In this week’s briefing on the business of sport, we look at how a private equity bidding war over Italy’s Serie A emerges from the unique opportunity to buy a football league, reveal how the $2bn turnround at the Philadelphia 76ers is a blueprint at underperforming NBA teams, explain the debate around “evil” parachute payments in English football, and more.
Italy’s Serie A and the never-before chance to buy a football league
Private equity is swarming around Italy’s Serie A.
More from the Financial Times
- CVC and Italy’s Serie A in exclusive talks over €2.2bn deal
- Lazio captain arrested over match-fixing
- Roma football club on brink of UniCredit takeover
- US investors buy Serie A’s Bologna
- Italian law to shake up broadcasting rights
As the FT reported this week, the growth plans of the football league’s new president Paolo Dal Pino are attracting bidders over a multibillion-euro deal.
In the mix are: CVC Capital Partners, Bain Capital, Advent, General Atlantic, Apollo, Fortress and Blackstone’s credit arm GSO. Offers must be submitted to Serie A’s advisers, Lazard, by Monday.
Why so much interest? Because on the table is a unique, never-happened-before deal.
Football attracts fans across the planet. Broadcasters pay billions for the right to screen the top European leagues. But for financial institutions, the game has proved to be difficult to profit from. (See Elliott Management’s rocky ownership of AC Milan, for a current case study.)
Private equity firms, hedge funds, even banks, have acquired clubs. Yet one bad season, such as failure to reach European competition or getting relegated, destroys the value of a team. Billionaires can take on this risk. Investors seeking reliable returns steer clear.
CVC are pioneers of an alternative sports strategy: buy the competition instead.
It is a past owner of Formula One, Moto GP and is busy trying to buy stakes in rugby union tournaments. Talent agency Endeavor, with backing from private equity groups Silver Lake and KKR, acquired the Ultimate Fighting Championship for $4bn in 2016 with a similar thesis.
Football is run by governing bodies, which are, in effect, trade associations. They distribute income to their members, which in the case of Serie A, is the clubs. You can’t buy one of the continent’s best leagues as you can’t buy the governing body.
CVC, Bain, Advent and General Atlantic want to acquire a minority share in a new company set up by Serie A that will control its media rights. Sporting decisions will be left to the teams. Commercial control goes to private equity executives.
Highly indebted and unprofitable Serie A sides, in a financial crisis caused by the coronavirus pandemic, desperately need cash.
But they are also split on a deal.
Napoli’s owner Aurelio De Laurentiis touts an alternative plan to launch Serie A’s new company but with funding in the form of loans or debt. Groups like Apollo, Fortress and GSO are on standby to provide this cash.
But if Serie A decides to sell an equity stake instead, a new era dawns. For the first time, football leagues — not just famous clubs — will be for sale.
Get behind the story:
The Philadelphia 76ers: Lessons from ‘The Process’
As the National Basketball Association restarts its season this week, the Philadelphia 76ers is the team to watch.
The story of the Sixers’ is its front office and the management turnround affectionately known as “The Process".
“Our approach has been to break the team down to the studs and then rebuild it,” Chris Heck, president of the team's business operations, told Scoreboard.
Ten years ago, the team went 27-55 for the season. In 2011, private equity titans Josh Harris and David Blitzeracquired the squad for just $280m. They tapped analytics guru Sam Hinkie to revolutionise basketball operations, posting a losing record for years to earn early draft picks.
The result? The Sixers went from what SLAM Magazine referred to as “a flesh-eating bacteria of sorts on the NBA’s collective self-respect” to pursuing what would be its first title in nearly four decades this year. Forbes now values the franchise at $2bn.
The Sixers blueprint could be instructive to other championship-challenged franchises looking for buyers, like baseball's New York Mets (Harris and Blitzer are among the bidders) and the NBA's Minnesota Timberwolves, which Sportico reported this week is exploring a sale.
The Sixers even have global ambitions. The team's second-largest fan base outside Philadelphia is in Australia, homeland of Simmons.
Engaging fans to “trust the process” helped the turnround as well.
“Our fan base was doubling every single year for 3 years, even while the team was losing,” said Heck.
Philly's intensely loyal, sometimes combative support has been leveraged into creative marketing opportunities.
For example: a deal with fast-food chain Wendy's, which incentivises Sixers fans to distract opposing players into missing foul shots, in return for free milkshakes.
Washington Wizards guard Isaiah Thomas learned this the hard way, ejected at a game in December after confronting a Sixers fan who had tried to distract him during free-throws.
