Foreign Investment in Soccer Is Here to Stay

Written By

Dilan Minutello

Soccer, the world’s most popular sport, and its organizers have faced several crises over the past few years. In 2015, a corruption scandal unfolded within FIFA, the sport’s worldwide governing body. U.S. federal prosecutors indicted several FIFA executives on charges of wire fraud, racketeering, and money laundering. FIFA officials forced Sepp Blatter, FIFA’s president, to resign, with Blatter subsequently banned from participating in any football related activity for eight years. This, along with the large losses faced by clubs over the course of the COVID-19 pandemic, led large clubs across Europe to form the European Super League (ESL) in early 2021. The league, independent of FIFA’s regulations, preselected the best clubs to compete against each other and control their own television viewing rights. Amidst public outcry, the European Super League never gained traction and was quickly disbanded. Effectively, the league would allow the wealthiest and most prominent clubs to play against each other more frequently. For smaller, less-popular teams the ESL would cut out important revenue from games with teams such as Real Madrid in Spain and Manchester United in England. Would-be backers of the ESL, such as JP Morgan Chase & Co., quietly left the teams to their own devices. Yet the development and failure of the European Super League displays a shift in football clubs, away from the status quo of fan-centric revenue to private investment. A number of clubs have had their trajectories greatly altered by generous external investment from wealthy backers, almost exclusively foreign, such as Paris Saint-Germain F.C. (Qatar) and Manchester City F.C. (United Arab Emirates). Dozens of teams across Europe’s top domestic leagues, such as the German Bundesliga, Italian Serie A, Spanish La Liga, and French Ligue 1, have also been bought in the past few years by foreign companies, individuals, or state-sponsored enterprises. A few teams thrived under foreign investment: Paris Saint-Germain and Manchester City progressed from mid-level teams to perennial title winners and Champions League title contenders. They have also generated considerable amounts of revenue. Of the top fifteen clubs in football ranked by revenue in the 2019/2020 season, eight are owned by foreign investors, and three of them owned by American businesses. The clubs’ annual profits regularly sit between 300 and 700 million euros, with television rights selling for billions of euros. The era of rich soccer-passionate billionaires, petroleum-rich Middle Easterners, and Chinese aristocrats financially backing teams has seemingly given way to a new wave of club financers. The traditional management structure behind clubs in the European and global professional club soccer market has been increasingly uprooted by credit, investment, and private equity funds. AC Milan, one of Italy’s biggest clubs, was bought by Elliot Management Corporation in 2018 after their previous owner, Chinese national Li Yonghong, defaulted on debt obligations. Some firms have loaned money to help clubs stay afloat. Others have purchased media rights, some bought numerous smaller teams with longer term plans for growth and development. With shorter contracts and more players on the move, cash injections can help teams build better rosters and recruit big names. Newcastle United, an English team, was historically a perennial Premier League team with little top-level success. In October of this year, the Saudi Arabian public investment fund purchased the team for $409 million. With a large amount of that money under the disposal of the team’s management, the team is expected to embark on a spending spree come the next open transfer window in January. Newcastle will look to buy up the contracts of several big named players that find them-

Fans protest against Manchester United competing in the European Soccer League, April, 2021 selves dispensable ine the plans of their current club or are unhappy with their current role. By the end of the year, Saudi investment could help make Newcastle make significant progress towards being one of the top teams in England. Americans have also turned their eyes to the European soccer market. Kyle Krause, CEO and family owner of the convenience and gasoline station Kum and Go, bought Italy’s Parma team in September of 2020. KPMG, a consulting firm, estimates that Americans own stakes in 12 European soccer teams. Owning sports teams has long been of interest to American billionaires, such as the previous CEO of Microsoft Steve Balmer’s purchase of the Los Angeles Clippers for two billion dollars. However, for lesswealthy sports enthusiasts, European soccer clubs provide a more price sensitive entry onto the global sports stage. Wolverhampton Wanderers, an English team, was reportedly sold for $45 million in 2016. In addition, teams which perform better than expected can see incredible valuation growth. The Clippers are now reportedly worth $2.63 billion dollars, rounding out to a $650 million gain for Steve Ballmer. However, these returns are far from guaranteed in any sports league, including European soccer. Owners must delicately balance inflated player salaries, politics, impatient and overzealous fans, and the threat of demotion within the domestic leagues. The European Super League would have eliminated the concept of demotion, which is not present in American professional sports. Additionally, by featuring only the best teams, the ESL would benefit from increased demand by demanding higher ticket and game pass prices. In turn, the clubs themselves would become more valuable.

Clubs have been able to expand their budgets tremendously thanks to the backing of rich individuals or organizations. Larger budgets lead to high player valuations and more movement of players between clubs. It is now seldom to find a player that has played for a club his entire life; even Messi left his lifelong club of Barcelona, a traditional European giant that suffered terribly due to the pandemic to go to Paris Saint Germain, a newer club that has bought several of the world’s best players off Qatari dollars.

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