Chelsea have spent big in the transfer window, including the record signing of Enzo Fernandez
(Picture: REUTERS)So there goes the transfer window. Chelsea put on quite the show, their men’s team broking records in buying Enzo Fernandez from the Portuguese outfit Benfica for £106m, all the while selling a rising star to Spurs and a club stalwart to Arsenal. In the women’s game, Arsenal offered what would have been another world record transfer fee for England star Alessia Russo. Manchester United held firm. It’s been frenetic, but it’s not all as crazy as it might seem.
Forget the sentiment for a moment – football clubs in England have long been businesses. In the late 1800s, local industrialists funded teams to gel communities together. They started to sell tickets, and administrators of the game begrudgingly allowed the game to go professional. Football has been a business ever since.
Ken Bates, Sir Alan Sugar and co. ruled the roost until very recently. Then international businesspeople started to invest, with Southwest London an early hotspot. QPR was bought by millionaires based in Malaysia and India, before Roman Abramovich famously acquired Chelsea (since sold to the American Todd Boehly, of course). Newcastle’s takeover by a Saudi consortium in 2021 has solidified an ongoing trend.
While football has been big business for some time – the Premier League and TV rights really kicking things off – it has rocketed beyond what might have been expected in the last decade, and different types of investors have joined the fray.
Private equity, for example, which recently backed Boehly’s successful move for Chelsea. This isâ¯medium to long-term finance provided in return for an equity stake in unquoted companies. In the Chelsea deal, this came from Clearlake Capital, a US-based firm which holds investments in a variety of sectors from software to food. Clearlake saw in the club ‘an iconic football brand with over 500 million fans across over 180 countries.’
My sports agency Two Circles was sold a private equity business, Bruin Capital. The firm presented some immediate advantages: additional funds to strike bigger deals, creative ways to incentivise our employees and a broader network of contacts and potential clients around the globe. But are football clubs themselves suited to private equity ownership, or individuals?
Dr Rob Wilson, a football finance expert based at Sheffield Hallam University, says: “The big difference between private equity driven ownership and trophy asset hunters is that the former will always have a return on investment in mind, and an exit plan. This means a focus on new revenue generation and more effective cost control.”
It has been reported that Chelsea generates around £1 for each of those 500,000 fans each year. Clearlake is thought to believe that this figure could double, likely through extending Stamford Bridge and growing the profile of the club internationally.
Then there are the players. Cost control is generally believed to involve clubs getting more bang from their buck on player spending by focusing on younger talent. Wilson suggests: “Gone are the days of overspending supported by deep pockets of a sugar daddy (or mummy). A club must wash its own face and private equity will continue driving that culture change for long term returns. Chelsea must now turns its strategic plan around to deliver those objectives alongside sporting achievement.”
Indeed, while their spending might seem profligate, behind the scenes there is a sound logic.
So what are the downsides for fans? Well, private equity’s sole focus is on making money. So fans may be concerned that the ‘softer’ side of the club reduces – that activity in the community slows down, for example. Private equity also tends to rely on debt to fund significant tranches of their deals, which can cause problems if interest rates rise as currently. There’s also little room for sentimentality. If they judge a star striker or even a beloved bar in the Shed End are not pulling their financial weight, might they be gone? We’ve yet to see the implications of Chelsea’s recent buying spree.
So is this better or worse than being owned with Abramovich-type wealth, which doesn’t necessarily need to generate a return? After all, buying stars is fun. Look no further than the Paris Saint Germain forward line of Messi, Neymar and Mbappe. The downside to this is that teams can also be subject to the whims of individual owners on the playing side, too. I’ve met several Watford fans who don’t necessarily judge that a good thing.
Clubs – and their owners - are increasingly expected to stay the right side of the financial line (via Fair Play rules) and a moving moral one (as Chelsea fans can testament to). Rishi Sunak is more supportive of the much-vaunted Football Regulator than Liz Truss was. Wilson adds: “Spotlight is now firmly fixed on sport washing projects, typified by investment by sovereign wealth funds. The world is watching closely to see if over investment follows – something the PIF of Saudi Arabia has so far resisted at Newcastle United.”
Of course, it’s possible to blend investment models. Minority stakes can be good way to raise finance and the breadth of opportunities available to a club. Manchester City’s Abu-Dhabi based owners have minority investors from both American private equity and Chinese corporate sectors.
Not every model has to seek a quick return. Ipswich Town have a pension fund as owners, which can entail a slightly longer investment horizon and to be less interventionist in the running of the club. Wycombe, meanwhile, spent a successful period with their fans as guardians until finding the Couhig family as committed investors. Typically, though, smaller businesses need brave investors. I remember once working with a CEO who had been told he needed to spend £300,000 on a new boiler and heating system. That equated to their entire profits from two home games or the total monthly wages of the entire midfield.
Is there a clear answer, then? Well, it depends on what you want from your team. Wilson’s view is that “the Abramovich days of clubs losing £1m a week are over. Perhaps too, the success driven by such massive overspending. There will be teething problems in a business with decisions dominated on the evidence of sporting success (or failure), but private equity represents a new era for football, and Chelsea will be in a better, more stable position, as a result.”
Being a Chelsea fan for the last 20 years has been brilliant fun, but ultimately, I’m keenest on a team that can passed on for future generations to love. Football clubs need to be viable businesses, just as their original guardians concluded in the 1800s.
