The true cost of new ownership at a football club
To many people, owning a football club is its own end – the opportunity to invest in the success of a sporting institution they have followed for their whole lives. Unfortunately, the motives behind the purchase of a football club are not always so straight-forward, and fans should be wary that new owners may be using them for a PR boost, or simply for an exercise in asset-stripping.
Football has come a long way from its humble beginnings. Having been exported to every corner of the world by the British working class (railway workers took the sport to Argentina, Uruguay and Brazil, textile workers took it to Sweden, and so on), the beautiful game has become increasingly corporatised over the last century, as capital came to realise it had immense promise as a business arena.
A trip to Madrid to watch your team play in the Champions League final can now cost you the equivalent of four years’ rent, while the mass televisual billboard the spectacle of elite sport provides means that FIFA was able to cash in on broadcast rights for the 2018 World Cup, to the tune of $3 billion. The immense wealth that the top level of football has been exposed to has also had a notable impact on how it functions as a ‘meritocracy.’
Barring the exceedingly odd exception – where the likes of Leicester City or Montpellier can overcome financial titans such as Manchester City or Paris Saint-Germain to win an occasional domestic league – top clubs have been able to leverage the financial success to monopolise their places at the top table of world football. Amid the growing disparity between football’s have and have-nots, lower-ranking teams seemingly have just one – rather risky – realistic hope of attaining glory in the future. New ownership.
The beneficiaries of this route to success are easy to point to. Most obviously perhaps, just 16 years ago, Manchester City were languishing in English football’s third tier, while their city rivals lorded it over them at the summit of the Premier League. Since the intervention of Sheikh Mansour, a member of the UAE’s royal family, however, the Cityzens have been propelled to the sport’s pinnacle. Long-suffering fans of Newcastle United are currently hoping that their club may be about to benefit from a similar move, which would finally see the exit of much-maligned owner Mike Ashley.
The Sports Direct magnate’s representatives are understood to be continuing takeover negotiations with a consortium fronted by Amanda Staveley, which is proposing a £340 million take-over. The deal would be funded largely by the Saudi Arabian monarchy’s Public Investment Fund – and some reports claim an agreement is “90%” likely to be reached. However, such a deal would not come without its share of risk, and the Toon Army would do well to consider what new owners might actually want with the club.
According to a new study by Bull and Whittam* and covered by Big Four professional services firm KPMG, there are many different football club owner archetypes: from well-known local businessmen to foreign billionaires, from private equity firms to supporter groups. Ultimately, buyers of football clubs are unparalleled in their variety of type and the motives that drive them – and not all of them are as benign as fans hungry for trophies might hope. KPMG’s Football Benchmark team identified four main categories, though some owners may fall into more than one.
Four archetypes
Two similar ownership motive groups are cultural capital and social capital, and both usually feature local support financing the community team, in one shape or another. As football clubs have become a major part of their local ecosystem, it benefits the interests of local businesses to help maintain them, while wealthy individuals who are lifelong supporters of their local club might often want to help their team achieve something notable. One example of this is Accrington Stanley FC, which was acquired by Lancashire-based businessman Andy Holt in 2015. He has said numerous times since that he does not see the club as a business venture.
Similarly, some football clubs practice fan-ownership models. This ensures that the financial interests of the club remain tied to the contentment of its fans, and prevents individuals from jeopardising the institution’s future by taking risky decisions in the pursuit of short-term glory. Many famous clubs, including Real Madrid CF and FC Barcelona are still supporter-owned to this day. In Germany, the 50+1 regulation means that practically every professionally club has an ownership structure in which fans have the majority share – helping to keep ticket prices at an affordable rate. It is an exceedingly rare model in Britain, however.
Beyond these two categories are a second pair of more globally orientated motives. First, KPMG points toward political ownership, which sees owners seek to leverage football’s status as the sport of the people to their advantage. Due to the pivotal role many clubs play in their communities, investing in a team and its surrounding area can be used as a form of reputation laundering for operators looking to improve public perceptions of their activities.
For example, Paris Saint-Germain and Manchester City have been rebuilt via massive injections of funding from their owners in Qatar and the UAE, respectively. The positive reputation the regimes in Qatar and the UAE have managed to garner from their ventures in European football have been useful propaganda tools, as they seek to improve their reputations, having been criticised heavily for various human rights abuses in recent years. It would appear on face value that the Saudi-backed bid for Newcastle United would suit Crown Prince Mohammed bin Salman’s Vision 2030 project to this end.
Finally, some owners are simply motivated by profitability. This motive takes on many characteristics of a private equity buyout – the only real criteria for this kind of owner is if their investment target has a steady cash flow and can be piled up with debt. These buyers tend to put very little of their own money into these deals, with the club being purchased taking on a large portion of the often wildly inflated purchase price as debt. The owners then use some of this debt to pay themselves sizeable fees while making more money from the sale of company assets, or downsizing operations.
This is largely what happened with Manchester United in the years since its controversial take-over by the Glazer family. In Manchester United's latest financial report in the fall of 2019, the club's net debt had risen by more than £100 million to £384.5 million. At the same time, the club’s unrivalled line of merchandise and global fan-base mean that despite a horrendous stagnation in the club’s on-pitch fortunes, it is still viable for its owners to continue milking it. Should that change however – and there are indicators that the club’s protracted fall from grace is already impacting sales – worse could be ahead.
Biggest risk
If returns are not deemed satisfactory, as with private equity take-overs, owners sometimes raise even more debt to pay themselves and investors. Once the club’s resources are exhausted, this ceases to be viable, and at this point either it is sent into administration – as was recently the case with Bolton Wanderers, and a rising number of clubs – or it may be sold on to another such investor – as occurred at Leeds United in the early 2000s.
While it has most notably occurred in the Premier League, it is more common for this sort of investment to occur in the lower divisions of English football. There, one of the reasons behind high levels of investment activity is the potential reward of Premier League promotion. This can be seen as speculative: in most cases a high level of investment in the playing squad (transfers, player wages) is required to reach this goal, often resulting in loss-making operations.
However, as mentioned the spending sprees this chase for promotion incurs is rarely backed up by risk on the owner’s part, and as a result if a quick improvement is not seen, they can often withdraw from the club ruthlessly. This was behind the recent collapse of Bury – the League One club which was liquidated and expelled just months after it won promotion from League Two in 2019.
At the end of the day, it seems that fans ought to view potential take-overs with a healthy scepticism then. While new owners might arrive with a fanfare of promises about future silverware and top-flight football, their motives are not always transparent, or necessarily aligned with the interests of fans. Sometimes it may genuinely be a case of ‘better the devil you know’.
* Mike Bull and Geoff Whittam, (2020) “Sustainable value creation? Entrepreneurial orientations in the football industry”. International Journal of Entrepreneurial Behavior & Research.
