Investing into sport can be a risky business.
Its volativity, its separation from what is usually normal business sense where investors have to take into account emotional attachment to their asset when finding ways to grow is something that has proven to be a major challenge down the years.
Fancy making money? Whatever you do, don't invest in football! Well, that was the well worn trope whenever new money would arrive into the game. For English football it was largely seen as a haven for egostists, fantasists and shysters. But the landscape in football, while undoubtedly still containing some of the characters that fit into those three brackets, has pivoted in recent times to a new breed of investor who have found a way to turn these loss making football clubs into profitable businesses.
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Fenway Sports Group 's approach ever since they acquired a debt-laden husk of a football club that was left by the ruinous regime of Tom Hicks and George Gillett in 2010 has been to make sure that Liverpool a sustainable success story, a club that can pay its own way, runs a profitable enterprise and is able to re-invest in achieving future success, not beholden to the whims of oligarch owners or sovereign states keen to launder reputations through the beautiful game.
But 12 years in to FSG's ownership of Liverpool their model is still something of an anomaly among top clubs, where there is the expectation to spend big, regardless of the financial obligations that it brings. It's fair to say that plenty of football fans don't get excited about balance sheets or how profitable their football clubs are and whether or not they are built upon long-term sustainability, and that isn't a criticism. Football fans care about their team and want them to win trophies, is it really up to them to be the moral arbiters of the game?
But in some quarters the move towards seeing football clubs as profitable businesses that have a plethora of untapped revenue streams, particularly as new technology and ways to engage with global fan bases come on board is something that is being embraced.
While the pandemic saw sport grind to a shuddering halt in early 2020 it saw RedBird Capital Partners, the New York-based private equity firm founded by former Goldman Sachs executive Gerry Cardinale in 2014, put some of their considerable capital to work.
RedBird moved into the European football market in the summer of 2020, taking a majority stake in French second tier side Toulouse, a club that had fractured following relegation and unpopular former ownership and one that was in need of a rebuild. Last month Les Violets returned to French football's top tier in far better health than they exited it back in 2020.
Then followed moves to take a slice of the Indian Premier League cricket side Rajasthan Royals, a small stake in Spanish second division club Malaga and, what had been their biggest deal until the beginning of this month, an 11 per cent stake in Liverpool owners FSG for a $750m sum. RedBird have also, alongside Hollywood star Dwayne Johnson, been a driving force behind a relaunch of the XFL in the US, an American football competition that will seek to fill the void when the NFL season ends with a more immersive competition for the fan that will place emphasis on entertainment as well as the quality of the on-field product. The XFL, which has seen failure to launch twice in the past two decades, is set to begin in 2023 with hopes high for success at the third time of asking given the people behind the latest bid.
Earlier this month that deal was topped when RedBird clinched a €1.3bn agreement to acquire Italian giants and Serie A champions AC Milan from another US ownership group, Elliott Management. It was an arrangement that thrust RedBird to the very forefront of football investment and gives them the scope to grow a brand that they believe can expand far beyond its current state, with a new stadium key to their plans.
But circling back to FSG and RedBird's relationship it is one that drew the questions 'what's it all about?' when it was announced back in March 2021.
To lay it out, some investors are passive, some are active. When considering RedBird's position on this they are very much the latter, they are business builders, using their plentiful experience in US sports to find ways to grow revenue streams, become rights holders and to embrace new and emerging technologies and trends to deliver new experiences to fans around the world while at the same time, crucially, improving the cash flow of the business. The convergence of sports, media and entertainment is something that RedBird are aiming to be at the forefront of.
To consider their FSG relationship and how it pertains to Liverpool, using the capital to prop up transfer spend on players was never going to be part of the plan, from a business point of view it isn't sensible, nor does it provide any real prospect of growing revenues accretively. Winning a trophy is great, and that is the end game, but the riches that come from winning trophies are something like an espresso shot to clubs, it gives them a shorter term boost while not truly addressing the issue of how they generate those kind of revenues year on year, thus allowing them to invest in new players to make trophy success happen more regularly, and sustainably, from the money they generated as a business.
