In recent years, U.S. investors have been increasingly drawn to the global sports market, particularly European soccer clubs. However, instead of targeting the marquee teams with sky-high valuations, some investors are shifting their focus to smaller clubs with lower valuations. This article explores the reasons behind this shift and analyzes the potential benefits and challenges of investing in European soccer.
Soccer is a truly global sport, with a massive fan base and growing popularity in the United States. This global appeal opens up various revenue opportunities, from lucrative broadcast media rights deals to merchandising. As a result, the valuations of top European soccer clubs, such as Manchester United, Chelsea FC, and Newcastle, have seen significant increases. Deal valuations across the top five European soccer leagues have skyrocketed from $70 million in 2018 to approximately $5.2 billion in 2022.
U.S. investors, including private equity and venture capital firms, have recognized the potential for high returns in the European soccer market. More than one-third of the clubs in Europe’s “Big Five” leagues are backed by U.S. investors. The recent spike in valuations can be attributed to significant acquisitions by U.S. investors, such as Todd Boehly and Clearlake Capital’s acquisition of English Premier League’s Chelsea for over $5 billion, and Redbird Capital Partners and Elliott Management’s takeover of Italy’s AC Milan for nearly $1.3 billion.
While the top-tier teams may seem enticing, middle-market U.S. investors are finding value in lower-tier leagues and clubs. Leagues like England’s Championship League and League One offer attractive investment opportunities at more modest valuations. These leagues also have teams open to buyers and investors, presenting potential growth prospects. However, one factor that U.S. investors must consider is the possibility of relegation. In soccer, underperforming teams can be demoted to lower leagues, which poses risks for investors. On the other hand, successful teams can earn promotions to higher leagues, providing attractive upside potential.
An emerging trend among U.S. investors is the adoption of a “multi-club” model. This strategy involves acquiring multiple teams, often in different countries, and building synergies between them. The model enables investors to transfer players between clubs owned by the same investor, nurturing talent and potentially selling them to higher leagues. City Football Group provides a prime example of this model, with investments in Manchester City, New York City Football Club, and Melbourne City. By leveraging governance, technology, and data sharing, investors can maximize the value of their portfolio of clubs.
As larger private equity firms focus on top-tier teams, middle-market investors are raising funds to pursue the multi-club strategy. These investors recognize the potential for value creation in smaller clubs with lower valuations. 777 Partners, a Florida-based firm, exemplifies this approach. Having already acquired stakes in Sevilla FC in Spain and other clubs in various countries, the firm recently agreed to buy a majority stake in Everton in the English Premier League for approximately $685 million.
Investing in European soccer clubs offers potentially lucrative returns, especially as the sport’s popularity continues to grow globally. The multi-club model, in particular, provides avenues for value creation and player development. However, U.S. investors must be mindful of the risks associated with the sport, including the potential for relegation, regulatory challenges, and the need for significant capital investments. Additionally, cultural differences and local fan sentiment can significantly impact the success of an investment.
The surge of U.S. investors in European soccer clubs showcases the increasing interest and recognition of the sport’s global appeal. By shifting their focus to smaller clubs with lower valuations, investors can access unique opportunities for value creation and synergy-building through the multi-club model. Despite the challenges and risks, investing in European soccer clubs has the potential to deliver significant returns for savvy U.S. investors willing to navigate the ever-evolving landscape of the beautiful game.
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