Why investment is flowing into Premier League clubs
Investors have realised that increased TV money and better ways of buying makes for a more secure purchase by AtTheMatch
Rich businessmen have always made a habit of investing in football clubs. Jack Walker ploughed money into Blackburn Rover in an effort to make them competitive, which paid off as Kenny Dalglish bought home a Premier League title. Peter Ridsdale took out numerous loans as Leeds United chairman, taking them to a Champions League semi-final before taking the club into financial ruination as they couldn’t pay back the interest. The Glazer family also took over Manchester United a decade ago.
Investors go back further than the Premier League era though. Swindon Town, Bristol City and Tottenham Hotspurs all had money ploughed into them with each enjoying different modicums of success thanks to it.
Now though there is a new type of investor. The old style one would put money into a club in the hope of achieving something, of becoming somebody or having control of their very own plaything. The new one wants none of that. Only a decent return on the money that they have put in. It just so happens that the Premier League is the perfect place to do this.
Chicago based Peak6 Investments have bought a 25% stake in Bournemouth, whilst a US private equity form have also purchased a sizeable shareholding in London club Crystal Palace. The Financial Times says that this “marked the first time that professional investors have taken minority stakes in clubs.”
But just how do these private equity firms work out which clubs are prime for investment and which ones aren’t? As with many businessmen, they use analytics - specifically football ones - to help determine the pros and cons of each deal, as well as the traditional legal and financial checks.
The first thing that is examined is whether or not the team’s league position is accurate. This is done by measuring things such as chances created, chances conceded and possession in the opposition half.
This summer, for example, Omar Chaudhuri (head of football intelligence for 21st club, which works alongside potential investors) argued that Brighton and Hove Albion were very unlucky to nearly be relegated from the Championship. He believed that they deserved to be 12 places higher and thus were being undervalued. It would appear he had a point - this season they are unbeaten at the top of the Championship with only a small amount of investment in the summer.
Other questions are also asked. What is the average age of the squad? What is the club’s record in the transfer market like? How good is their youth academy? How many players are on short term contracts? Is the squad likely to rise in value in the future?
After considering the above it is clear to see why investors chose Palace in the summer. Chaudhuri believes that the team’s performance and squad strength are able to sustain their current mid to higher position in the table, whilst a low wage bill and relatively small outlay on transfers show a careful management of the club.
The one concern would be the lack of young players struggling to break into the first team in the previous three or four years, though this isn’t considered too much of an issue. Historically Palace have always had a good youth team and in the past decade Nathaniel Clyne, Victor Moses and Wilfried Zaha have all the left the club and enjoyed differing levels of success.
The key reason for Josh Harris and David Blitzer (who founded Apollo Global Management, the company investing in Palace) chose to put money into the club now though is the fact that the new Sky and BT television deals kick in next season. That means that the prize money for finishing bottom of the Premier League will be £100 million, easily eclipsing the amount earned by this season’s champions. Add to that the fact that clubs must adhere to financial fair play and you have an almost guaranteed profit on your investment.
Palace co-chairman Steve Parish is elated with the new investment, believing that the club can realistically target winning the Premier League title in the next decade as well as finally having the money to redevelop Selhurst Park. He wants to increase capacity to 40,000 and regenerate the youth academy, which he acknowledges would have been difficult without outside investment: “We need the right investment, but with the right governance so that I can still make the decisions I need to make,” he said back in September.
However, despite the increased television money Palace and Bournemouth may be the only clubs featuring outside investment this year. This is because many owners have already factored the new UK TV deal into their asking price. It is thought that on average the asking prices for clubs have increased by 40 to 45 million since the announcement of the deal.
There is also another issue. Increased television money means relegation makes a much larger difference than it does at current. Once relegated, income drops of a cliff making it hard to retain players and remain competitive in a league below. QPR have experienced it this season and in the future it is likely to be much harsher.
The pitfalls are not likely to stop investors in the long term though. The losers in this game lose big but if you win, you are made for life.Click here to stay up to date with AtTheMatch