The anniversary of RedBird's deal with FSG earlier this year had me mulling what had been achieved as a result and trying to find the breadcrumbs as to what might come next. In taking a deeper look it has actually been a year of seismic change for FSG, one where growth has been at the top of the agenda, something that the RedBird deal was designed to facilitate. Sam Kennedy, president of the Boston Red Sox and one of FSG's most influential partners, told US sports business website Sportico last year that the RedBird investment had "super-sized" the ambitions of the Liverpool owners.
The parts were all moving from day one. There was a decision to accrete the two per cent stake that LeBron James had in Liverpool into one per cent of FSG, with James' business partner Maverick Carter also becoming an FSG partner. The relationship between basketball icon James, who recently became only the third athlete in history to reach billionaire status, has been growing from strength to strength in recent times, and that has allowed FSG to pull on levers that they may not have been able to otherwise. James is a sporting and cultural icon who transcends his status as just an athlete, and his strong ties with Nike, Liverpool's main kit partner, has opened up the club to new demographics, with James to help aid that relationship with new merchandise lines.
There was then the move by RedBird and FSG to invest and take part-ownership in James and Carter's $725m valued SpringHill Entertainment Company, a business that is expected to see significant growth and that brings on board one of the foremost digital storytelling firms in the world, a brand that positions itself as a culture company. SpringHill is a company expected to be a major player in that sport/media/entertainment convergence in years to come.
In November FSG closed on the purchase of the Pittsburgh Penguins NHL deal for north of $900m to take the total value of their empire past the $10bn mark. The capital injection that arrived from the RedBird deal allowed for that to reach a conclusion in a timely fashion. In adding Pittsburgh to sports teams in Liverpool and Boston, where they have the Red Sox, FSG have a put together a group of major teams from cities with many similarities in terms of their respective histories and demographics.
They will also be moving into new territory in the coming years with an NBA team. The ECHO understands that the intent is for the Reds owners to try and acquire what is expected to be an expansion franchise in Las Vegas in the coming years, with James to be the man to run the operation, handing him what he has long yearned for - team ownership. The FSG/NBA move is something that RedBird will be involved with.
When it comes to the money behind football clubs the questions are understandably centred around how much is available for transfers. Regardless of what goes on around the edges, whether it be stadium builds, sponsorship deals or moves into the metaverse, what happens on the pitch remains the crucial part of it all. For Liverpool they are a global brand whose resurgence in the past four years back to the summit of the game and winning the biggest trophies has directly correlated with revenues rising, and that is something that FSG will know, and it is part of the reason why they know they have to re-invest in success, as has been done with the potentially club record signing of Darwin Nunez.
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RedBird's position is to aid FSG's pursuit of growth opportunities that provide greater value for the Reds owners and that enable them to commit capital expenditure to infrastructure projects that can directly impact revenues at team level, which then turn into money available to strengthen on the pitch. It all might seem rather tenuous but the impact cannot be understated. FSG's approach down the years has seen them manage to create profitable sports teams and grow their empire, but in the midst of a pandemic they made the decision to seek active investment to help them continue to push forward, not just a capital injection for someone to sit back and watch them do all the hard work.
RedBird have now taken control of AC Milan, a team that Liverpool have duelled with in top level European competition countless times before. Cardinale and his team want to maintain the return to success of the Rossoneri, who won their first Scudetto since 2011 last month, and have plans to build a new stadium that can become Italy's premier outdoor arena at the top of their 'to do' list, noting the lack of world class, modern stadia to host major music and sporting events in the country.
They also plan to leverage the relationship Milan has with fashion to find ways of increasing revenue streams through reaching new demographics with Milan branded merchandise that may appeal to fans and the general public alike, in much the same way that Paris Saint-Germain have done with their Air Jordan branding and global appeal of the city, turning it into a lifestyle brand.
