News of Everton Football Club's takeover agreement may have made headlines last Friday, but within the leisure industry itself, it represents the continuation of a pre-existing trend of private equity (PE) investment in sport.
Takeover deal agreed between Everton and 777 Partners
It was announced on Friday, 15 September, that 777 Partners, a private equity firm based in Miami, had agreed to buy Farhad Moshiri's 94.1 per cent shareholding in Premier League side Everton Football Club.
The exact sum agreed has not been revealed, but the public has been told in a Club Statement that the purported takeover would allow for the "complete financing" of the Merseyside club's new stadium.
Continuation of a trend
News of a private equity firm agreeing to acquire a sports club should not come as a great surprise, given the trend we have witnessed in recent years.
Indeed, 777 Partners already holds investments in football clubs such as Sevilla FC, Hertha BSC and Melbourne Victory.
Further notable PE investments in sport that have taken place in recent years include CVC's £365 million investment in the Six Nations tournament and Sixth Street's purchase of a 25% stake in the LaLiga television rights of FC Barcelona.
Dubbed to once be predominantly reserved for individuals with a high net worth, private equity investment in the sports sector has been on the rise.
The attraction for investment is clear, with a portfolio/fund relating to the NBA outperforming that of the S&P 500 by 599% in the period between 2002 and 31 December 2021, according to Sportico, Forbes and PitchBook data.
Professionals in the industry have been reacting to this trend, with it being released over the past week that Goldman Sachs is set to introduce an investment banking franchise focused on the sports sector.
One factor that contributed to the recent rise of PE investment in sport was the emergence of the COVID-19 pandemic.
The emptying of stadiums and cancellation of fixtures temporarily impacted the value of assets in sports, thereby increasing their attraction to private equity firms who saw this as an opportunity.
Indeed, PE investment in sport rose from $3.3 billion in 2018 to $7.1 billion in 2021.
Pandemic aside, the growth of digital revenue and sponsorship agreements in sports has also aided this movement.
For example, an €815 million commercial revenue growth helped the 'big five' football leagues in Europe see record aggregate revenues in 2021/22.
Meanwhile, 2023 has already witnessed the English Football League (EFL) agree to a record £935 million broadcasting deal with Sky Sports.
This commercialisation of sport has even been referred to by 777 Partners co-founder Josh Wander, who has claimed that "there's a new wave of commercialisation coming to football".
Regarding alternative avenues of untapped revenue streams, Wander has even envisaged selling insurance or financial services to fans rather than "hot dogs and beers".
However, it is interesting that Wander referred to 777 Partners' commitment "to partnering with the local community over the long-term" and to "contribute to the economic and cultural regeneration of Merseyside", given our recent blog on ESG considerations in acquisitions and investments.
There are various ways in which an investment in sport can be structured.
Outside of the traditional subscription for shares in a single limited company, other structures are becoming more prevalent as sports teams continue to diversify their revenue streams.
An investor may, for example, purchase a shareholding in a new entity which has been set up to exclusively deal with the commercial side of the sports team.
Alternatively, preference shares connected to certain commercial revenue streams may also become more commonplace.
Such commercial opportunities may include broadcasting and sponsorship rights.
The detachment of the commercial aspect of the business can enable disciplinary and governance matters to remain under the control of the club and their management and can also avoid some of the regulatory difficulties involved in owning the club directly (through a holding company), such as the Premier League's Owners' and Directors' Test.
However, investors must ensure that the specifics of the applicable rights are outlined in any agreement and that adequate protections are provided.
According to Farhad Moshiri, Everton's outgoing owner:
"[t]he days of an owner/benefactor are seemingly out of reach for most, and the biggest clubs are now typically owned by well-resourced PE firms, specialist sports investors or state-backed companies and funds."
Given what we have seen in recent years, it would be hard to disagree with Moshiri.
However, the rise of PE investment is not exclusive to the football industry, and with technology and innovation becoming ever more paramount in our daily lives, sports' ability to reach and monetise such wide audiences through different methods means that it could well be here to stay.
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