• King's Private Equity Club

Private Equity runs after Sport Deals

Updated: Dec 18, 2020


By Nidah Younas, King's Private Equity Club


Many things have exacerbated the want for deals within the sporting sector, however amongst them, all the industry's professionals and extremely passionate fans base have stoked the appetite for these investments.


The Covid-19 pandemic has further accelerated these trends. The scale of interest within specific deals (e.g. Bundesliga football club) has also been noteworthy with numerous high profile investors rushing to be the leading ‘player’.


Perhaps most intriguing is the attraction of Media Rights and the revenue potential it holds, for investors. As a majority of football clubs have international presence and recognition, this is untapped value in which much monetary incentives arise. Another speculation which investors see a first-mover advantage in is the traditional styles of sports streaming turning toward a more modern edge. For example, moving away from the traditional broadcasting model to Netflix-style media services — streaming services offered to viewers directly via the internet — which will require a significant amount of investment.


Although the sports industry is worth billions of dollars, there is no doubt about their financial affairs during the pandemic being negatively affected. With a majority (40%) of revenue sourced from filling out stadiums and selling merchandise, the pandemic has swept these monetary opportunities away. Deloitte estimated that the English Premier League would lose £500m. The England Cricket Board is expecting a shortfall of £180m. In France, Mediapro, the rights-holder to top-division football, in October withheld its payment of £155m to the league, seeking to renegotiate its contract. Therefore, at the forefront of deals within the private equity space is also the mitigation of the sports organisations' financial difficulties.


Highlighting the example of Bundesliga, over 20 PE firms are in the run to invest £300m as the German top football league is radically planning to roll-out a global subscription service. This values the company at over £1bn. Of the 20 PE firms bidding for the position, some included big names such as: Blackstone, Goldman Sachs Principal Investment, KKR, Bain Capital and Carlyle Group. This particular deal is set to spark growth within the internet service space by joining tv-providers in Israel and selling broadcasting rights.


A more interesting stance of the private equity-sports relationship shows a degree of dependence on one another. With growth at around 8% per year (PwC 2019), the sporting industry has attracted wealthy individuals buying into the saga; some notables include sheikhs, oligarchs and the cash-rich. However, all these buyers have one thing in common - they are usually inexperienced.


The clubs owned by said individuals are now becoming too big for individuals to steer toward sustainable growth. Many notable figures from PE firms and within football are arguing for an ownership group that understands media/digitalisation, deals, global commercial opportunities (especially in China and the UAE) and how to trade players. Tapping these wide-range skills allows the investors to do what they do best, add value.


References

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/sports-assets-set-to-score-more-cash-from-pe-players-60920022


https://www.economist.com/finance-and-economics/2020/12/06/covid-19-heightens-private-equity-investors-interest-in-sport


https://www.ft.com/content/59682c75-1537-40b2-9050-deb606300026


https://www.ft.com/content/c986a6ff-d653-4e01-aae2-b02d1d9715a9


https://www.linklaters.com/en/insights/blogs/sportinglinks/2020/march/private-equity-set-to-continue-investment-trend-in-sport


https://www.skysports.com/f1/news/12433/12159565/mclaren-sell-stake-to-us-based-investors-in-560m-deal-to-help-push-to-return-to-front-of-f1


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