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A new wave of football investors seeks direct financial returns, with limited insight into their methods. This study examines their strategies through 61 transactions involving 37 investors, identifying four micro-processes (horizoning, focusing, synchronizing, creating value) and five distinct value creation strategies: Phoenix, (Cash) Cow, Gazelle, Ants Colony, and Eagle’s Nest. These findings contribute to investment theory and offer guidance for stakeholders amid the rise of financially focused football investors.
Financial investments in football have surged, driven by diverse motives such as indirect returns and network-building strategies. Notably, sovereign wealth funds have entered the fray, with acquisitions like the Saudi Arabian Public Investment Fund’s purchase of Newcastle United. Recent years have witnessed a significant increase in deal values, exemplified by Clearlake Capital-led consortium’s acquisition of Chelsea FC. Additionally, investors like Dynasty Equity and Arctos Partners have displayed a clear financial focus, employing private equity investing approaches. Despite the industry’s historical losses, these investors perceive football as offering attractive returns through strategic investment. However, scholarly research on such investments remains limited, prompting the current study to investigate investment activities and value creation strategies in football. Through empirical analysis, the study aims to bridge theoretical and practical gaps, offering insights for stakeholders and administrators. The paper proceeds with theoretical background on private equity investment activities, an examination of ownership structures in football, methodological insights, and an exploration of value-creation strategies employed by financial investors in football.
Capital investment theory dictates that an investment should yield returns exceeding the investor’s cost of capital, favoring the selection of investments with the highest returns when facing competition (Alkaraan & Northcott, 2006; Cooremans, 2011; Maritan, 2001). Private equity firms, structured as partnerships, source funds from institutional investors and individuals, managing them to generate returns within a set timeframe. These firms focus on buying, improving, and selling companies to enhance enterprise value (Barber & Goold, 2007). Value enhancement strategies include leveraging, operational enhancements, and increasing multiples. Strategic decisions are influenced by various contextual factors (Krysta & Kanbach, 2022), including investment holding periods, which range from short to long-term, with differing impacts on performance (Long & Ravenscraft, 1993; Lopez-de-Silanes et al., 2015; Siming, 2010). Selection criteria for portfolio companies include proximity to the investor, company size, financial stability, and growth potential (Osborne et al., 2012; Chatterjee, 2000; Palepu, 1986). Private equity investors commonly seek majority stakes and employ active investment strategies, emphasizing synergistic collaborations among portfolio companies (Acharya et al., 2013; Borell & Heger, 2013). Value creation primarily occurs through leverage, operational improvements, and multiple expansions.
Since the late 1800s, shareholders have played a role in the professionalization of sports, evolving through phases outlined by Rohde & Breuer (2017). Football ownership structures include private, public, and member associations, each with distinct characteristics and impacts on team performance and governance. Private ownership offers funding advantages but risks financial mismanagement, while public ownership tends to be more balanced and efficient. Clubs owned by supporter trusts face decision-making delays, and there’s a debate over the impact of democratic decision-making by member associations on long-term planning versus short-term success. Recent trends show a shift towards corporate structures, attracting investors despite risks associated with football’s unpredictable nature and unconventional asset structure. However, gaps exist in understanding investor activities and strategies in the football industry, a focus this paper aims to address.
This study aims to create a substantive theory on the value creation process employed by financial investors in football, contrasting it with conventional investment theory. A framework consisting of four processes and five value-creation strategies is introduced to understand the nature and activities of these investors. The ongoing interest of financial investors in football clubs underscores the importance of this understanding. Two key factors contributing to the attractiveness of football assets are highlighted: their lack of correlation with other asset classes and the constant revenue growth in major European leagues. Practical implications include aiding football club managers in making better decisions, guiding financial investors in formulating strategies, and enabling regulators to implement appropriate safeguards. Financial investors in football primarily aim for financial returns, adapting their strategies accordingly, which can contribute to the professionalization and strategic rationalization of football club management. However, it’s crucial for regulators to prevent irrational injections of capital that may harm competition, while still allowing for long-term, rational, and strategic investments. Further research is recommended to validate these findings and compare different strategies quantitatively, considering the perspectives of football clubs and their respective investors.
Source:
Tim Sauer, Christos Anagnostopoulos, Henning Zülch & Lukas Werthmann (2024) Creating value in football: unveiling business activities and strategies of financial investors, Managing Sport and Leisure, DOI: 10.1080/23750472.2024.2314568