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I’ve told you about the time I owned a pub, but have I told you about the time I owned a football club? It was 1996 and an opportunity arose to invest in Liverpool FC. At the time, the club was majority owned by the Moores family, heirs to the Littlewoods retail and football betting fortune. David Moores, the club’s chairman, owned 51%. But Moores didn’t control all the shares. Since the club’s founding in 1892, a small minority had circulated among fans and individual investors. For a hundred years those shares weren’t easily transferable. They passed from generation to generation. If they were traded at all, it was through private negotiation. Then, in 1991, a London-based broker launched a platform with a mandate to trade unquoted stocks over the counter under Stock Exchange rules. Liverpool FC and Athletic Grounds PLC became one of the platform’s highest profile markets. After leaving a buy order with my own broker, I was eventually matched with a seller. For a consideration of £1950 (plus commission of 2.2%) I became the proud owner of a single share in Liverpool Football Club. My timing was fortuitous. “Pre Euro 96, football was incredibly unfashionable,” recalled Moores later. After England hosted the European championship that summer, though, the country went football mad. Within a few months, the value of my share had doubled. I’d never made so much money, so quickly and having just bought my first home, with all the budgetary pressures that entails, I sold. It’s a trade I would live to regret. Not that I sold too cheap. The club was taken over eleven years later at a price of £5000 a share, so I caught the big move. Indeed, prior to the flurry of takeover interest in 2007, the shares consistently traded below my exit price. For over a decade, their valuation didn’t grow. My regret came from what I gave up. To squeeze out the minorities, the club’s buyers, Tom Hicks and George Gillett, had to offer an inducement. They offered individual shareholders priority ticket purchasing rights, guaranteeing them lifetime access to home cup matches and cup finals. With Liverpool appearing in nine cup finals in the past ten years alone, those priority rights became a valuable asset I lost exposure to.1 Still, my fleeting ownership of a single share in Liverpool FC gave me an insight into football club valuations. When I sold, the club had an equity value of £125 million. Eleven years later, Moores sold to Hicks and Gillett for £174 million – or £219 million including the £45 million of debt they took on. In 2010, the club changed hands again when Red Sox owners Fenway Sports Group bought it at a valuation of £300 million. Over the next 16 years, Liverpool’s valuation climbed steadily under FSG’s ownership. Then, in August, they sold a 38% stake to a consortium, 1892 Holdings, at a valuation of about £5.5 billion ($7.3 billion). Not a match for my IRR, but as a multiple on invested capital, not a bad return. Along the way, rising valuations have transformed the market for football club ownership. Old-school club owners – the locally-based, locally wealthy supporters like David Moores – have long been priced out. “With the influx of more and more overseas superstars on superstar wages, I was aware the game was changing beyond all recognition and deeply worried, too, about my ability to continue underwriting the financial side,” Moores reflected. “The Abramovich era was upon us, and I knew that I could never compete.” At current valuations, though, even oligarchs can’t compete. In 2010, every member of the Forbes 400 was wealthy enough to have bought Liverpool Football Club for less than half their net worth. Today, despite the enormous increase in global wealth over the intervening period, just 88 of them could do the same.2 Sovereign wealth goes some way to fill the gap, but greater regulatory scrutiny and ongoing controversy surrounding Abu Dhabi’s ownership of Manchester City make this less likely going forward. Instead, a new source of capital is emerging: institutional private equity. According to the International Centre for Sports Studies, a fifth of the 92 clubs competing across the Premier League, the EFL Championship, and EFL Leagues One and Two have private capital represented within their shareholding structures, up from 8% in 2010. Within the Premier League, the fraction is 40%. It’s an area private equity firms are increasingly targeting. Earlier this year, KKR acquired Arctos Partners to give it a foothold in sports. Apollo launched Apollo Sports Capital as a distinct business. Sixth Street, TPG and Avenue have all actively raised funds for sports investment over the course of the last year. Apollo’s Al Tylis reckons it’s a new asset class. He estimates that across leagues, venues, media, merchandise, fitness and live events, sports is a $2.5 trillion market. KKR more narrowly puts the addressable market at $650 billion, but agrees with Apollo that it’s undercapitalized. KKR estimates private capital penetration in sports at just 2%. In English football the trend is visible with Clearlake Capital taking full control of Chelsea last month (at a valuation of £5 billion, equivalent to $6.7 billion). As an investor in Manchester City, Silver Lake will be keeping a close eye on developments there. But is football really a viable asset class? David Moores said of his ownership of Liverpool, “If we’d have done it as an ‘investment’ we’d have come unstuck pretty quickly.” Has the market changed? To explore the economics of football and understand what private equity sees in it, read on.
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