Is it the end of the road for family investment in sports clubs?
As two of the English Premier League's top clubs battled for bragging rights last night in the Manchester derby, the clash also saw two of the biggest families in the Premier League go head-to-head. The Glazier family, owners of Manchester United, and Abu Dhabi's ruling family, who own Manchester City, have both been making headlines in the past week for the levels of debt at their respective clubs, begging the question is it the beginning of the end for family investment in sports teams?
It would seem not, as changes to ownership rules, the prospect of sizeable revenues from the sale or control of media rights and favourable currency fluctuations look set to sustain family investment in sports teams through the global downturn and beyond.
Over the last 20 years a raft of alternative ownership models have emerged, but wealthy families still control many of the world's leading sporting brands. The nature of their relationship with the fans may have changed as supporters adopt a more aggressive attitude to perceived or actual mismanagement, but many families have maintained or even extended their sporting interests despite the recessionary times.
The Glazers are a classic example. Vilified for the debt they loaded onto Manchester United when they acquired it in 2005, they enjoyed a honeymoon period during which the club secured the Premier League and European Champions League titles. Now the knives are out again as it becomes clear the family could extract as much as £130 million from the club next year alone if there is sufficient interest in a new bond.
On the other side of the city, Sheikh Mansour has invested almost £400 million in the last month to clear a large percentage of Manchester City's debt. But while fans' attitudes to their new owners could not be more different on the blue side of Manchester, it is likely that neither family are losing too much sleep over their popularity ratings.
Popularity, however, is an issue facing the family owners of Liverpool football club. Last week saw Tom Hicks Jr, son of the club's co-owner Tom Hicks, forced to resign as a director after severe backlash from the club's fans over an alleged abusive email sent by Hicks Jr to a fan. This is the latest show of continued dissatisfaction by the fans since Hicks and fellow co-owned George Gillett bought the club in March 2007 in a deal worth £400 million. Yet, instead of looking to lessen their commitment to the club, both are looking to refinance in an attempt to reduce debt.
The acquisition by Kraft Foods of Cadbury, another British institution with close family associations, illustrates why British football clubs will continue to be attractive to outside investors. UK investment rules are much more relaxed than in other European countries, while the fall in the value of sterling against the dollar over the last couple of years has further increased the appeal of UK sporting assets to American predators.
Andrew Kline, managing director of investment bank Park Lane has advised on a number of American sports transactions. He admits that the trend in US sports franchise ownership has moved away from families in favour of investor groups and corporations, even though the US National Football League (NFL) has sought to encourage family ownership by changing its rules in October 2009 to allow a lead owner to control as little as 10% of the franchise.
While the NFL offers more equitable revenue streams than other US leagues and particularly the English Premier League, where the big clubs take the lion's share of broadcast income, Kline points out that some teams still make much bigger profits than others. Owners can also slash spending without fear of relegation - the Cincinnati Bengals (owned by the Brown family) were the fifth most profitable team during the 1990s despite winning the fewest games.
"In any of America's big four leagues - football, basketball, baseball and hockey - there are not more than a handful of franchises that can offer steady profit over the long term. However, teams have historically had such high resale values that the return on investment has still been excellent," says Kline.
This is particularly true for the NFL, which has managed to keep a lid on wage costs. In 2007 the average team was valued at $957 million, an increase of 7% on the previous year, and made a profit of $17.8 million on average revenues of $204 million. In baseball, the Chicago Cubs returned to family ownership last year in a deal that valued the club and its assets at $845 million.
Kline advises investors looking for value to turn their attention to up-and-coming sports that have the potential to grow rapidly. "Recent examples that have had success include mixed martial arts and the Indian cricket leagues." IIFL Research estimates that all eight franchises of the Indian Premier League (IPL) made a net profit in the 2009 season, although the financial performance of the rival Indian Cricket League (ICL) is much harder to ascertain.
But Jim Calpin, president of Paramount Sports Services, reckons there is still money to be made in America's big leagues, on whose franchise model the IPL is based. "For example, in Chicago the Reinsdorf family has been extremely successful with the Bulls (basketball) and White Sox (baseball) thanks to an outstanding business model that still fills the stands and builds strong relationships with corporate partners, even if the team has a sub-par year on the field," explains Caplin.
Sports investment is a high-risk asset class. However, for as long as the English Premier League maintains its global appeal, the NFL retains its revenue sharing model and the Indian cricket leagues successfully exploit the revenue streams generated by the most popular sport in one of the world's fastest growing economies, families will continue to play the field.
Campden Conferences Family Alternative Investment Conference, which takes places in Monte Carlo on 20-21 April 2010, will be holding a special session on family ownership of sports team entitled "For Love and Money". For more information visit:
