European Union: Investors Who Want To Buy Sports Teams Look To Europe, Not The U.S.

Last Updated: August 22 2019
Article by Matthew E. Eisler

If you are wealthy and want to own a professional sports team, the U.S. is not the only game in town.

No one would blame you for wanting a piece of that action where some professional teams top the $2 billion mark, such as the NFL's Carolina Panthers, which in 2018 went for a reported $2.2 billion, or the NBA's Houston Rockets, which sold for the same amount in 2017.

But with fewer teams coming onto the market, looking overseas might be the ticket. Influential investment banker Brett Story of Britehorn Partners says: "Give a serious look to investing in professional soccer overseas, especially in Europe."

To Story's point, those growing markets and team valuations are lower than here in the United States. As a foreign investor, you get a lot for your money. Not only are high net worth individuals and family offices that are priced out of the U.S. turning to Europe, but so are sovereign wealth investments from the Middle East, China and across Asia.

You're also seeing individuals who already own teams in the U.S. participating overseas. For example, private equity investor Josh Harris, who is the principal owner of the NHL's New Jersey Devils as well as the NBA's Philadelphia 76ers, has an 18% stake in Crystal Palace of the English Premier League. And a group of overseas investors recently acquired a majority stake in Danish soccer club FC Helsingør.

Advantages for investors

There are slightly different ownership restrictions that can be an advantage for overseas investors. In the U.S., unless you can buy the whole organization or at least the majority interest in a team, you're going to be a minority owner. The Big Four U.S. sports leagues all require that a controlling owner retain most of the critical decisions relating to the governance of the team.

Contrast that with European football and even basketball leagues. Excluding the blue-chip teams at the very top of the Premier League, for $50 million to $100 million investors in European clubs can participate at a very high level of decision making regarding their teams.

Other advantages of investing in overseas sports franchises:

Diversified access to cash flow: In the U.S. leagues, you can't develop a player in the U.S. and then sell their contract outright as a way to make money. But those sorts of arrangements are common in overseas leagues and are an excellent way for team owners to free up capital for other needs or to increase profitability.

Big growth opportunities: The market for sponsorship and naming rights in many foreign countries isn't quite as mature as it is in the U.S. But that's an opportunity for an enterprising U.S. investor to step into something akin to an emerging market and grow that revenue stream. Regarding growth on the investment, Story mentions the following example: "The current controlling shareholder of Bournemouth FC reportedly bought his stake in the club in 2011 for less than $2 million and the club is now one of the world's 30 most valuable with an estimated value of $250 million after four successive campaigns in the English Premier League." At a 12,400% return, that is quite a unicorn.

Expansive ownership experiences: Owners have a lot of involvement. For example, access to coaches, managers and players, access to the press room, travel with the team, the ability to influence player trades and participation in sponsorship or naming rights decisions, are all available abroad even for what might be considered a minority stake in the U.S.

But investing in smaller, lesser-known teams overseas comes with some potential pitfalls. For one thing, European soccer clubs can be "relegated" to a lower-tier league if their performance on the field falters.

Painful case in point: Fulham owner Shahid Khan, who also owns the NFL's Jacksonville Jaguars, spent $130 million on new players only to see his season end this spring in relegation. Dropped to a lower level of competition, this can cut into potential revenues and expose the team ownership to added business risk, including limited access to capital, simply based on how the team plays. At the same time, teams can also rise from a lower league if they play well, opening up potential upside.

Despite this risk, the trajectory is clear: International team audiences are growing, revenues are increasing and team prices will only rise as they become more profitable. The moment seems ripe for interested investors to look into the opportunities associated with cross-border team ownership.

Matthew Eisler is a partner in the Hogan Lovells global Corporate practice and focuses on sports and venue transactions in the U.S. and abroad.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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