Delano interviewed Nicolas Moura at Pitchbook and Marc Diederich from the Luxembourg Football Federation to discuss the impact of private equity in the management of football clubs in Europe and the role played by Luxembourg on the pitch and in the board room. Photos: Pitchbook; Luxembourg Football Federation. Montage: Maison Moderne

Delano interviewed Nicolas Moura at Pitchbook and Marc Diederich from the Luxembourg Football Federation to discuss the impact of private equity in the management of football clubs in Europe and the role played by Luxembourg on the pitch and in the board room. Photos: Pitchbook; Luxembourg Football Federation. Montage: Maison Moderne

Having a big name on a jersey is not synonymous with high valuation for European football clubs. Yet, the clubs from the “Big Five” European leagues are increasingly sought after by private equity firms to build an exposure in shares, debt or participation rights in various financial structures.

Football season has recently started in leagues across the continent. Private equity firms (PEs) and fans must wonder whether the recent transfers of high-profile players, such as Messi, Ronaldo, Neymar or Benzema to name but a few, to clubs in Saudi Arabia and the US will have some adverse impacts on club performance and valuations.

Messi or Ronaldo: Who impacts valuation the most?

“Their departure should not affect valuations as these players have reached near the end of their career,” said Nicolas Moura, an analyst in EMEA private capital at research and data firm Pitchbook, during a phone interview on 29 August 2023. “Those clubs are bigger than the players […] the valuation of Manchester United or Paris Saint-Germain will not decline after they [have] left.” On the other hand, he expects the arrival of these players to have an impact the valuation of the welcoming clubs.

Moura thinks that his answer would be different for clubs where players, such as Mbappé at PSG, are at their “prime.” Pitchbook, a Morningstar company, reviewed the recent acquisitions in a report, “” and concluded that record valuations could be reached in 2023 should ManU be sold this year.

High prices feeding more transactions

The high valuation reached on several transactions involving PE prompted many owners to consider selling their shares. In addition to ManU, valued at more than €5.5bn, Liverpool, Everton, Inter Milan, Hellas Verona, Anger SCO and Monaco are all reported to be on the selling block (full or partial sale) for deals that could reach, in total, more than €10bn in 2023.

The study focused on the “Big Five” leagues comprising 98 clubs during the 2022-23 season. Not surprisingly, the data collection on ownership was challenging given the complex ownership structure and the limited disclosure provided by the PEs. Pitchbook reported that 35.7% of the clubs have some sort of participation (shares, debt) from PEs and VCs.

According to of the Luxembourg Private Equity & Venture Capital Association, some of its members and non-members have various forms of exposure to European clubs (Oaktree Capital/Inter Milan, Ares Management/Atlético Madrid, Clearlake Capital/Chelsea, Elliot Management/AC Milan and Silver Lake/Manchester City).

Interestingly, Moura explained that CVC Capital Partners Fund VIII, a Luxembourg fund, has no direct stockholdings in clubs but rather participations, a form of fixed income security, to the broadcasting rights in France (Ligue 1) and Spain (LaLigua) for a period of 50 years. Contrary to owning a club, these stakeholdings do not face a relegation risk.

The US is getting big in football

Finally, a significant number of US fans and investors are catching up with football, or soccer, as it is known across the pond. Pitchbook reported that “34.7% of the clubs in the Big Five leagues have US-based capital participation at the ownership level.”

It is the result of the emergence of dedicated sport funds (777 Partners), higher time spent in playing and watching football, higher TV rights ($1.5bn for six years) to broadcast the Champions League on CBS which attracted 5.2m viewers in 2022, and the partial hosting of the World Cup in 2026. Pitchbook believes that US participation in recent transactions is a “major reason” why valuations have reached new highs.

Football: a stable and/or a fame business in your portfolio?

Historically, high net-worth individuals (HNWIs) bought clubs for a variety of reasons beyond profitability. PEs see these investments as an opportunity to professionalise the management by restructuring the operations (i.e., increasing commercial revenues) and the financial profile to ultimately grow earnings to reach higher valuations “within seven to 10 years,” a typical investment horizon for these investors.

Pitchbook thinks that investments in football clubs “bring diversification,” are “uncorrelated” with other financial assets and are “mostly recession-proof” on the back of resilient broadcasting rights and matchday revenues, while merchandise sales are the most exposed to recessions.  

Newcastle, Chelsea Football Club and AC Milan were sold to PEs at multiples of 1.7X (€351m), 5.3X (€3bn) and 4.5X (€1.2bn) revenues in the last two years. Roman Abramovich, a Russian billionaire, was forced to sell Chelsea after he acquired the club for £60m in 2003.

You cannot compare Chelsea to Hesperange [Swift] which has the highest budget at €3.5m of the BGL league

Marc DiederichlawyerLuxembourg Football Federation

Yet, the bidding war for ManU between a British billionaire and a Qatari royal that may result in a price tag above €5.5bn reflecting a 2022 revenue multiple of 8.0X. Challenging HNWIs remains “very difficult” for PEs when other reasons for the purchase, such as prestige, are at play. For context, PEs pay revenue multiples at around 2.4X for European and North American buyout transactions, according to another .

Multi-club ownership: risks and benefits

Pitchbook believes that PEs owning several clubs in multi-club ownership (MCO) structures “can create synergies” as they replicate buy-and-build strategies of PEs. However, the Union of European Football Associations’ (UEFA) rules ban two teams in the same competition (national league or in one of the three prime European competitions) to be majority-owned by the same shareholder.

The promotion of two clubs owned by one MCO to the champion league, for instance, may create joy but also financial headaches as it would require a rapid divestment below 50% for at least one of its clubs. That risk explains why MCOs acquire clubs across the continents to avoid the risk of forced selling but also aims at other type of football related revenues.

What about PE involvement in Luxembourg clubs?

According to the statutes of the Luxembourg Football Federation, a club cannot be formed as a private company but only as an ASBL, a non-profit organisation.

“You cannot compare Chelsea to Hesperange [Swift] which has the highest budget at €3.5m of the BGL league,” said Marc Diederich, lawyer at the Luxembourg Football Federation during a phone interview on 24 August 2023. He added that the average budget for the domestic clubs runs between €400k and €800k.

“There are no TV rights in Luxembourg as in other large European countries,” said Diederich. He explained that the association must pay to be aired on RTL with their sponsors displayed on a football TV magazine. Besides, the live stream on RTL of national league matches is free for clubs and they get no revenues from the TV network.

Diederich explained that the ASBL regulation was recently amended but had no impact on the ownership structure of the Luxembourg clubs. “99% of the club members are happy with this legal structure and there are no plans to change that.”

This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .