The Acquisition of Burnley Football Club by ALK Capital
By Luis Felipe Catao, Head of Law at KCL M&A Society
American investment group ALK Capital completes acquisition of Premier League's Burnley FC.
The deal shows how European football has remained an attractive market for American investors – especially in light of the consequences of COVID-19 in the playing field.
That COVID-19 impacted the world of sports is no news. Not only did the restrictions on fan attendance strip football clubs of their principal revenue streams — the so-called matchday income from ticket and jersey sales — but it also reduced the value of TV arena rights. Although the Premier League is hurrying to get fans back to where they belong , it need not worry much: the pandemic has anything but shown the European football market's resilience.
This resilience is perhaps most evident if we analyse M&A activity since the restart of football last year. Since football resumed in July of last year, Dan Friedkin bought AS Roma for €591m. Parma was sold to Kyle Krause in a deal valued at over €100m  and now American investment group ALK Capital announced that it has completed the takeover of Burnley FC.
ALK Capital is an American investment group specialising in the acquisition and management of sports, media and entertainment assets and related technologies. Their team is led by Alan Pace, a former president of the MLS team Real Salt Lake. The company recently invested in the UK start-up AiScout, that developed an automated talent-finding platform designed to use artificial intelligence to identify the next generation of football stars. This platform is nothing more than an app, where players can upload videos and statistics that AiScout will analyse and determine whether the player is fit for a try-out in specific clubs. In that vein, ALK concluded that Burnley's "rich heritage, brilliant academy and passionate fan base" provided the perfect vehicle to put the app to use.
Under the agreement, ALK created a newly incorporated company in England and Wales called "Calder Vale". Calder Vale raised over £200m in funds by selling all its issued shares to a subsidiary of ALK Capital, "Velocity Sports". It then used that capital to acquire a majority stake in Burnley Football & Athletic Company Ltd.
Legal Structure of Football Clubs
This deal invites us to understand how football clubs act as fully developed companies in the modern European market. Before the turn of the century, football clubs were structured as unincorporated associations in the form of partnerships — a structure was primarily preferred because of the few legal requirements, privacy and flexibility and tax advantages. For instance, unincorporated associations are not subject to outside scrutiny, meaning they are exempt from filing balance sheets, annual returns or accounts by way of public record.
On the other hand, acting as an unincorporated association also means that clubs were never a separate legal entity, unable to act in its own name to hold property, employ staff or enter into contracts. In the early 90s, a boom in TV subscriptions prompted clubs and leagues to build a new business model to profit from higher broadcasting returns. Acting as a non-profit organisation without a separate legal entity would prevent massive revenue inflows from investments and broadcasting. Aiming to be recognised in law as distinct from its members to enter into contracts and hold assets in its name, clubs started to incorporate. Today, most English clubs are structured as 'Companies Limited by Shares' — a preferable structure — because it allows to distribute profit to shareholders.
Incorporating, and thus acting as a 'separate legal entity', allows football clubs like Burnley to perform and profit from selling its shares to American investors.
Over the past few years, football fans have increasingly seen American investors penetrate the bubble of European football. Just by way of explanation, KPMG has estimated that American investors now hold majority stakes in over 20% of the teams playing in the UK's top leagues. These include the 2019 Champions League victors, Liverpool FC, and their big-six rivals Arsenal and Manchester United. Ultimately, there are two reasons for this American inflow of investment.
Firstly, investing in American sports has become overly expensive. Professional baseball and basketball teams in the US do not budge for no less than $1 billion , whereas the point of entrance for a football club in the MLS has surpassed $300 million. The European market is relatively cheaper, with most clubs at the big five leagues valued at less than £200 million. According to Jordan Gardner, co-owner of Swansea City, "European football offers an opportunity to commercialise the sport, capture significant media rights and sell players in a way that simply does not exist right now in North America."
Secondly, the pandemic's impact on football teams made them ripe for the taking. The fall in clubs' revenues from decreased ticket sales significantly lowered the valuation of clubs. Since investors know that this inflow of cash will inevitably return in the future, acquiring a football club becomes cheaper and more attractive. Quoting the words of Alec Schneier, a partner at RedBird Capital Partners and majority owner of Toulouse FC, "sport will return to exactly where it was."
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Reference list:  Alberto Rubio, “Fans Return to the Premier League after 271 days” Marca (Madrid, December 5, 2020)  Murad Ahmed and Arash Massoudi, “AS Roma sold to billionaire Dan Friedkin for €591m” Financial Times (London, August 6, 2020)  Sara Germano, James Fontanello and Murad Ahmed “Parma poised for sale to America’s Krause family” Financial Times (New York, London, 14 September, 2020)  Samuel Angini, “US investment firm ALK Capital buys Premier League team Burnley” Financial Times (London, 31 December 2020)  ALK Capital (LinkedIn) <https://www.linkedin.com/company/alk-capital-llc/about/> accessed on 24 January 2021  ‘Pandemic not discouraging football club investors’ KPMG Football Benchmark (Budapest, 17 November 2020)  Muckle LLP ‘A Guide to Club Structures for Natioanl League Systems and other Football Clubs’ English FA (London, 2015)  David Hellier, “Rich Americans Plow Fortunes into European Soccer Bargains” Bloomberg (23 September 2020)  “Jordan Gardner on American’s investing into European football and his plan to grow young Americans on a foreign field” Premier Sports (London, September 2020)  ‘100 most valuable clubs in the world’ (TransferMarkt) <https://www.transfermarkt.com/spieler-statistik/wertvollstemannschaften/marktwertetop> accessed on 25 January 2021  “Jordan Gardner on American’s investing into European football and his plan to grow young Americans on a foreign field” Premier Sports (London, September 2020)  David Hellier, “Rich Americans Plow Fortunes Into European Soccer Bargains” Bloomberg (23 September 2020)