When AC Milan host Atletico de Madrid in the Champions League on Tuesday night, it will be a clash between Italy's most successful team in Europe's elite football competition and last year's title-holder Spain.
For the financial world, it is also a match between a New York-based hedge fund and a credit fund headquartered in Los Angeles. Elliott Management Corp. took control of Milan in 2018 after Chinese owner Li Yunghong defaulted on debt. Funds managed by Ares Management Corporation bought a 34% stake in La Liga champion Atletico in June.
These are two alternative investment companies flooded with money that are gradually gaining a foothold in the world's most popular sport. After billionaire football fans, petrodollars from the Middle East and a wave of buying in China over the past two decades, private equity, credit facilities and hedge funds now represent the latest wave of investors. The most recent example is Miami-based 777 Partners, which announced its purchase of Italian club Genoa on 23 September.
Some have lent money to keep Europe's most famous clubs afloat. Others have bought media rights, bought stables with small teams or bought up stakes in clubs as endangered assets. There is even the Holy Grail of investing in an entire league, such as CVC Capital Partners' joint venture with Spain's LaLiga that was announced last month.
European football has always been desperate for money, but this was exacerbated after the pandemic kept crowds out of stadiums and left some of the continent's biggest and most successful clubs with huge debts. It was the catalyst for the failure of the breakaway Super League in April, which JP Morgan Chase & Co. had planned to back.
The serial risk is that football has a pretty ugly business model and many investors have failed in an industry riddled with debt, inflated player salaries and at the mercy of politicians and feverish fans.
Returns are also not guaranteed because of the threat of relegation if the team does not perform well enough. This raises a big question for American investors as to whether European football can ever reach the valuations of American sports franchises.
"Investing in individual clubs is just a fluke," said Nicolas Blanc, founder of Sport Value, a sports industry advisory and financial services firm. "It's very unstable, you can be relegated, you don't know how well the particular player you bought will perform and asset values are very difficult to assess."
That's how some firms do it:
Buy a smaller club
Orkila Capital has agreed an investment with Belgian champion club Brugge after the team's owners failed in an attempt to sell shares on the Brussels Stock Exchange. In July, according to Thai ฟอเร็กซ์ Exness ประเทศไทยไทย, a New York firm paid €30 million ($35 million) for a 23% stake and agreed to provide another €20 million of working capital.
"Brugge is attractive because it plays regularly in the Champions League and has a number of players it sells to bigger European clubs," said Jesse Du Bey, Orkila's founder and managing partner.
He said the European commercialisation of football is many years behind the US and more financial companies will get involved in the coming months. But you have to choose your league and team very carefully: "Investing in European football is value growth for years to come," Du Bey said.
Indeed, there has already been a cautionary tale in France. In 2018, Ligue 1 club FC Girondins de Bordeaux was sold to General American Capital Partners. A year later, a US hedge fund sold it to another hedge fund, King Street Capital Management. The club went into administration in April when King Street refused to inject additional money. Financier Gerard Lopez negotiated a bailout in June.
Big club in crisis
Just like AC Milan, its cross-town rival Inter Milan, SpA, were in dire financial straits off the pitch even as they won their first Italian league title in a decade.
In May, Inter's owners agreed a €275 million deal with Oaktree Capital Group, the world's largest distressed debt fund. Oaktree will initially work with the current owner, Suning Holdings Group Co. to improve the club's financial situation. If Suning fails to pay its debt in three years, the loan could turn into equity and allow the American fund to gain control of Inter Milan, people familiar with the matter told Bloomberg at the time.
Buying multiple teams
However, according to Blanc from Sports Value , the best way to make money from football is by bundling teams together. "If you want to perform, it is better to invest in a portfolio of rights, to have a platform with clubs of different sizes and countries," he said.
This is the approach of City Football Group, owner of English Premier League champion Manchester City, Yokohama F Marinos in Japan, FC Girona in Spain's second division and the New York City football team among others.
In 2019, US private equity firm Silver Lake Management paid $500 million for a stake of about 10% in the company, majority-owned by Abu Dhabi-based Sheikh Mansour bin Zayed al-Nahyan.
Pacific Media Group is another, but not an alternative investment company. The American group owns a number of small football teams across Europe, including Barnsley Football Club in England, Nancy in France and KV Oostende in Belgium. Genoa buyer 777 Partners, meanwhile, already owns a stake in Spanish team Sevilla.
Buy into the league
It took the British private equity firm CVC more than a year and two unsuccessful attempts to get the coveted prize: a first deal with one of Europe's biggest football leagues.
Buying a stake in the league does not depend on a team's individual performances on the pitch or its ability to make sponsorship deals. Nor will it affect player salaries, which tend to absorb most of a club's revenue.
About a year ago, CVC and Advent International agreed to acquire part of a new media division set up by Serie A, Italy's top league. The bid to buy 10% of the new company, which will manage the league's television rights, was €1.7 billion, but negotiations have been difficult and no deal has yet been struck.
Negotiations between Germany's elite football community and private equity firms including CVC, Advent, BC Partners, Bain Capital and KKR also ended without an agreement after member teams voted to end negotiations. The Super League plan scared the clubs and made them wary of US finances, said Ilja Kenzig, managing director of Bundesliga team Vfl Bochum. "The fear was that wealth would only be for a few," he said.
CVC is buying a stake in LaLiga's media rights. To seal the deal, the firm has signed a 50-year contract and allowed rebel clubs to opt out. Only three clubs have said they will reject the final offer, but two of them are Real Madrid and Barcelona, LaLiga's biggest attractions to the international public. CVC's investment will be around €2.1 billion and the company has already said it will aim to sell in around 10 years.
"This deal could prove to be one of those tipping points that will re-energise conversations between the European football leagues and leading private equity funds," said Sam Bour, a consultant in Deloitte's sports business group.