‘Taking a punt’ is a phrase often used by sports gamblers when placing a bet on the outcome of a match or race. Casual gamblers may have neither method nor reason in placing their bets, though more serious punters will study form in the hope of placing bets that yield a healthy financial return.
Some might argue that the American private equity investor Silver Lake recently engaged in a casual bet when it took a $500m stake in the City Football Group, valuing it at $4.8bn (€4.3bn) overall.
This line of argument presumably became more resonant when, in February, European football’s governing body Uefa banned Manchester City from the Champions League for two seasons following “serious breaches” of its financial fair play rules. Surely Silver Lake made a big mistake last December when it bought into CFG?
For a business that is already invested into such global success stories as Alibaba and AMC, the Silver Lake blind punt hypothesis would appear to be considerably wide of the mark.
Indeed, in the weeks following Uefa’s FFP announcement, it was revealed that Silver Lake is going ahead with plans to build a £350m (€401m/$448m) entertainment complex adjacent to City’s Etihad stadium in Manchester.
In combination with Silver Lake’s initial outlay on CFG, this commitment implies that the California-based outfit is not so much an blindly optimistic casual punter but a considered risk-taker that has undertaken its due diligence.
Betting analogy aside, these latest episodes reveal much about the strategy and direction being taken by a business only with its main offices located in East Manchester.
In corporate terms, Uefa plans to ban Manchester City from its competitions but it can’t ban CFG. This is an important detail, as City increasingly represents just one element in a growing and increasingly diversified investment portfolio. It has long been the intention of CFG’s chief executive Ferran Soriano to create a global entertainment company, founded on a franchise model that derives its operating principles from Walt Disney.
As such, City is only one of CFG’s growing number of franchise clubs across the world. Some of these clubs, such as Mumbai City in India and Sichuan Jiuniu in China, are striking. The former is Bollywood capital of the world, whilst Chengdu (where the latter is based) is fast becoming China’s most important cultural hub. This is prime Silver Lake territory, hence it would be no surprise to see entertainment complexes being constructed as part of the rollout strategies employed by CFG in India and China.
At the same time, CFG has been investing heavily in digital developments (such as the ‘Cityzens’ platform now being used to engage fans with Manchester City), reinforcing its developing presence in the entertainment sector. Some have even speculated that the business may be looking to creating its own ‘straight to consumer’ delivery channels thereby circumventing existing collective broadcasting agreements.
All of this suggests that Uefa’s action against the English football club that CFG owns may at worst be an inconvenience rather than an existential crisis for the business.
Alternatively, CFG may of course be confident that they can challenge and win Uefa’s ruling when it goes before the Court of Arbitration for Sport. Otherwise, CFG may seek to pursue redress through the international legal system.
However, rather than fighting short-term legal battles, CFG’s strategy may ultimately be about challenging the legitimacy of localised governance standards being applied to a business operating globally. Indeed, one of the intended endgames could be that CFG pushes European football so far beyond the brink that it obliterates the current regulatory framework and comes out the winner of a contest that fundamentally changes for football forever.
Whatever the outcome of Manchester City’s Uefa travails, one can nevertheless rest assured that Silver Lake’s investment in CFG is no random punt. It is more a safe bet based upon sound judgement, driven by football’s continued morphing into an entertainment commodity, and by the rise of Asian states that have little regard for rules and standards they neither accept nor even recognise.