Sport does not know the origin of its private equity money, SportBusiness report suggests

  • Rights-holders unwilling – or unable – to identify investors behind private equity deals
  • Many private equity funds consist of investments from sovereign wealth funds
  • Sports governance experts say lack of transparency is ‘problematic’ and ‘indefensible’

Sports rights-holders often have little to no idea about the origin of the money they are accepting from private equity funds, a new 90-page SportBusiness report has found.

Private equity companies pool the investments of third parties into funds which are then used to acquire assets. The funds can contain billions of dollars of investments from hundreds of different investors. These typically include major North American pension funds, accredited investment companies, banks and high-net-worth individuals. In the last 20 years, sovereign wealth funds have also become some of the biggest investors in private equity.

In a report published this month, Selling the Future? Private Equity’s Role in Sport, SportBusiness looked at the rapidly expanding phenomenon of private equity companies taking stakes in the commercial rights of sports rights-holders – clubs, leagues and governing bodies. The trend is not new but accelerated rapidly as a reaction to the financial crisis engendered by the Covid-19 pandemic.

Rights-holders covered by the study include: Premiership Rugby, Six Nations Rugby, United Rugby Championship, Spanish football’s LaLiga, the French football league (LFP), the International Volleyball Federation (FIVB), Women’s Tennis Association, New Zealand Rugby, Australia’s A-League, Dorna Sports (owner of the MotoGP motorcycling championship) and Premier League club Chelsea.

The private equity companies involved in these deals are: CVC Capital Partners (Premiership Rugby, Six Nations Rugby, United Rugby Championship, LaLiga, LFP, FIVB and WTA); Silver Lake (New Zealand Rugby, A-League); Bridgepoint (Dorna); and Clearlake Capital (Chelsea).

These rights-holders were asked: “Are you aware of the identity of the investors who make up the fund which has just invested in your sport? If so, are you prepared to share that information with fans of your sport and the public?”

None of the rights-holders provided a yes or no answer to the first question. Three rights-holders in which CVC Capital Partners has invested replied with a standard wording provided to them by CVC. This did not include information about the identity of the investors, but a generic – and partial – description of some of the kinds of company that invest in CVC funds.

The following response was provided by LaLiga, the WTA and the FIVB: “CVC manages funds for over 500 of the highest quality, blue-chip clients around the world which place their trust in CVC to grow and protect their capital. Many of these investors are pension plans that have invested with CVC since the early 1990s and have confidence in CVC’s ability to help them to deliver pensions to their beneficiaries, which include teachers, police officers, nurses and fire fighters.” The same wording was provided separately by CVC.

Most of the rights-holders did not respond to the questions. Chelsea FC, in whom Clearlake Capital holds a majority stake, said that it was “all private information”. The Premier League said that the Owner’s and Director’s Test process was “strictly confidential”. Clearlake replied through its PR company Lambert, saying: “Clearlake doesn’t comment on its investors.”

Private equity insiders say that it is extremely unlikely that rights-holders will know the identities of the investors comprising the fund that has invested in them, though they may become aware of the larger ones during due diligence.

A senior executive at a major private equity firm said that his firm, like others, was “not permitted to say who invests in its funds”. He added: “These are private allocations with investors where we agree not to disclose who they are. Lots of the investors are very established, grown-up, public vehicles, like large US pension plans. It is quite easy to find the names of US pension plans that have invested in private equity funds. The majority of the pools of capital come from pension funds. But there are hundreds of investors in each fund. Rights-holders may know a number of the investors, but they won’t know all of them, because there are too many.”

Alex Phillips, former head of governance and compliance at Uefa, said the situation was “absolutely problematic” from a practical governance perspective.

“Just as one example: how could anyone police multiple club ownership rules if they don’t know who the owners are? It’s muddying the water to say there are thousands of investors and nobody could possibly know who they all are,” Phillips said.

“That’s why you have rules that you have to declare owners above a certain threshold, whether that is five per cent, 10 per cent or some other threshold. Stock exchanges have those rules. Leagues and other competition organisers have those rules. That’s why the concept of ultimate beneficial ownership exists. Who is the ultimate owner?”

Sports governance expert Alex Inglot, the commissioner of top-tier Counter Strike esports competition the ESL Pro League, said that with so many potential concerns around the identity of investors in sport, rights-holders “closing their eyes to the minefield is not going to cut it”. Inglot formerly worked at data specialists Sportradar and sat on the board of tennis’s ATP. Throughout his career he has focused on competitive integrity, player rights and good governance.

He added: “Most iterations of sports governance principles tend to champion some form of transparency and accountability, and it is difficult to see how that duty can be properly upheld if rights-holders do not have an understanding of where the money is coming from and who any growth will enrich.

“In today’s culture – in which consumers and fans are more sensitive than ever when it comes to the ethics, values, purpose and actions of those brands, organisations and individuals that they support, buy or endorse – a statement or philosophy tantamount to ‘you don’t need to worry about where the dollars and cents are actually coming from and going back to’ seems risky, if not indefensible.”

