Global Finance: What is driving the current interest in sports finance?
Neil Barlow: Ownership of major sports franchises often belongs to wealthy billionaires. American investors are looking at European soccer and thinking, “There are great assets with global appeal in Asia, the Middle East, and South America, so why don’t their valuations match the valuations of NFL teams? ” he says. What are they not doing? ”Private equity firms seek operational opportunities. They may focus on a particular club or franchise in a major sport, such as soccer, and recognize the potential of playing in real estate. Perhaps the stadium could be redeveloped to host a Taylor Swift concert or the NFL when it comes to London or Frankfurt. They want to create opportunities to expand the commercial impact of those teams in terms of overseas activities.
GF: Which companies are embodying this trend?
Barlow: Think of something like Sixth Avenue. We advised them about Barcelona. However, seeing a management opportunity around a club does not necessarily mean owning the club. This is incredibly expensive and there are strict rules regarding financial fair play and player acquisition. And in the United States, there are rules about how much stock you can own in a franchise. While the NFL is open to private equity investment, the NBA and NHL have strict rules regarding minority ownership.
GF: So where else can private equity firms see opportunities within the sports ecosystem?
Barlow: One example is media rights. Being able to provide liquidity and capital is something that happens as soon as you say, “Let’s buy a percentage of your broadcast revenue for the next 10 to 20 years.” This money can be used to reinvest in the team, facilities, coaching and staff. ”And private equity investors have a fairly confident income stream that tends to increase over a period of time. We’ve seen more of those types of deals than club buyouts. While there are specific trophy clubs and properties out there, private equity firms typically focus more on adjoining sporting aspects. What you’re seeing are family offices (essentially private equity, but largely funded by multi-millionaires and billionaires) looking to buy clubs. But we have never seen Blackstone, Apollo or Carlyle buy Manchester United.
GF: Can private equity compete with nation-states?
Barlow: In the words of PGA Tour Commissioner Jay Monaghan, when you go up against a nation-state to fund a project, you have to make strong decisions about how you run your business. Consider the golf example I’m referring to. I had many concerns and questions. Do you partner with nation-states to create an integrated global product? Is it in the best interest of the product, the players, and commercialization? Or are you looking for private equity investment? Maybe not on the same level? However, you may feel like you have more autonomy over the future of your product. And clearly, no progress has been made regarding the PGA Tour and LIV Golf merger.
When sovereign wealth investment was first introduced to European football, the level and speed of investment was such that leagues did not fully understand the guardrails they wanted to put in place to ensure fair competition. It was held on. Compare Manchester City’s investment from Abu Dhabi United Group and PSG’s investment from Qatar Sports Investments to Newcastle United Football Club and Saudi Arabia’s Public Investment Fund a few years later. As we have seen with Newcastle today, new investments are being made in a more constrained environment, for example in terms of the amount of money that can be put into players. Currently, rules are in place to regulate large amounts of money.
GF: What lessons have you learned from your recent advisory roles and how can CFOs apply them to their work?
Mr. Barlow: Many portfolio companies are being asked by their owners to move quickly into exit mode. Owners sometimes think, “Now is our turn.” Let’s go. “And I think CFOs have had to really focus on data, budgeting, forecasting, how quickly they can create financial information. That puts pressure on executives. Often in such a scenario, Only a few managers or senior employees within the organization know about the process, so the ability to organize and gather information is important, otherwise trading can come to a standstill, creating a huge burden on the CFO. It is clear that it will take a while.
They can also build trusting relationships with private equity owners and be proactive and prepare behind the scenes when a cycle of exit activity is likely to occur. If your business has seasonal income, how does that look in a buyer’s market? Maybe buyers will discount you on price and valuation. Then the private equity firm said to the CFO, “Why couldn’t you have predicted this?” You can often predict it from the conversation. The most effective teams I’ve seen operate are those that communicate early to prevent this from happening.
So leave it at that. Keep your organization organized. Keep the file in place. You will be asked to create a data room in a matter of weeks or days, but for most companies it will take about It turned out to be impossible. You need a ready-to-use virtual data room.
GF: What are the biggest challenges for private equity firms today?
Barlow: There’s a huge focus on culture, relationships and reputation. A private equity investor’s track record, especially with regulators around the world, is very important. Over the past few years, scrutiny of financial services and banking operations has increased rapidly. In Europe, for example, we’ve seen certain regulators take a tougher view of private equity investments, obviously because of the tremendous strain the coronavirus pandemic has placed on companies. . Compared to pension funds and sovereign wealth funds, which have traditionally been less involved in day-to-day operations and more involved in the investment side, private equity firms are more focused on growing their operations and have a distinct head start. Cutting.
GF: Why are so many American investors buying European clubs?
Barlow: That’s what I talked about with my clients. Over the past few years, US-based dollar funds have found pricing attractive, as the euro and pound sterling have been weak relative to the dollar. Also, if you look at the American sports model, we don’t have the tiered leagues and teams that we have in Europe. It just doesn’t exist. But if you look at the leagues in Italy, England, Scotland and Ireland, there are many leagues where you can get an entry point at a much lower valuation, as Ryan Reynolds did with Wrexham in Wales.
Then specialize it. Get sponsors and create a media buzz that will increase your ratings. And as your performance improves and your league position improves, you can double or triple the value of these assets. Are the big private equity firms going to see this as an opportunity? No, because the returns and multiples aren’t big enough. But we do know that there are a lot of retail investors, family offices and individuals who would find it very appealing and who would have access to sports club ownership in a way that would never be possible in the United States.
GF: Do you foresee this trend spreading to other regions?
Barlow: There is less movement in South America and Latin America because the revenue sources and leagues are less developed. However, that doesn’t mean it won’t happen. We see clients specifically looking for a multi-club model, where they own different clubs in different jurisdictions and create synergies. There is a lot of interest in these opportunities, especially in countries like Mexico, Argentina, and Brazil.
GF: It doesn’t seem like it’s a seller’s market. Do you foresee any changes in the short or long term?
Barlow: I wish I had a crystal ball, but my sense right now is that this will continue from the end of this year to the first quarter of 2025. Turn it on and do something. And I think people are starting to prepare or start thinking about the possibility of an IPO for their company. It is becoming very difficult for private equity buyers to decide where to spend their time. But if you’re considering an IPO in 2025, you need to start working with your company and management team to start preparing now. This is an example of the industry recognizing that we can’t sit here and say, “We’ll wait six months.” Because at that point, you’re in 2026. When it comes to sports, this is a great example of a new frontier of private equity opportunities, and that’s why we’re seeing a massive move in that direction.
