Why are American Investors Buying European Football Clubs?
The FSG have announced that they are in talks to sell Liverpool football club to a U.S. based investor at a profit of around $4 billion. Earlier this year the Todd Boehly Consortium acquired Chelsea football club, Mr.Boehly said that ‘football is the biggest sport in the world’, he has echoed the American sentiment that football’s commercial value has been underexploited. These stories of American investors in football are becoming more common each year. The American market view football clubs as media companies being run inefficiently and available for purchase at a bargain.
Perhaps the best example of this opportunism is the Fenway sports group acquisition of Liverpool. FSG paid £300 million pounds ($490 million inflation adjusted) for Liverpool in 2010, while other premier league clubs were run in a traditional way, FSG adopted a data-driven model inspired by their success in American sports. After 12 years, FSG have announced that they are willing to sell Liverpool with Forbes valuing the club at $4.45 billion, which would be a 20% annualised return on their original investment. This profitability is mirrored by other owners such as the Glazer family who have made an 8% annualised return over 17 years as well as extracting $1.1 billion from Manchester United.
Football teams are viewed by American investors as underperforming media corporations. It is easy to see why they think this when you compare the NFL to the Premier league. Despite having a smaller target market, the NFL claims that 6.16 billion hours of NFL content was consumed just last year, Statista reports that the NFL reaches revenue of $17.2 billion from this content. In comparison, the premier leagues viewers consumed just 1 billion hours of content and generated just $6.2 billion. American investors believe that they can boost these revenue figures and get a huge return on their investments.
There is also a lower barrier to entry with European football clubs when compared to the American sports industry. While joining the NFL will cost an investor hundreds of millions of dollars, they may purchase a mid-table premier league team for a reasonable price. There is also the option of taking a lower league side through promotion; this option can produce massive returns on investment. This option does not exist in the American sports scene where promotion and relegation do not exist.
However, this does present a problem for American investors. The threat of relegation means that their investment could be massively devalued. It also makes the leagues more competitive, in American leagues there is no threat of relegation so the main focus of sports teams is to make money. While in football, regardless of how profitable a team is, their value will still drop dramatically if they are demoted.
Despite this risk, American investors still believe that they are entering an under-valued asset class and with streaming services entering the sports entertainment industry it seems the potential for growth, and therefore American interest, is set to continue.