- Covid-19 pandemic means ‘up to 50 per cent’ of EFL clubs available for sale as distressed assets
- Premier League clubs thinking of selling minority shareholdings
- CVC interest in Serie A topco an ‘encouraging’ sign for the industry
Adam Sommerfeld, head of sports investments at international capital raising firm Certus Capital Partners, describes his client base as a ‘who’s who’ of private equity players, NBA and MLS owners, ultra-high-net worth individuals and media firms.
Here he tells SportBusiness how experienced investors are reacting to the Covid-19 pandemic and about the increased appetite among European football teams to sell shareholdings during the crisis.
What sort of investment activity have you seen since start of the Covid-19 pandemic?
For the first week or two, term sheets were being put on ice and traditionally these are difficult to revisit. That was tricky. Then, lots of investors came back to the table – new investors looking at distressed assets and competitively priced deals at least, so it’s been quite a turnaround.
Being transparent, I think I’d like to see whether transactions for a couple of hundred million dollars and more are going to be completed in this environment. Lots of positive noises are being made, entry into due diligence and that sort of thing, but I think writing the cheque in this environment is very different.
Advanced Publication’s $730m deal to acquire Ironman is one of the few really sizeable transactions to take place since the lockdown began. Are you aware of any more big-money deals being signed off?
There have been quite a few, but they are more towards a sports-technology side – things that wouldn’t really make the news. Obviously, there’s [Saudi Arabia’s Public Investment Fund’s attempt to acquire] Newcastle United that’s still in view – it will be interesting to see what will happen there, although I think it probably will get done in my experience.
On the team side we are in advanced processes in the EPL, Serie A and La Liga currently. These are a mixture of equity and debt deals and we’re confident that they are compelling opportunities. The landscape is changing daily with regard to return-to-play dates, broadcaster agreements. There has been a momentum shift in recent weeks and once the product is back on the field, I think we will see increased appetite again. Look at Germany, for example, where the Bundesliga reported exceptionally high viewing figures for the season restart. This will have a knock-on effect across Europe.
You mentioned deals for teams in the EPL, Serie A and La Liga. Are these for majority or minority shareholdings?
We’re currently seeing significant interest in preferred equity deals across the top European leagues, mainly from our US investment groups. These are seasoned sports investors who are looking for positions in football which they can grow as the market returns, without engaging in full buy outs.
Yes, they’re kind of sceptical on revenue hits with Covid, but they also see it’s a kind of [Warren] Buffett or [George] Soros-type approach where you need to almost bet against the market: just as things are going down, now is the best time to come in.
I think people realise that if you’re going to do it in any sport and any league, certainly in football, then you’re going to do it in the Premier League. And obviously you might look to some of the bigger US leagues as well, like the NBA.
What about clubs in the EFL Championship? Are you aware of any activity around them?
From what I understand there are probably about eight to nine clubs in the Championship that are available. It’s a curious one. For the right price, most teams are available, and this includes Europe’s Top 20 clubs.
In the EFL these things are ten a penny; it’s nothing new. We did a lot of work with a major team and there have been a lot of issues with that deal because of Covid, so we’ll see what happens there. That one was obviously pretty disappointing because that was very advanced. Those clubs are really going to struggle because TV money doesn’t really exist for them. It’s very much bums on seats and ticket sales. As I say, most will be available at the right price.
You said clubs Premier League clubs are looking at selling minority shareholdings. Is that because they want to get cash into their businesses in response to the pandemic?
Yes, I think it’s probably a risk adjustment for them. They want more capital, deeper pockets or just a partner to come in so they’re not taking the brunt. The main thing to remember is a lot of these owners will have been hit in their other businesses. Take the Newcastle United situation, where the owner [Mike Ashley] has multiple business lines. With Covid, it’s not just Newcastle that takes a hit but also [Ashley’s] Sports Direct retail group. The same goes for the stock market. When that tanks, most owners will be adversely affected.
In Europe, they don’t have the riches of the Premier League so it’s even more destructive. But most of the EPL are well insulated. I think everyone to an extent is well-covered.
And are you talking about majority buy-outs where EFL clubs are concerned?
In the EFL, the capital requirement is more imminent, and clubs are essentially really struggling. [There are] owners that have been putting money in for a while and have never really seen anyone turn a profit. There are exceptions to this. Brentford FC recently turned a profit and is a very well-run club. That strong financial management will stand them in good stead for the post-Covid environment.
The guys that we know are available – and that’s not including the bottom three clubs which will likely need financing – you could be talking about pretty much 50 per cent of clubs that could be talking about majority deals.
Do you think it will be possible to pick up any bargains during the crisis?
