($7.4bn) which is the equivalent of $45.60 a share based on an exchange rate of £1=$1.239.
To further complicate the story, the media has also recently reported that the Glazers have changed their minds and are now holding out for $10bn (£8.07bn). This is $61.34 a share or 3.2 times the share price on 15th September 2023. And this is for a business that is achieving some very serious economic losses…
We suspect that the $10bn number, if true, has come from the Glazers’ advisors, the Raine Group, who also advised Chelsea during its own sale process in 2022. Indeed, it was specifically mentioned by Raine’s Co-Founder Joe Ravitch, in an interview with the FT during the ongoing sale of Chelsea, as a potential valuation for each of the Premier League’s Big 6 clubs in ‘five years’. Way to go, eh?
And whilst some may question the ‘mental’ mathematics behind such claims, it would be naïve in the extreme to think that the Glazers have picked the bigger number because they can. Whatever the thinking is at Old Trafford and in Florida, the Glazers will continue to assess their financial forecasts alongside their other commitments in NFL and commercial real estate. This is not to say that they are particularly good at what they do on a day-to-day basis as United’s financial record in recent years has demonstrated, but neither are they the simpletons that many would have us believe.
But even if the club was for sale, the lack of a US billionaire or two or indeed one of the larger private equity operations in that very short list of bidders is telling. Football, it would seem, is not the prized asset it once was even if it is one of the jewels in the crown that is up for sale. Our own view is that the enterprise value for the business comes in at approx. £3.2bn. The rest is the ‘bragging’ premium. Given that the business loses money and there is the further (potential) exposure of a stadium rebuild that will cost north of £1bn, the proposition becomes much less attractive in the short to medium term. Mixed performances on the pitch are not particularly helpful either.
The additional issues of competing against state-backed clubs presents further obstacles to potential investors and private equity funds. Not only is there the prospect of losing a lot of money in turning the club around, but there is also the prospect of losing even more money if the media rights values falter. Given the future risk, it is not such an attractive proposition after all. Which brings us to another problem club in the Premier League, namely Everton…
We warned back in 2020 that things might be going awry at the City of Liverpool’s senior club. Not three years later and the club has been ‘sold’ to 777 Partners of the US. Thus, another English football club falls into the hands of our friends across the pond. And with ten of the current crop of Premier League clubs either wholly owned outright by American interests or equally shared as in the case of Aston Villa, the majority-owning nationality of the English Premier League is definitely not English. Soccerball has well and truly arrived.
In Everton’s case, it is again notable that private equity’s senior players have passed this one by. The club has achieved economic losses of £490m between 2018 and 2022, a total currently only surpassed by Chelsea (£548m) over the same period. The debate over the quality of the prospective new owners and their somewhat mixed track record in owning clubs abroad brings home the fact that when owners get it seriously wrong, the pool of willing buyers becomes very limited indeed.
Everton’s problems also reflect wider issues in the game such as a lack of reasonable financial governance but they also highlight the fact that outside of the Big 6 clubs, the mainstream banks and lenders will generally steer clear of football clubs. Indeed, Everton’s plight is not helped in being indebted to boutique lenders who will charge near double-digit interest rates with some very stiff terms and conditions, including the retrieval of money if they don’t approve of a change in ownership.
So, for all the so-called ‘wealth’ of the Premier League clubs, the reality as we have so often said is very different with numerous participants receiving regular capital injections from owners in order to keep the show on the road despite record revenue levels. The rub for the Americans is that Soccerball is fraught with risk as the owners of Burnley discovered two seasons ago. Relegation isn’t usually part of the business plan, nor is the general inability to achieve a profitable return on all that US capital that funds the business although to be fair to Burnley, it is one of the better and marginally profitable operations in English football.
In the Financial Times, the question is asked if football can become profitable. We have written on a number of previous occasions about the increasing influence of Americans in football and the potential implications for change. We have also written about the obstacles to change such as a general inability to reform operationally. Club owners are currently compelled to spend beyond safety in order to maintain a competitive level of ability in the face of state-backed behemoths hoovering up trophy after trophy.
The Americans seek profit. Private equity arguably tends to seek profit via disruption in the form of break-ups, mergers, reform and sale. Football is heading fast towards another attempt at structural reform following the first Super League launch/debacle. And given that football doesn’t ‘do’ mergers, the structural option is, frankly, the only option left. Both Manchester United and Everton’s respective financial positions prove this point albeit from different perspectives. And it will be the American contingent that will drive it.
In conclusion, there is the following quote from the futuristic film Rollerball…
“Corporate society takes care of everything. And all it asks of anyone, all it’s ever asked of anyone ever, is not to interfere with management decisions.”
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