As European soccer has grown and become more professionalised over the last decade, we have seen increased interest in ownership and investment in the sport.
Much of this interest has come from developing soccer markets like China, the United States and countries in the Middle East. The motivations of investors from these different markets have varied greatly, but the importance of building a sound investment thesis and doing proper due diligence before purchase has never been more important. While some investment groups overlook these important steps, any sophisticated investor will approach buying a soccer club in the same way they would any merger and acquisition outside of the sports world.
In part one of this series, I described the motivations of individuals, private equity and institutional investors who look towards European soccer for investment opportunities. This instalment will focus on the next steps investors take going through the acquisition process, and what goes on behind the scenes.
Building the right investment thesis
As investors become more serious about an acquisition, it is vitally important that they lay out a proper business plan and investment thesis. What will be the core focus of this business? Will it be selling players? Aiming for promotion? Qualifying for European tournaments?
While most clubs focus on a combination of these areas, some investment groups struggle without a core investment thesis. Many groups make the mistake of assuming they can succeed by managing these clubs “better and smarter than anyone else”. American groups in particular are often guilty of assuming “best practices from North American sports” will automatically result in success, rather than a well thought-out business plan.
While the investment thesis varies depending on the size of the club, the current infrastructure, market characteristics and the motivations of that particular prospective ownership group, it is important that investors have a concrete plan. These groups need to be laser focused on analysing all aspects of the due diligence process through the lens of whatever the chosen business plan is.
US investors are sometimes guilty of assuming that best practices from North American sports will result in success in Europe
The soccer culture and challenges in each country
A mistake that foreign ownership groups sometimes make is underestimating the inherent cultural, language and sporting difference between each league and country in Europe. Both on and off the pitch, the way the game is played, the way businesses are run, and the way people in each country interact with the game can be drastically different.
Clubs in Spain and Portugal, for instance, generally play a more open, attacking style with a focus on technique, bringing in many players from Latin America due to the cultural and language similarities. Teams in France have a tendency to bring in more players from French speaking countries in Africa, which have created a strong pipeline of talent and made the French leagues a focus for scouts from the biggest clubs in Europe.
Even off the pitch, it’s vital that potential investors understand both the opportunity and challenges in each market. Italian clubs, for example, generally have poor infrastructure compared to their European counterparts, and endemic corruption can make operating a soccer club in that country challenging
English soccer's Premier League and the lower divisions in the English Football League (EFL) are dealing with a new set of challenges related to Brexit, as clubs will have significantly more hurdles in the future obtaining work permits for players from abroad. Clubs like Brentford in the second-tier Championship have made good work of recruiting undervalued talent from Scandinavia and continental Europe, and Brexit will fundamentally disrupt this successful model. In France, strict labour laws make it nearly impossible to reduce front office payroll expenses and cut costs, something many foreign investors are unaware of.
Regardless, each market is unique both on and off the pitch, and it’s crucial that potential investors understand the intricacies of each country and league as they go through the acquisition process.
Prospective owners need to be aware of how the nuances of each market will affect their ability to run a club
Building relationships and boots on the ground
The business side of soccer is very relationship driven, and building trust with key stakeholders throughout the acquisition process is crucial. During our purchase of FC Helsingør, I spent the better part of six months on the ground building relationships at the club, interviewing key staff members and ingraining myself in the local community as much as possible. This was extremely important as I was able to identify weak points in the organisation, and gain the trust from local stakeholders who knew we would treat the club with care and respect. My goal was to invest the time and energy in advance, so that there were fewer surprises after the purchase was complete.
When American billionaire Rocco Commisso purchased ACF Fiorentina in the summer of 2019, he described the deal as the “quickest closing in soccer history”.
“From a letter of intent, I think it was less than two and a half weeks before I did signing and closing,” Commisso said, speaking to Forbes. “We signed and closed on the same day, which means I didn't do any due diligence between signing the contract and closing on the contract, which typically takes two or three months.”
While the exact purchase price was not disclosed, it is remarkable that Commisso made a purchase of between US$150 million to US$200 million without doing any due diligence. To no one’s surprise, it was only after the sale closed that the new ownership group learned that a third party agent held secret contracts with the club’s top players, something that should have been discovered during a proper diligence process.
According to the New York Times, the newly discovered agreements 'effectively gave a soccer agent, named in February as part of a money laundering investigation in Spain, permission to find buyers for at least five members of Fiorentina’s roster. In return, the agent would be paid a commission. If Fiorentina balked at completing any deal the agent brought to the club, he would receive a penalty fee instead.'
This is just one example of how important the diligence process is, and how no deal is worth rushing through. There is a temptation to close these deals as quickly as possible, but this should be a reminder to be smart, strategic and patient throughout the acquisition process.
Jordan Gardner spent the better part of six months on the ground during his investment group's purchase of FC Helsingør
Managing expectations and mitigating risk
No club acquisition is entirely risk free. However, with proper due diligence, the magnitude of problems and surprises that arise can be severely reduced. The sport of soccer in Europe has inherent risk, whether that is relegation, or injuries to top players, or just bad luck on the pitch, so it is crucially important that club leadership mitigate off the field risk as much as possible.
There is immense opportunity in European soccer to run these clubs smarter and more efficiently than the status quo, but the first step is to be humble and take the necessary time to do proper due diligence, be patient, and feel comfortable with the entire acquisition process.
About the author: Jordan Gardner is an American sports executive and investor in several soccer clubs across Europe including Swansea City AFC in the United Kingdom and Dundalk FC in the Republic of Ireland. He is currently the chairman, co-owner and managing partner at FC Helsingør, an American-owned soccer club in Denmark, and was previously vice president, investment and business strategy for the digital media company JUGOtv before it was acquired by Relevent Sports Group. He was also the owner and chief executive of a live event ticketing and technology company based in San Francisco, California.
This is part two of a four-part weekly series offering a unique insight into owning a European soccer club. You can read part one here. Part three will be published on 11th February.