The marriage between private equity investors and football – global and Brazilian perspective

By Eduardo Carlezzo*.

*Lawyer, managing partner of the law firm Carlezzo Advogados, based in Sao Paulo, football law specialist and author of the book Corporate Sports Law (2004). @carlezzo.advogados

The global sports market was shaken by the announcement, on August 4, that the Spanish La Liga has sold 10% of its operations to CVC Capital Partners for 2.7 billion euros, which leads to a valuation of the league by 27 billion of euros. It is an unprecedented deal in the sports industry, in all aspects of the transaction: a football league selling equity to a third party, private equity fund joining a top 5 football league, value of the investment and league’s valuation.

While the world is watching huge business deals in football, in Brazil we are still not used to sophisticated financial and corporate operations. Considering that clubs are incorporated as associations, non-profitable organizations, what we basically have on the market are loans from a few banks and, somewhat more elaborated, Receivable Investment Funds (FIDC) dedicated to buy receivables from clubs (usually coming from television contracts). However, there are signs on the horizon that this may change, one of them already clear through the deal La Liga-CVC.

Signs of this change come, first, from the local environment, since on August 6 the Brazilian government finally approved regulatory framework for the transformation of football clubs from association into company (let’s say, a “privatization”), which can be an inducer of M&A transactions in the sector, giving legal certainty to the investor. Second, because globally there is a liquidity never seen before for investments in sport, whether for rugby, NBA, NHL, NFL and MLB, but also for football, and this tends to reach Brazil.

This flow of investments comes packaged in the form of private equity and aims at two businesses:  investment in clubs and investment in leagues.

Investment in clubs

In December last year ALK Capital bought the English club Burnley. In France Bordeaux is controlled by King Street Capital Management and Nancy by New City Capital. Elliot Management Corporation, a manager of approximately $42 billion, is the owner of Milan. At the end of 2019 Silver Lake bought 10% of the City Football Group (a holding company that brings together Manchester City, New York City and 9 other clubs) for $500 million.

In March 2021 Fenway Sports Group, known to own Liverpool and the Boston Red Sox, sold equity stake to RedBird Capital Partners, which resulted in Fenway's valuation of $7.3 billion. 

In June this year Atletico Madrid, through its holding company, announced the entry of Ares Management Corporation, which manages globally approximately $227 billion, paying $180 million euros for 33.96% of Atletico HoldCo.

Realizing this trend, MLS could not fall behind and approved at the end of last year new rules making room for institutional investors (read private equity) to buy up to a maximum of 20% of a club's shares.

This international capital flow is also interesting from a geopolitical perspective because of what we have seen in the last decade, or a little more than that, there were acquisitions of football clubs, especially the biggest, concentrated in the hands of the royal families of the Middle East, Russians and Chinese. Now we have a new player in the market, which are American private equity investors.

Investment in leagues

But not only are football clubs seen as investment assets, now the looks also turn to the football leagues. Traditionally the leagues are constituted having as partners, and drivers of activities, only the football clubs that play the competition organized by the league, without any external members. However, it’s about to change.

Even before the Spanish deal, the German league held talks with investors for a possible sale of a minority stake in two subsidiaries for private equity funds, whose businesses involved the license to operate commercial rights, electronic sports and operate and distribute matches by the OTT platform. The clubs have decided, for the time being, to suspend negotiations. 

The Italian league has been this year in advanced negotiations with CVC Capital Partners, Advent International and Fondo Strategico, in a deal that would bring to the league 1.7 billion euros in exchange for a 10% stake in a new company to be set up to manage the league's media and commercial rights. The deal did not go ahead this year as there was a disagreement between Italian clubs.

We cannot fail to recall the resounding, but unsuccessful launch, of the European Superleague, which was funded by JP Morgan.

It is possible to observe that there is a huge liquidity at the international level, especially in the US market, for investment in sports, not only for the purchase of clubs (not necessarily football), but also for investments in companies that have technological products related to sport. In parallel to this, and being one of the sources of this liquidity, there was a boom in the United States in the fundraising via SPACs for investments in sport.

What about Brazil in all this?

It caught everyone's attention, in June this year, the announcement that clubs finally want to create a national league to manage the Series A and B from the Brazilian Championship. Soon news emerged that foreign funds and asset managements would have an interest in carrying out some financial operation with this entity in gestation, which will have, among other tasks, the competence to collectively negotiate a new agreement for the transmission of the new league matches from 2025.

Currently, the majority of the resources invested, or at least proposed, in these transactions come from the United States and go towards Europe. Will they arrive in Brazil? I think so. On a smaller scale and speed, but it is clearly perceived that in recent months Brazilian clubs slowly begin to enter the radar of investors. What is this investor's profile? Usually, the one who wants to replicate a strategy implemented by the City Football Group and buy clubs in different countries. What is the strategy in Brazil? Seek talent, pick the best players, and take them to Europe or the United States, generating sporting and financial gains with these transfers.

But not only the talent shall be pursued in Brazil. Investors shall take into consideration that the 20 clubs belonging to the Serie A generate more than USD 1 billion per year in revenue, behind the top 5 leagues in Europe and competing with MLS for the 6th place.

And does this marriage, then, go far?

Judging by the size of the investment made by CVC in La Liga, which could unlock investment operations that were suspended or canceled in other leagues, there are enough reasons to imagine that we have a well-defined long-term horizon, which will certainly be an inducer of more business in the sector. After all, anyone who enters to invest in football knows that they are entering into a long-term operation.