But RedBird, who will be pushing to find ways to lift up the media revenues of Serie A in the coming seasons, know that for all that goes on around the edges it has to be the team that succeeds, and that is what they will seek to achieve. It will, however, be more in line with how FSG operate at Liverpool than what QSI do at PSG. There will be cost control and a desire to be net positive eventually when it comes to transfer spend, something that Liverpool have always had as the aim under FSG. Cost control has been of enormous importance to FSG, indeed, it's cost certainty that emboldens owners to grow businesses.
So how does RedBird's AC Milan takeover impact Liverpool? In short, it doesn't.
There is no conflict of interest, no plans to create a link, no cause for UEFA to have to question ownership stakes. It is a deal that hasn't created concerns with FSG, nor would it have particular reason to. It is a deal that is separate from their business dealings with FSG.
RedBird's FSG link up is just a part of what they do, they have plates to keep spinning all over the world. An indication of their keen eye for an investment is the sale of the IPL rights this week for double what the previous cycle generated. The next cycle, where bidding closed on Tuesday, saw Viacom and the Disney-owned Star India pay a combined $6bn (£5.1bn) for the next five years. Last year RedBird closed on a 15 per cent stake in the Rajasthan Royals, the deal valued at £27m. The value of that stake is now likely to have significantly increased.
Sources have told the ECHO that RedBird's investment into AC Milan is something for the long-term, they aren't in the business of flipping football clubs for a quick profit. They are, of course, in the business of making money but their USP is long-term investing and growing businesses organically. The hiring of key personnel over the last 12 months such as Kevin LaForce as managing director from the NFL, where he was key in the clinching of the ground-breaking $100bn 10-year TV deal last year, points to placing the right people in the right places to aid their push forward, very much in the same mould as FSG.
Cardinale was asked last year at the Financial Times' Business of Sport Summit in New York whether he would want to own Liverpool in the future. He gave a straight bat, a respectful answer that didn't rule anything out or anything it, stressing that while owning a club like Liverpool would be a huge privilege it was not part of the thinking when they invested, nor was it part of the thinking then.
It isn't part of the thinking now, either. RedBird are an investment fund, when opportunities arise where they feel they can deliver success and growth then they look closer. The idea of control isn't something that is the key to how they operate, but how they can influence and effect matters by using their expertise definitely is at the forefront of their thinking.
The ECHO has been told that RedBird's position on their investment hasn't moved at all from the moment that they arrived as a partner. FSG are the only organisation that Cardinale and his firm would be willing to be junior partners in and their plan is to be involved for the long term, potentially increasing the amount of capital that they invest over time. They could increase their stake, but having already put their capital to work with FSG in projects that could deliver significant yields for the Reds owners there is already plenty of work ahead and no immediate plans to do so. There is no grand plan for their partnership with FSG, other than to continue to help grow the business and its entities and see where that path leads.
While owning AC Milan now to go along with Toulouse, in addition to their ownership stake in Liverpool indirectly through FSG and a small shareholding in Malaga that could yet turn into something more once its current ownership wrangles pass through the courts, being a multi-club platform like City Football Group or Red Bull isn't desired. More clubs may be added if there was the scope to grow those clubs as businesses and achieve success on the pitch and the opportunity aligned with what they do as a business, but as for having a huge web of interconnected clubs 'just because' isn't in their thinking.
While at Goldman Sachs, Cardinale had looked at taking over Liverpool before FSG arrived. It was a deal that, obviously, didn't get done. There remains, however, a deep interest in European football from RedBird, and after its formation in 2014 it looked at over 200 clubs and assessed each of them with a thorough deep dive. Toulouse emerged as their first opportunity, and having already been well versed on what AC Milan could offer them, the Rossoneri are their second.
FSG took a macro view to their operations and RedBird were identified as a key ally in helping them achieve their goals. And while it is sometimes hard to see how the growth of an ownership group can benefit its individual sporting entities, the RedBird investment was seen as something of a tide that can help lift all boats. The strength of the ownership results and introduction of new ideas and fresh capital allows for new revenue streams to be brought on board at team level, and that gives Liverpool the best chance of continuing to invest in sustained and sustainable success, placing them in a stronger, less risky position than those at the whims of oligarchs and sovereign states.
