With the Manchester United sale process having appeared to have reached something of an impasse over just how much they are worth, there has been more focus around valuations of football clubs.
Back in November, Liverpool engaged US merchant banking giants Goldman Sachs and Morgan Stanley to facilitate a search for a minority partner while also opening themselves up to interest over a full sale in order to get a truer picture of how they could bank for the club.
Owners Fenway Sports Group are understood to place a value of £4bn on the Reds - a figure some £3.7bn higher than the purchase price back in 2010.
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Reports of would-be owners from the Middle East being in advanced talks were wide of the mark and FSG principal John Henry, in a recent Q&A interview with the Boston Sports Journal, finally put to bed the sale talk by taking the club off the table.
Suggestions over the lack of solid interest over a potential full sale pointed toward what some see as an over-inflated valuation of the club. But with Liverpool's position as a globally renowned asset with a fan base of hundreds of millions, with tremendous scarcity value, a healthy balance sheet and investment into infrastructure already undertaken, the £4bn price tag might seem favourable when compared to the reported £6bn the Glazer family are seeking for Manchester United.
That valuation has caused something of a sticking point for the interest from chairman of the Qatar Islamic Bank (QIB), Sheikh Jassim bin Hamad Al Thani, and INEOS founder Sir Jim Ratcliffe. Both are bidding to become the new owners of the Red Devils.
The £6bn would also see a large debt liability undertaken and the requirement for major investment into infrastructure, with either a remodelling of a decaying Old Trafford, or a completely new stadium, having to be a key part of the club’s future.
Then there is transfers. In order for an investment to grow there has to be success on the field to raise the success off the field. That involves spend in the transfer market.
Through investment in data analytics from early on in the FSG regime, and through managing to put together a best-in-class team, Liverpool found a way to get around becoming embroiled in the transfer arms race to the same extent of their rivals for some time, although with a squad that is in need of a rebuild, FSG’s pursuit of investment specifically points to a need to raise capital to aid that effort in some way.
But are investors into European football prepared?
Speaking at the Financial Times’ Business of Football Summit at the Biltmore Mayfair Hotel in London on Thursday, where the ECHO was in attendance, Mike Forde, executive chairman at Sportsology, a firm that works with team owners, leagues and institutional investors, said: “I’ve been in the US now 10 years and early on I would often get this email from an NBA owner that said, ‘listen, I’ve got this team Newcastle and the broker has told me it’s only 15 minutes from London on the Concorde and it sounds like a great opportunity. The TV deal is two thirds of the NFL and I can buy it for 10 per cent’.
“And then they go through the process of the purchase they hit the first transfer window, and then the second transfer window and realise they’ve spent twice the purchase price in the first two transfer windows. Then you start thinking about what is the real cost of acquisition.
“If the team loses, unless you are the Boston Red Sox (who FSG also own) or someone like that, then you don’t really have a problem. If you buy into a team in European football and you’re not winning games then there is a pressure on the ownership straight away.
“The way to solve that pressure is the transfer market. They come in at a certain price and they forget about the bait price over the next two or three years.
“Sophisticated investors are thinking about the cost of being competitive, over the lifespan of the growth. When you have an exit, as part of a fund there is a five-to-year rise and a cost to being competitive. So what is that true cost?
“There is a difference between the valuation of a team with an average age of 23 with long-term contracts and a lot of value, versus a team in the same league competing for the same position with an average age of 31. There is a different requirement over the next three of four windows. Sophisticated groups like the Liverpool guys have managed to crack that code and understand where is the real opportunity and how they take advantage of that.
“Sophisticated owners understand that they have to live through a transaction over the next five years, have to solve the payment of business and deal with the fans. What does that cost?”
One thing that is suggested to be putting valuations higher is the rising amount of investment arising from limited partner positions within sport.
In major North American sports, such as the NFL, there is a ban on institutional investment, with teams still owned by individuals or family offices. The argument for not having such investment into the USA’s most popular sport is that it does not require it and valuations have continued to grow.
In 2021, the NBA became the first major US league to allow private equity to take passive stakes in teams, something that has seen an influx of capital, borne out of, in no small part, the needs of teams to rebalance post-Covid.
European football doesn’t have such guardrails over institutional investment and the pandemic created a need for capital in sports, to the point where it has become an asset class of its own. With Liverpool, like others, searching for a minority partner, the rise in valuations can be linked to the trend. For the Reds, though, finding a minority partner could be trickier than it seems.
“There has been a market created to allow LP liquidity to allow an owner to take money off the table, sell five, 10, 15 or 20 per cent,” said Forde. “It has allowed the market to create value. If Manchester United sells for the first time in 20 years, Chelsea sells for the first time in 20 years, that’s your marker. The LP liquidity market allows that on a more regular basis, and that is a fast moving space.
“If Manchester United and Chelsea were assets in North America with the rules and the structure around it they would be gone in seconds. That tells you that the market here is still a sale market and not an LP liquidity market when it comes to the big assets. I think the quicker the teams and the leagues solve that then it becomes a new asset class that is appealing in nature to institutional investors, high net worth individuals and family offices etc.”
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