Home Latest News US investors buy Chelsea FC football club puzzles Wall Street

US investors buy Chelsea FC football club puzzles Wall Street

A cabal of American investors took control of British football team Chelsea FC last month – and some Wall Street insiders are still struggling to understand why.

Todd Boehly — a co-owner of the Los Angeles Dodgers whose free-spending strategy has been credited with reinvigorating the MLB team over the past decade — promised Chelsea a similar approach when he announced on May 30 that he and a consortium of investors had bought the team for £2.5 billion, or more than $3.1 billion.

However, Boehly has also sought to draw a line between his money-intensive approach and that of Russian oligarch Roman Abramovich, who reportedly lost £900,000 a day during his 19-year ownership stint, and shot more than £2 billion on the team’s payroll. . and redefining a new era of lavish spending in football.

In particular, sources close to the situation say that Boehly and its main co-investment partner Clearlake Capital, a buyout fund based in Santa Monica, California, are looking for Liverpool — which happens to be owned by another in the U.S. established investor, billionaire John Henry’s Fenway Sports Group — they’re eager to follow suit.

Chelsea owner Todd Boehly
Todd Boehly — a co-owner of the Los Angeles Dodgers whose free-spending strategy has been credited with reinvigorating the MLB team — promised a similar approach for Chelsea.
Getty Images

Liverpool generate £200m in Ebitda – or earnings before interest, taxes, depreciation and amortization, a close financial measure – compared to Chelsea’s £50m, according to a source briefed on the teams’ finances. If Chelsea can match Liverpool’s Ebitda, the acquisition will look like a relative bargain, according to sources familiar with Boehly and Clearlake’s thinking.

In the 2021-2022 season, Chelsea had the second-highest payroll in the Premier League at £355 million. Liverpool came fourth with £314 million, according to football site Marca. Meanwhile, sources close to Chelsea’s new owners note that Boehly’s Dodgers has hired 30 people to study “data analysis” – a practice often used to source strong players at good prices, as depicted in the movie “Moneyball” – while Chelsea currently have four.

Abramovich’s riotous spending paid off, with Chelsea winning five Premiere League titles and two Champions League trophies as the best club team in the world.

Roman Abramovich
Roman Abramovich’s riotous spending delivered results, with Chelsea winning five Premiere League titles and two Champions League trophies.
Popper photo via Getty Images

Evidence of a more sharp, numbers-based approach emerged last week, when it was leaked to the press that Boehly was happy to return Romelu Lukaku, a Belgian football star who signed Chelsea for £97.5million last summer for £97.5million. football club Inter Milan.

Nevertheless, insiders say it’s not clear that such an adjustment will be enough to deliver the outrageous returns Clearlake and its investors have become accustomed to. The company’s 2012 and 2015 buyout funds produced net internal returns of 41 percent and 33 percent per annum as of June 30, 2021, respectively.

That made the funds the best-performing for those raised at the time, even compared to veteran buyout heavyweights like the Blackstone Group or Carlyle Group, according to public records.

Clearlake and Boehly, who each put more than $1 billion in equity capital into the deal, share board control over budgets, including payroll. Sources close to Clearlake insist the company is less focused on cutting costs than on increasing sales, which they said recently fell below £500m, compared to its estimated £700m in revenue from Manchester United. The plan is to seize opportunities for naming rights and sponsorships, the sources said.

Chelsea footballers celebrate
Chelsea lost £146 million ($178 million) for the year ending June 30, 2021, as stadiums became empty amid the pandemic.
Anadolu Agency via Getty Images

Nevertheless, bankers close to the deal note that the profit faces at least one huge hurdle: a pledge to rebuild Chelsea’s 117-year-old Stamford Bridge stadium in London at an estimated cost of more than £1 billion to increase the seating capacity. enlarge. Fans worry the result will be more luxury suites and higher ticket prices for fans – with Boehly struggling in recent weeks to allay concerns about the latter.

“You have to put £1bn into a new building and they lose money,” said a sports banker. “I’m not a big fan of this deal.”

Chelsea lost £146 million ($178 million) for the year ending June 30, 2021, as stadiums became empty amid the pandemic. It made a profit of £39.5 million ($48 million) last year, according to Football.london.

Whatever happens, Clearlake co-founders Behdad Eghbali and Jose Feliciano will make money from the Chelsea deal. That’s because Clearlake charges its investors a 1.7% annual management fee on investments, and the Clearlake partners deposit money equal to or less than 2% of its fund, according to a November presentation from Clearlake to the Connecticut Treasury. These kinds of fees are typical of the private equity industry, and part of the reason U.S. sports leagues don’t allow private equity firms to own majority stakes in teams.

In five years, the Clearlake partners will earn 8.5% of the money the company’s fund invests in Chelsea in fees, while risking just 2% of their own money in the fund the team actually buys. Clearlake also gets a 20 percent discount on the fund’s profits, so will earn more if Chelsea is a good investment.

“Clearlake’s assets under management and transaction volume have both continued to grow at a significant pace, raising concerns about potential adverse impacts on Clearlake’s investment discipline and the team’s ability to effectively deploy ever-larger pools of capital,” said Hamilton. Lane, Connecticut’s pension advisor in a statement. a report, according to state records.

Lane eventually advised the state to invest in Clearlake. But some Chelsea fans are less enthusiastic.

“In general, Americans don’t get ‘football’ and my fear is that if there’s no passion or desire for the club within the property, we’re no longer a football club and we become purely a business,” said Martin Pearce, a Chelsea season ticket holder. for over 30 years

“Roman Abaramovich was very popular, all politics aside, and was clearly passionate about the team and the success he brought us,” added Pearce. “There are rumors that the real fans will have to make way for ‘corporate fans’. Once this happens, the atmosphere and passion disappear.”

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