“As much as people like to knock Philly for being hardcore, the fans show up, they cheer, they wear the merchandise,” said Heck. “I will take that with a couple of bad eggs any day of the week.”
Get behind the story:
From the archives: Tactic of losing games can be winning strategy in US basketball
Profile: NBA Moneyballer Sam Hinkie misses the hoop
The necessary evil of English football’s parachute payments
English football employs trickle-down economics.
It’s all about how the Premier League hands out its riches. Each season, three teams are relegated from the top division. That leaves them cut adrift from a share of the top division’s £5bn in annual revenue, but stuck with playing squads on big salaries.
To cope, demoted sides are given so-called “parachute payments” for at least three seasons. The money is intended to provide a fiscal buffer and time to reduce wage bills.
The issue is that the system creates a new financial elite in the Championship, the tier below the Premier League.
Parachute payments average £40m across just six clubs in the Championship. The remaining 18 teams receive £4.5m each from a variety of Premier League payments.
The distribution of resources skews incentives. Championship clubs pay 107 per cent of their revenues in wages, according to Deloitte.
Each club is gambling on achieving promotion to the wealthy Premier League. They know this is worth the risk, as even if a stay in the top division is brief and relegation follows, parachute payments will flow in the years to come.
Overspending was tolerated until the coronavirus pandemic struck. Broadcasters don’t shell out as much for Championship matches, so clubs are more reliant on ticket sales that no longer exist. Teams across the English Football League, the professional game outside the Premier League, face losses of £200m.
Wigan Athletic collapsed into administration earlier this month. The EFL is under fire for approving takeovers that preceded the club’s collapse, led to a 12-point deduction and ultimately relegation from the Championship. (Wigan is appealing the sanction).
A report by British parliamentarians this week accepted the argument of EFL chairman Rick Parry that parachute payments are “evil” and “need to be eradicated”.
But is it a necessary evil? There are no alternative suggestions on how to deal with the economic fallout of relegation.
“The longer you’re in the Premier League, the longer you need the parachute,” warns one Championship club executive. “What’s the alternative?”
Achieving the “football reset” demanded by the UK parliament will not be as easy as pushing a button.
Get behind the story:
FT Weekend Magazine: The great Premier League gamble
Natalie Portman, Mia Hamm, Serena Williams and Alexis Ohanian led a celebrity-packed investor group launching a new US women's football franchise in Los Angeles.
Newcastle United extended a multimillion pound shirt sponsorship deal with betting group Fun88. Gambling is prohibited in Saudi Arabia, the state which is awaiting Premier League approval for its proposed £300m takeover of the English football club.
The postponed Six Nations for men and women could restart at the end of October, subject to approval, as Luxembourg-based buyout firm CVC Capital Partners looks to invest £300m in the rugby union tournament. In the southern hemisphere, the Rugby Championship has been scheduled to begin on November 7.
RedBird Capital, the investment firm founded by former Goldman Sachs partner Gerry Cardinale, has acquired an 85 per cent stake in Toulouse, the French football team.
Mookie Betts has signed a 12-year, $365m contract with the Los Angeles Dodgers, making him the second-highest paid active baseball player. The deal extends Betts' stay in LA: he was already under a one-year deal with the team.
AC Milan has handed a two-year contract extension to head coach Stefano Pioli, who had been due to step down at the end of the season. The decision is an about turn for the Italian club owned by Elliott Management which had lined up a replacement in Ralf Rangnick, the head of sport at Red Bull, the group that runs a network of clubs including RB Leipzig. The German coach has decided to stay put.
Bob Costas, the sportscaster renowned for hosting the Olympic Games on NBC, has joined CNN as a contributor. He left NBC last year after raising concerns about the dangers of concussion in American football.
At the buzzer
The NBA is closing in on a return to action, and so far no players inside the bubble have tested positive for Covid. Perhaps that could bode well for a storied player tradition from the Before Times: elaborate handshakes.
Scoreboard is written by Samuel Agini, Murad Ahmed and Arash Massoudi in London, Sara Germano, James Fontanella-Khan, Anna Nicolaou in New York, with contributions from the team that produce the Due Diligence newsletter, FT’s global network of correspondents and data visualisation team.
<a href = 'http://help.ft.com/tools-services/copyright-policy/'>Copyright</a> © 2015 The Financial Times Limited. Please don't cut and paste FT.com articles and redistribute by email or post to the web.