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Investment in football maturing beyond 'trophy' purchases, says expert

Out-Law Analysis | 02 Jun 2016 | 4:28 pm | 3 min. read

FOCUS: Rising media rights values and the increasing globalisation of the game is behind a maturing football investment market.

It will be less common in future for rich 'sugar daddy' businessmen to buy their local club and bankroll the team. Instead we can expect more foreign investors to invest in English clubs and other top clubs in Europe as those clubs can be increasingly relied upon to return a profit and offer potential returns on investment. Our prediction based on current levels of interest is that, with increasing rights values the strong likelihood is that a growing number of deals will take place with the prices paid rising.

In England investment deals are not just likely to involve Premier League clubs. Investors are also being increasingly attracted to clubs operating at a lower level where the clubs have potential to reach the Premier League and benefit from the commercial opportunities that come with such success and exposure. This extends interest across the top four divisions of the English professional game.

Deloitte's Annual Review of Football Finance 2016 (36-page / 7.33MB PDF) is the latest reminder of the growing success of the Premier League. According to the report the 20 Premier League clubs generated acombined revenue of £3.3 billion in season 2014/15 and it is expected that combined revenues of the country's top clubs will exceed £4 billion in 2016/17, driven mainly by a rise in the value of rights paid for to broadcast matches on TV.

Revenues have grown to such a level that they are now supporting sustained profitability among clubs in the Premier League. According to Deloitte, Premier League clubs’ combined operating profits exceeded £500m in 2014/15 season, with 17 of the 20 clubs recording an operating profit.

Profitability and the opportunity to build globally are what attract investors. There are already examples of our prediction of a new wave of foreign investment into the English game. Last year, for example, AFC Bournemouth announced that Chicago-based PEAK6 Investments had acquired a 25% stake in the club to join in partnership with existing shareholders, including the club's Russian majority shareholder Maxim Denim. It was followed shortly after by the investment in Crystal Palace by a US consortium led by Josh Harris and David Blitzer.

We can expect these kinds of deals to become more common. Not only are investors attracted to investment opportunities in existing Premier League clubs, they are increasingly likely to consider clubs with rich footballing history and large fan base operating outside of the top English league that have the potential to be successful, both on and off the pitch, with the right investment.

The right partnership between investors and club has the potential to re-shape the game at domestic level at least. Investors that find the right club with the potential for growth and who can both harness the existing fan power and manage assets to exploit opportunities to grow commercial revenues in international markets can create something truly special and reap rewards beyond financial returns.

The Leicester City story, complete with the club's Thai backers, is an example of what can happen, with the perfect mix of investment, good management and player recruitment helping to spur success on and off the field.

Revenues generated by the Premier League clubs already dwarf those raised by clubs in the other 'big five' European leagues in Germany, Spain, Italy and France. However, the top clubs in those leagues have globally-recognised brands and access to substantial revenues through competing in UEFA's Champions League. Investors therefore see the opportunity in acquiring a stake in those clubs, sometimes for a fraction of what it would cost to invest in an English club. Our recent experience suggests that investors are increasingly finding value in pan-European investment given the opportunities currently available.

Investors also see Europe as a gateway for talent from non-EU countries, more so than in the English market. As well as commercial considerations, scope for growth and profitability, investors are increasingly conscious of immigration rules in European markets and their potential to support or hinder player recruitment.

The rise of the Chinese Super League and the growing interest in the US in the MLS means investors are also looking at spreading their interest and investments into both of these markets, with other leagues such as the NASL and USL also attracting attention. .New links will likely develop between clubs in different countries as investors seek to grow the brand and affinity for their clubs, particularly targeting local markets where other clubs they own already have a presence.

For clubs the increase in their revenues and profits bring their own challenges. Other clubs, players and agents are switched on to the money available to English clubs in the transfer market. Achieving value in an inflated market is therefore difficult. Clubs that focus on operating a strong scouting network and good youth development programme are likely to obtain an advantage on the pitch without wasting the funds available to them.

Trevor Watkins is an expert in sports law and finance at Pinsent Masons, the law firm behind Out-Law.com.