Sports clubs

It’s been more than 20 years since Roman Abramovich swooped on Chelsea, buying the West London club for a reported GBP140 million and launching a trend for the super-rich to inject vast amounts of wealth into Premier League clubs. Since then, major investors have arrived from every corner of the world in their pursuit of sports club ownership, with a range of different motivations and expectations.

Over the past decade, we’ve seen a move to sovereign wealth fund acquisitions, Middle Eastern states and wealthy individuals from the Gulf ploughing limitless resources into creating a breed of ‘superclubs’, with ownership propelling them to celebrity status with newfound powers. Sports clubs offer a unique investment with varying opportunities but the potential pitfalls – from community-ownership to financial fair play – shouldn’t be underestimated.

In 2024, sports club ownership faces unprecedented scrutiny, emphasising transparency and funding origins. Acquiring a club poses significant reputational risks. The imminent introduction of an independent football regulator and the Football Governance Bill will heighten scrutiny with a reinforced Owners’ and Directors’ test. English football’s global prominence demands prospective buyers anticipate extensive scrutiny beyond formal procedures, requiring comprehensive preparation to navigate the rigorous tests.

Michael Rose, Senior Associate, DRD

Welcoming a new trophy asset to our guide

Since publishing the previous edition of the Guide to Trophy Assets in 2015, it’s fair to say that sports clubs have turbo-charged to trophy asset status, securing a position in this latest edition of the guide.

The sports industry undeniably enlivens and enriches communities, countries and nations and we can all recognise the important role that sport plays in people’s lives. So, why are we now classifying sports clubs as trophy assets? Ultimately, the demand for these assets outstrips supply, leading to sky-high premiums with little correlation to the underlying financial metrics. It seems that when it comes to investing in sports clubs, high desirability ranks far beyond financial return.

Despite a torrid first half of the season for Manchester United, a football club that usually enjoys a consistent top four(ish) position in the English Premier League, 25% of the club was acquired by Sir Jim Ratcliffe for a reported USD1.3 billion in February 2024. This was coupled with an agreement for Sir Jim to invest a further USD300 million into the club to renovate Old Trafford and the club’s training facility.

In July 2023, on the other side of the pond, the USD6.6 billion sale of the American football team; the Washington Commanders, to a group led by Josh Harris (and including Magic Johnson), was approved by the National Football League (NFL), making it the highest price paid for a North American professional sports team.

Investing in sports clubs such as Manchester United and the Washington Commanders may seem like a safe bet given their size and following, but the consequence of supply falling short of demand trickles down the league tables to lesser-known clubs, leading to inflated valuations at that level too. Not least, those clubs offer very little in the way of fruitful financial returns.

Running a sports club is an expensive undertaking not to be underestimated. Alongside the substantial player salaries, transfer fees, and maintenance of acres of real estate including pitches, stadiums and training grounds, huge investments need to be made to keep above water among the competition. For those sports clubs that are listed on capital markets, share price stability and growth are frequently punctuated by unpredictable wins and losses on the field.

It would seem therefore that a key driver for this trophy asset is not necessarily financial, but emotional dividends – here are a few reasons why that may be:

A truly unique asset – this asset is multifaceted including people, players, branding, real estate and perhaps, best of all, the allegiance of the supporters.

Love of the beautiful game – in the UK in particular, for any football club, the two main goals are Premier League status and playing on the European football stage.

Enjoyability – unlike most of the other trophy assets in this guide, which are confined to the enjoyment of the owner, sports clubs provide enjoyment to thousands of people within communities, driving feelings of competition and human spirit passed on from generation to generation.

Celebrity status – there has been a surge in celebrity ownership of sports clubs – for example, David Beckham’s ownership of Inter Miami and Ryan Reynolds and Rob McElhenney’s ownership of Wrexham AFC. Celebrities interested in owning sports clubs often come to the table with money that they’ve made through other ventures, and predominantly view the asset as a way to raise their profile, live out childhood dreams and impress friends, family, politicians and royalty with front-row seats to huge sporting events.

Worldwide platform – teams in the upper echelons of the sporting world (NFL/English Premier League) are able to reach households worldwide providing a platform like no other for exploiting marketing and other commercial arrangements.

Sports clubs: notable legal issues

The continuing commercialisation of sport, clubs, individuals and teams has brought about unique legal and commercial challenges that need to be addressed. From promoting 21st-century sports stadiums to the commercial links that bring about revenue streams to the wider social, economic and environmental benefits that sports clubs can bring to the cities, regions and communities within which they are based.

Given their status as fully operational businesses, you’ll need to seek legal advice ahead of acquiring a sports club.