We deal with a lot of very well-versed US groups that own a lot of franchises already in the MLS, MLB or NHL and they understand that they are not going to get a massive discount on price at the moment in the Premier League – be it on a minority or majority stake –because owners are just going to rebuild value over the next 18 to 24 months.
I’ve had some investors saying they’d expect at least a 30-40-per-cent discount and, again, no owner in the Premier League is going to say: ‘we’ve been worth £300m for two or three years, now you are offering us £200m,’ it’s just not going to happen and I think they lose credibility. With many of those, it’s a fairly short conversation because we would struggle with our relationship with teams if we’re putting through very reduced offers. That’s not something we’re willing to do.
What are the risks to investing in a Premier League team at this time?
I think the main thing would obviously be the return to play. If we don’t return to play, that’s going to raise difficult questions between teams and broadcasters and impact teams’ revenues. If we do follow “Project Restart”, then there will still likely be a commitment for teams to repay circa £18-£20m, but that can be absorbed.
But what we are seeing with the Bundesliga – who I understand have double the viewers they have normally for the first weekend back – you would guess you’re going to see something similar for the Premier League. There will be a very strong bounce back and I think how you capitalise on that is of interest because you can’t sell more tickets, you can’t increase your broadcast contract now, so how do you capitalise on the fact that the world could be watching in a couple of weeks’ time?
There’s only so much you can do in terms of the media production for the event without having 60,000 or 80,000 fans in the stadium, so I guess everyone has to be creative around how we do that and luckily there are some very smart companies doing this.
So how do you think the league can capitalise on the increased eyeballs?
It’s tricky to predict. There are a couple of really interesting bits of sports technology around. I think there’s a certain application being developed in Toronto [HearMeCheer] where you can bring in the noise of people watching online and reverberate it around the stadium quite successfully.
This season, from what I understand, it’s all about getting the season completed, as it’s only around four or five home games for each team and then it allows us to wait it out. I understand it’s going to be around late September for the restart and then we might be looking at a different picture. It’s unlikely that we will have spectators in stadiums for the first few games of next season but of course a vaccine changes that and there are very positive developments on that front in the UK at Oxford. Clearly now it’s a case of battening down the hatches, finishing the games and honouring broadcasting contracts.
Are you keeping your eyes on any technology companies or suppliers that could prove a good investment during the pandemic?
Good question. We have had numerous approaches from companies developing smart PPE, airport scanners, different ways of taking temperatures en masse – these sorts of things you can put in stadiums. Obviously getting sign-off from the government is important. There have been so many difficulties in terms of buying equipment that didn’t work, safety procedures and getting the right security marks on them. There hasn’t been anything that has stood out to date. The main thing has been until we get the government saying we now have a designated return to play, it’s very difficult to consider some of these things
Some suppliers are saying now is the time to order safety equipment because supply chains are likely to be clogged with orders if they leave it any longer. Do you agree?
I guess the other caveat to that is Oxford University and Big Pharma and their plans to produce a vaccine. If that were to come out – say they could produce 30 million vaccines by September, which they suggest is possible – then I guess that is very much a game-changer.
What about private equity activity at the moment?
I think the very positive thing is people like CVC and a number of others are looking to make landmark statement investments in football as well.
It’s no secret that private equity firms were looking at some of the topco opportunities with the leagues and these are encouraging statements. [Private equity firm CVC recently tabled an offer to acquire 20 per cent of a new company to manage the Serie A broadcast rights, its international trademark and commercial development, while KKR and Apollo Global Management are said to have initiated talks over a potential nine-figure bridging loan to the German Football League (DFL)].
CVC have just done a deal in rugby with Pro 14. It’s that type of statement deal that almost moves the market – like the Silver Lake deal with Manchester City – where you get a lot of people following behind that thinking now is clearly the time to capitalise.
When you talk about buying a stake in a league topco, it would have to be a very sizeable investment wouldn’t it?
At least $200m and beyond. Some of that would be debt, bear in mind, it’s not all equity. If it’s all equity, you’re talking a couple of billion [dollars], but some of this is just shoring up some of the potential debts based on broadcasting deals, especially with Ligue 1 in France. They had the disagreements with broadcasters, they’ve settled it now with Canal Plus and I think with BeIN, but we were aware of a number of banks offering sizeable positions.
Another investor we’ve been watching is Ineos. Have you heard anything about their plans?
Not really. We know the team and they made their investment in Nice. I think they’ll now focus on absorbing that into the portfolio.
It looks like they may be positioning themselves similarly to Endeavor [with] UFC or Liberty Media [with] F1. That type of group that has diversified sports interests but the interesting thing is how they all link together.
The WWE were looking at something similar pre-Covid, as they see huge crossovers between WWE fans and, for example, Premier League football fans. Again, these bigger media companies, they are looking to unite different sports in their portfolios, so it’s quite smart.