Pitfalls abound, including unlimited budgets, but huge payoff looms
Unlike the major U.S. sports, the Premier League has no limits or penalties on what a team’s owner can spend on the squad, and revenue can vary greatly each year depending on whether a team plays in European competition. Unlike U.S. sports, the 20 Premier League teams also face the threat of relegation — demotion from the league and an associated loss of revenue if they finish a season with one of the three worst records.
But the league is also a proverbial El Dorado for prospective owners, a promised land of almost limitless potential growth, a sport where an owner can on paper make hundreds of millions of dollars in just a few years, and where authorities seem poised to act to ensure a more level financial playing field.
Three of the clubs in American hands, Arsenal, Manchester United and Liverpool, are among the biggest brands in the world’s most popular sport. Manchester United, for example, claims to have 300 million fans outside the U.K.
The clubs are yet to realize the commercial value of that far-flung support, and there are questions whether — in Asia, especially — the interest can be monetized.
But experienced owners may like their chances of at least increasing marketing and merchandizing income — cue the growing interest from U.S. sports-team owners.
Manchester United, owned by Tampa Bay Buccaneers owner Malcolm Glazer, recently opened a commercial office in London — a move a local owner may not have made. And Fenway Sports Group, which owns the Boston Red Sox and Liverpool, made a deal with basketball superstar LeBron James that will see the player and the soccer club marketed together in some countries.
English clubs are also relatively cheap, particularly for Americans used to the eye-watering price tags on most domestic sports teams.
Tampa Bay Buccaneers owner Malcolm Glazer bought Manchester United, recently valued by Forbes as the world’s most profitable club, for close to £800 million pounds in 2005. Press reports suggest he has already dismissed a billion-pound offer for the club. FSG bought Liverpool late last year for about £300 million.
By comparison, the National Football League’s Miami Dolphins were bought for roughly $1.1 billion in 2008, while the Golden State Warriors of the National Basketball Association were sold last summer for about $400 million.
“U.S. team values are sky-high, and it’s not as if there are lots of valuable U.S. sports franchises available to buy,” said Tom Cannon, professor of strategic development at the University of Liverpool’s school of management.
Kroenke’s Arsenal investment, which values the club at £731 million, may be savvier than most. Arsenal is one of the few money-making Premier League clubs, with a profit of close to £60 million last year.
The club also has more room to grow. Deloitte estimates that Arsenal’s commercial income, which includes money from sponsorship deals and merchandise sales, lags rivals’.
In 2010, according to Deloitte, Manchester United’s commercial income was £81 million, Liverpool’s was £62 million and Chelsea’s was £56 million. Arsenal’s income was just £44 million.
“In the longer term, if its strategy of pursuing international commercial development is successful, it could provide [Arsenal] with a financial strength matched by few clubs,” said Deloitte in its report.
There are of course still risks for Premiership owners. Unlike the NFL, but like the NBA, some clubs lose money. But unlike even the NBA, year-to-year revenues can be very unpredictable.
For the top clubs, the prize is finishing in the top four places in the league and playing in the UEFA Champions League against Europe’s other big clubs. But that place isn’t guaranteed: Liverpool, in the tournament for the past eight years, didn’t feature this year and is unlikely to make it into next year’s competition. Champions League income is worth roughly $50 million a year to Liverpool, said Cannon. Liverpool’s most recent accounts, ending in 2009 when the team was in the Champions League, showed a £35 million profit.
“Missing the Champions League is bad news for them, and the owner has to decide how to budget for that lost income,” said Cannon.
Meanwhile, Randy Lerner and Ellis Short, American owners of Aston Villa and Sunderland, respectively, have poured millions into their loss-making clubs since buying them, though their initial investments were low — Lerner bought Villa for about £60 million, and Short reportedly spent less than half that amount.
Given their investments, any profit Lerner and Short make depends on how long they hold on to their clubs and whether their teams continue to do well, said Rob Tilliss, principle at Inner Circle Sports, who worked on FSG’s Liverpool acquisition.
There’s another hurdle for Premier League owners: billionaire owners who spend their own cash with impunity.
The U.K.’s Daily Telegraph newspaper said recently that Chelsea owner Roman Abramovich poured £740 million of his own money into the club in the seven years following his 2003 acquisition. Meanwhile, Manchester City owner Sheikh Mansour bin Zayed al-Nahyan has reportedly invested about £600 million in the roughly two years since he took over there.
“I’m not sure the Americans coming in ... appreciate how much Abramovich and Sheikh Mansour are willing to spend,” said Cannon.
Partly in response to this largesse, European soccer’s governing body, UEFA, is introducing its so-called fair-play rules, which will require clubs to spend only what they earn. But until the rules take effect in 2013 it’s hard to say how effective they’ll be — some question whether UEFA would really be willing, for example, to ban Chelsea or Real Madrid from the Champions League if they spent beyond the limits.
Tilliss said he thinks the fair-play rules will force clubs to balance their revenues and expenses. Further, he said, owners like Abramovich and Mansour will have to stop using their own wealth to subsidize their clubs. It’s a view he believes is shared by incoming U.S. owners.
If successful, the rules may make soccer clubs even more attractive to U.S. owners.
One sports-business professional said he’s spoken to several NFL owners who would be interested in buying Premier League teams if there was cost certainty. He declined to name the owners. There are plenty of opportunities among England’s 92 professional clubs for those willing to take the risk.
Sam Mamudi is a reporter for MarketWatch, based in New York