Aside from the brick and mortar of the sports club’s playing ground, training ground, club houses and stadiums which are obvious assets that any diligent acquirer would seek legal advice on, there are other critical legal considerations which may not be apparent in the early stages of buying a club that you should be aware of. Some of the most common legal issues related to sports club acquisitions are noted in the next section.

Stadiums and planning

The club’s stadium and training ground will form a huge and exciting part of the journey in the ownership of a sports club.

Many prospective owners of clubs will want to understand how redevelopment of existing stadiums or relocation to a different part of the town/city can be achieved through strategic planning.

You’ll also want to understand if and how the club’s stadiums can be reimagined to generate multiple revenue streams through ‘24/7 use’, rather than simply match-day use, for concerts and events. Stadium projects such as these require careful advance planning.

Ownership and title

As with any corporate acquisition, it’s crucial to establish title to a sports club. This can be complicated given that sports clubs are often wholly or partially community-owned.

Focusing on the partially community-owned, this is borne out of a time when sports clubs, in particular football clubs, were established to serve the local community. By providing financial or other types of support to the club, local communities and fans would be awarded equity in the club, often forming supporters’ trusts to represent the fans.

When it comes to acquiring a sports club, be aware that your acquisition doesn’t necessarily mean 100% of the shares. Supporter ownership isn’t uncommon and is often key to sports club ownership, ensuring the supporters and fans alike have a seat at the table, with their voices heard by management and majority owners. You’ll need to carry out due diligence on the sports club’s constitution to understand how both shareholder and board voting work, and what level of control supporters’ club shareholders may have.

Financial fair play/profitability and sustainability rules

Compliance with financial rules set by sports regulators has been a hot topic over the past few years and continues to be so – in particular, the Financial Fair Play (FFP) Rules imposed by UEFA and the Profitability and Sustainability Rules (P&S Rules) imposed by the English Premier League.

Financial rules are set by sports regulators for various reasons, including:

To ensure that clubs operate within their means and don’t spend more money than they earn (financial stability).

To create a level playing field among clubs to avoid giving an unfair advantage to clubs with wealthy owners who can afford to plough millions of pounds each year into the club (healthy competition).

To ensure sustainability of clubs and avoid insolvency (viability).

Heavyweight Premier League clubs such as Manchester City and Everton have recently faced the wrath of the Premier League for falling foul of the P&S Rules, and in the case of Manchester City, at the time of this guide going live, they await the outcome of more than 100 charges of breaching the P&S Rules.

If you’re looking to own a sports club, particularly a football club in the UK, you’ll want to ensure that the club you’re about to invest in has operated on the right side of the rules. As we’ve seen recently, issues covered up in financial statements often don’t come to light for several years after the event, and there’s no statute of limitations when it comes to the P&S Rules imposed by the Premier League, meaning such issues will be inherited.

The NBA’s Phoenix Suns were purchased for

USD4 billion

in February 2023.

The world’s 50 most valuable sports teams are worth a combined total of

USD256 billion.

Source: forbes.com/sites/mikeozanian/2023/09/08/the-worlds-50-most-valuable-sports-teams-2023

Reputation management

Whether it’s intended or not, owners and management of sports clubs quickly come into the public eye, with fans as well as the press eager to know more about the people who have taken an interest in their club.

If you purchase a sports club, your actions, past and present, will come under more scrutiny. Getting ahead by obtaining legal advice on managing your reputation and planning for different eventualities will mean that you can act fast if and when any issues arise.

Other considerations

As illustrated with the key items before, there will often be a growth ambition with sports club ownership requiring advice on the following further legal matters:

broadcasting and interactive technology, media, e-commerce and the internet and players’ rights
sponsorship, merchandising, endorsing, brand management, ambush marketing, player image rights and representation
drafting and negotiating licences with sport governing bodies and other rights-holders
representation of management and privacy
anti-doping matters
competition and restraint of trade issues.

Asset performance

Investors from the Gulf region have become some of the most significant, especially in European football clubs. Newcastle United fell into this category and was the subject of a GBP305 million investment from the Saudi Public Investment Fund in October 2021. Within a year of the new ownership, the club went from the brink of relegation to earning a place in the European Champions League. Manchester United, acquired by American Malcolm Glazer for GBP790 million in 2005 with a GBP600 million loan is now valued at around GBP4 billion – largely thanks to the marketability of the club’s huge following, especially in Asia.

Key points to remember

Ownership and title

Understand whether the sports club is wholly or partially community-owned. If so, you may not own 100% of the shares (but this is not unusual).

Financial fair play

You should check that your potential club has operated on the right side of the rules and that no issues will be inherited upon acquisition.

Planning and redevelopment

Understand any limitations to the redevelopment of existing stadiums or relocation as well as the change of use potential for generating extra income.

Reputation planning

You will come under greater public interest if you buy a sports club. Seek legal help on reputation management before acquisition.