US investors ‘seeking preferred equity positions’ in Premier League clubs before market rebound

(Photo by Michael Regan/Getty Images)

Major investors are showing an increased appetite to secure preferred shareholdings in Premier League clubs and as many as nine EFL Championship teams could be available for sale as a consequence of the Covid-19 pandemic, according to a sports investment specialist at an international capital raising firm.

Adam Sommerfeld, head of sports investments at Certus Capital Partners, who 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, said experienced investors are looking for bargains during the crisis in anticipation of a rebound when top-flight leagues return to action.

He told SportBusiness: “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 as 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, that’s the best time to come in.”

Sommerfeld said his firm was in “advanced processes” to finalise a mixture of equity and debt deals with teams in the English Premier League, Serie A and La Liga that had become more compelling with the likely return of top-flight European football. Two weeks ago Germany’s Bundesliga returned to action and the English Premier League is in advanced talks to do likewise.

He suggested major clubs are more receptive than usual to selling minority stakes to shore up their financial positions and help them see out the crisis.

“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.”

Sommerfeld said he expected Saudi Arabia’s Public Investment Fund would conclude its proposed takeover deal of Newcastle United in spite of the crisis, although he wondered whether there was much appetite for deals of a similar scale elsewhere.

He said: “When it comes to writing the three, four or $500m cheque (£407m/€454m) then we’ll see if that happens in this environment.

“We deal with a lot of very well-versed US groups that own a lot of franchises already in the MLS, MLB or NHL. They understand that they are not going to get a massive discount on price at the moment – 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 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.”

Sommerfeld believed clubs further down the football pyramid will have a weaker hand to play and that as many as nine EFL Championship teams could be available as distressed assets.

“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.”

Sommerfeld said he knew of one deal to acquire a well-known Championship club that had already faced challenges because of the pandemic.

“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.”

However Sommerfeld believed sport should be heartened by the continued appetite among private equity firms for sports assets.

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).

“It’s no secret that private equity firms were looking at some of the topco opportunities with the leagues and these are encouraging statements,” Sommerfeld said.

To read the full interview with Adam Sommerfeld, click here.