News Analysis: The real Big Picture

By David Owen

When it comes to the football business, one cannot help but admire John Henry’s timing.

First he bought Liverpool for £300 million in 2010, at a time when the once all-conquering club was at a low ebb. Now he is reported by The Financial Times to be discussing relinquishing 25% of Fenway Sports Group, holding company for the revitalised Reds and the Boston Red Sox baseball team, to a vehicle set up by Moneyball’s Billy Beane and a private equity partner in a move said to value Fenway at $8 billion.

If a deal goes ahead, it might enable Henry to turn a profit on his original investment, at what may turn out to be the top of the market, while retaining skin in the (beautiful) game should the COVID-inspired panic currently gripping the sector spark a restructuring capable of further boosting the earning power of the sport’s ultra-elite.

Since any deal would apparently involve a public listing, Henry would also have a liquid avenue to further sell down his investment should COVID precipitate the end of football’s glory days.

His experience demonstrates how private investors can prosper in football on the basis of a certain amount of patience, putting the right people in the right jobs and overseeing a judicious investment strategy.

Owners of football assets now feeling exposed by the pandemic who may be tempted to go down the private equity route in their efforts to keep the show on the road would be well-advised, nonetheless, to exercise great care over who they are getting into bed with and what a mutually acceptable outcome to their partnership might look like..

Private equity is an industry whose outside investors pay high fees and therefore expect superior returns, typically within a five-to-ten-year time-frame. To take just one example of a deal that worked out well for those concerned, sandwich chain Pret A Manger’s private-equity owner was reported in May 2018 to have agreed to sell the business for £1.5 billion, having bought it for £364 million a decade earlier.

Sometimes, game-changing improvements to a business can be achieved through cannier management: a founder who knows everything about, say, running a DIY chain will not necessarily have spotted a particular tech innovation capable of transforming the company’s efficiency.

But private equity proprietors also often increase debt. This can leave companies vulnerable when things go wrong. As the FT recently reported: “As coronavirus continues to rage across the US and Europe, rating agencies are forecasting that defaults on highly leveraged private equity-owned companies will increase.”

Football decision-makers should ask themselves whether the magnitude of return on capital these –- at best medium-term – partners are likely to be targeting, can realistically be achieved by operational improvements or cost-cutting.

Football clubs are, after all, relatively simple businesses, with two or three transparent and relatively predictable main income streams and one big cost: wages.

Probably the most obvious way to boost income for the majority who are somewhere below the absolute apogee of the football pyramid is to improve on-field performance. For lower-division clubs, this means getting promotion; for moderate top-division clubs, it means getting into the Champions League.

But improved on-field performance usually costs before any rewards are reaped. And of course, only a few of those striving to better their status will actually succeed. If you fail and have geared up in the process, you could end up in real trouble.

Another way of lifting returns would be to cut wage costs without impairing playing performance. But with players’ unions so strong, it is hard to see this happening quickly even while COVID rages. The best most clubs can hope for may be a gradual reduction as lucrative contracts for fringe players expire and are not replaced.

Transfer windfalls may also be harder to come by in what is threatening to become a buyers’ market, except arguably at the very top of the tree.

For the big-name clubs at the absolute apogee of the pyramid, who have already built global brands, but are now facing up to tough broadcast/sponsorship markets and dramatically fewer live fans in their stadiums for an indefinite period, the most plausible route to generating the magnitude of return that a private equity partner buying in now would want is what exactly?

For me, there is little contest. It would have to be that long-touted closed-shop European Superleague. That would guarantee those participating up to 20 more so-called ‘Blockbuster’ games against other members of the elite which could be marketed all over the world at premium prices, even in the crisis conditions we are currently lumbered with.

The more instances we see of new private equity investments in the top, top clubs, the greater, I think, are the chances that a Superleague will finally happen.

Seen in this context, the special voting rights that would apparently be granted to some English Premier League clubs under the so-called ‘Project Big Picture’ proposals, are unlikely to find favour with staunch defenders of the now gravely jeopardised, if time-honoured pyramid system.

David Owen worked for 20 years for the Financial Times in the United States, Canada, France and the UK. He ended his FT career as sports editor after the 2006 World Cup and is now freelancing, including covering the 2008 Beijing Olympics, the 2010 World Cup and London 2012. Owen’s Twitter feed can be accessed at