Does Chelsea being bought for £ 2.5bn make financial sense?

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The final distinction bestowed by Roman Abramovich’s 19-year 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 made a £ 4.25 billion commitment – £ 2.5 billion for the club itself, plus £ 1.75 billion towards investment on and off the pitch over the next decade – in order to acquire the reigning world champions, despite the distressed nature of the sale process, the complicating factor of UK Government involvement and the sanction on Abramovich which removed the need for any conventional auction.

Nor were Boehly and Clearlake the only consortium to bid at such a historic level; groups fronted 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 were also more than capable of competing financially before withdrawing their offer.

Why did the numbers involved in buying Chelsea climb so high, and do they make financial sense? Not on the face of, it according to Kieran Maguire, football finance expert and author of The Price of Football. “I did a valuation of Chelsea, saying based on fundamentals it was worth around £ 1.5 billion,” he says The Athletic.

“(The actual purchase price) does look high, and I say that because of the few clubs listed on the stock exchange, the benchmark for Chelsea would be Manchester United. If we look at their share price, the club is worth less than when it was taken to the stock exchange by the Glazers a decade ago. I do not think it being harsh on Chelsea to say United has a bigger brand. United’s shares are worth around 8 1.8 billion.

Chelsea, Todd Boehly

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

“If you add on the debt, which is about £ 500 million, that generates a worth of around 3 2.3 billion. If they are worth that, how can Chelsea be worth more? ”

One answer is scarcity. Chelsea ranked eighth in revenue in last year Deloitte Money League. None of the rest of the clubs in the top 10 have changed ownership or even been publicly for sale in the last 10 years (the most recent is seventh-ranked Paris Saint-Germain, acquired by Qatar Sports Investments in 2011). The top three 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 of Chelsea’s size, with a huge international profile and a recent track record of success at the elite level, are extremely rare.

“Normally when a company is taken over, you do pay a premium for the privilege of being able to control it,” Maguire adds. But even so, if I added 20 per cent onto United’s value, that would take it to £ 2.7 billion, so a figure of £ 2.5 billion for Chelsea seems top-heavy. That’s before you factor in that Chelsea have lost £ 900k a week for 19 years under Abramovich.

On business fundamentals, where you value a business based on its ability to make profits or cash, the price paid seems excessive. Then you need to ask yourself why that is. Perhaps these prospective owners have spotted something in Chelsea which we haven’t. “

Another answer lies in the identity of those who pushed their interest in Chelsea most forcefully. Excluding the dramatic late intervention by Ratcliffe, three of the four bids shortlisted by New York-based merchant bank Raine Group included major players in the world of US private equity: Clearlake, Bain Capital co-chairman Pagliuca and Apollo Global Management co-founder Josh Harris. The other wielded capital from Griffin, founder of US hedge fund giant Citadel LLC.

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

Premier League takeovers since 2003

Team Takeover price Buyer Year

£ 2.5bn

Todd Boehly / Clearlake Capital

2022

£ 1.8bn

Stan Kroenke

2018

70 770m

Glazer Family

2005

£ 305m

PIF

2021

£ 300m

Fenway Sports Group

2010

£ 210m

Abu Dhabi United Group

2008

£ 175m

Farhad Moshiri

2016

£ 140m

Roman Abramovich

2003

£ 134m

Mike Ashley

2007

£ 100m

Sport Republic

2022

This is partly because, in comparison to US sports franchises, European football clubs are relatively cheap to buy. That even goes for Chelsea who, at £ 2.5 billion, sold for approximately five times their revenue; in recent years it has been common for NFL or NBA franchises to command prices of between seven and 10 times their revenues in order to change hands.

In the specific case of Clearlake – who The Athletic understands will own approximately 62 per cent of Chelsea and joint-control rights with Boehly’s group – it also helps that European football is a significantly less regulated environment. Private equity firms are not allowed to own majority stakes in NBA, MLB or NHL teams, and the NFL does not allow private equity investment at all.

But the primary reason why a sale price of £ 2.5 billion was considered reasonable by all of the most serious Chelsea bidders is because they believe football’s financial pie is going to get a lot bigger.

In short, they share the bullish confidence in the sport’s future growth espoused in April by Raine Group co-founder Joe Ravitch in an interview with the Financial Times: “My guess is that Chelsea and all of the top Premier League clubs will probably be worth in excess of $ 10 billion (£ 7.9 billion) in five years, ”he said. “So I think whoever buys Chelsea today at the prices we’re talking about is getting it for a steal.”

The Athletic has been told that Chelsea’s new owners believe this growth can be achieved by smart investments in the club’s infrastructure – namely, modernizing and expanding Stamford Bridge – as well as placing greater emphasis on the academy to help ensure the men and women first teams continue to succeed . This continued success is expected to power increases in commercial revenue, while positioning the club to earn a greater share of the benefits from more lucrative broadcast and digital streaming agreements.

But this kind of virtuous sporting cycle alone does not seem likely to deliver the kind of astronomical growth that Ravitch predicted. More targeted global fan engagement will probably also be required, perhaps supercharged with new and as yet relatively abstract digital technologies such as non-fungible tokens (NFTs) and the metaverse.

Maguire details a potential scenario being discussed in football and technology circles. “We know Chelsea has fans in Asia, Africa, the US and so on,” he explains. “We know we can not get these people to Stamford Bridge, but can we get Stamford Bridge to them through the use of virtual reality, augmented reality and so on?

“What they’re hoping is that someone is going to shell out for a virtual reality headset and that they’ll be willing to pay extra to have the matchday experience of effectively sitting in a seat at Stamford Bridge. They are convinced there are lots of people out there willing to do that, and the technology is almost there. That could be one of the additional revenue streams.


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

“Clubs also seem to think that NFTs could be a moneymaker, but Liverpool tried it last month and 90 per cent of theirs went unsold. If you believe in these things, and many of these investors do, there could be an opportunity to make more money out of the club – in which case a purchase price of £ 2.5 billion does not look over-expensive. ”

But there are no guarantees that such new revenue streams will materialize, and not everyone in the world of football finance shares Ravitch’s optimism.

“Football clubs since the start of the Premier League have been trying to find the goose that lays the golden eggs,” Maguire says. “We know Chelsea have tens, perhaps even hundreds, of millions of fans around the world, but they’re not making money out of them. Pre-COVID, United generated 57 pence per fan that they claim to have per year. If you can turn that 57 pence into £ 1, all of a sudden you’ve doubled your revenues and you’re making huge levels of profit. But doing it is not easy because if it was, someone would have done it by now.

“United are worth 10 per cent less than they were 10 years ago, according to the stock market. If the US markets think football is worth less now than it was a decade ago, how can a club like Chelsea increase in value from £ 2.5 billion to £ 10 billion over the next decade? They are pinning an awful lot of faith on unproven technologies for which we do not know there is a market. ”

In the short term, there is some low-hanging financial fruit for Boehly and Clearlake to get their teeth into. Chelsea’s bloated wage bill – £ 333 million according to the accounts published in December – contains plenty of fat to trim, while the £ 120 million that Abramovich paid out to compensate sacked managers and their various backroom staffs over 19 years of ownership is a powerful reminder to the new regime of the financial benefit of stability.

Beyond that, the question of whether or not Chelsea’s new owners have secured themselves a good deal will remain an open one.

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

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