Phillips added that in the three categories of rights-holder – club, league, federation – the latter arguably had greater responsibilities in this area.

He said: “A governing body should be held to higher standards of governance than a club but that depends on the legal framework of the country concerned, and often the situation is the reverse. Normally governing bodies have more public interest responsibilities. In some countries they are defined as public interest organisations. The UK government, in a recent white paper, defined football clubs as ‘vital community assets’. Would you allow a vital community asset to be sold off to anonymous individuals or entities, with the regulator and public having no knowledge of their identity?”

There is no legal requirement, either in the US or Europe, for the manager of a fund, such as a private equity company, to publicly identify the investors who make up the fund.

Unwitting beneficiaries

The lack of information available to rights-holders about the identity of their private equity investors raises the possibility – some industry sources say probability – that some are now being part-funded by sovereign wealth funds, even though this usually equates to a minority stake in a fund taking a minority stake in the sport’s commercial vehicle.

Sovereign wealth fund money is particularly well-suited to investments in sport. In most asset classes, a private equity fund typically looks to exit in three to five years. Sports bodies are reluctant to enter into deals with investors with such short horizons for exit.

In his 2022 book Two and Twenty: How the Masters of Private Equity Always Win, former Apollo partner Sachin Khajuria explained: “Sovereign wealth funds – for example, some of those set up in the Middle East and Asia – have the kind of ultra-long investment horizons the permanent capital vehicles can be readily marketed to. The systems of government in these regions often involved ruling families or dominant political parties, and for this reason they have planning horizons far longer than the governments of Western countries, with elected leaders who serve for fixed terms.”

The Financial Times recently reported that CVC and Silver Lake were both listed on the website of Sanabil Investments, an investment arm of the sovereign wealth fund of Saudi Arabia, as companies in which Sanabil invested. Other private equity firms listed include KKR, Hellman & Friedman, Apollo Global Management, Brookfield, Blackstone and General Atlantic. Sanabil was formed by the Saudi government in 2009 and later incorporated into the country’s Public Investment Fund.

In the last decade, investments in sport from sovereign wealth funds, such as those operated by Qatar, Abu Dhabi and Saudi Arabia, have come under increasing scrutiny. Critics of these investments consider them examples of ‘sportswashing’, where regimes with questionable human rights records use sport to present a positive image to the world.

A senior private equity executive, who wished to remain anonymous, said that talk of sportswashing in the context of private equity deals was “pretty loose”.

He said: “When investors buy into funds, they don’t buy into specific investments within them; they don’t know what is going to be in that fund. Investors commit capital to funds raised by the private equity firm and that firm invests that capital into assets. When investors come in, they have no idea, nor any control whatsoever, of what is going into those funds. They trust that their capital will be invested in the correct way. There is no foresight from those investors.”

Another senior executive at a US investment fund said that given the large number of investors in a single private equity fund, no single investor, including a sovereign wealth fund, was likely to be contributing more than five to 10 per cent of the total. This was not enough for the investor to exert any influence on the partner or partners who control the fund for the private equity company.

Phillips, who also works as an adviser to Fifa, countered: “Obviously, you don’t need to know every single person who has invested $50. If a sovereign wealth fund, an oligarch, or some other type of investor has a very large stake in the fund, it could mean them seeking to influence the fund. They may not have known about the investment in advance but may seek to influence the relationship going forward. Why wouldn’t they? In practice, research shows that even 5-10 per cent shareholdings can influence decision-making.”

Inglot said that rights-holders had a right to know where the money comes from and should “exercise that right to the fullest extent they can”. But he pointed out that some rights-holders may be in a weak bargaining position when dealing with private equity firms: “Let’s not forget that the finances and success of the rights-holder will dictate its bargaining power: the struggling club, league or sport may not be able to be so probing or picky.”

The biggest shift in ownership in the history of professional sport is currently under way. Sport is rapidly heading towards a situation where many elite clubs, along with multiple leagues and federations, could soon have private equity investors holding either minority or majority stakes. As the scrutiny of sovereign wealth fund money intensifies, sport is likely to come under increasing pressure to find out more and be more open about the ultimate sources of its money.

Selling the Future? Private Equity’s Role in Sport will help you learn about the size and structure of the industry’s biggest private equity deals, as well as the entrance and exit strategies of the world’s leading funds.

Inside the report, you’ll find detailed case studies of:

– CVC’s deals across football, rugby, volleyball and tennis
– Silver Lake’s investments in New Zealand Rugby, Australian football and the Ultimate Fighting Championship
– Bridgepoint’s ownership of MotoGP
– Arctos Sports Partners’ multi-club ownership model
– Dyal Capital’s NBA investments
– Clearlake Capital’s investment in Chelsea FC

It also includes our view on the future of private equity investment in sport and the challenges funds, rights-holders and sports teams could face in the coming years.

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