New players in a dynamic Football Market: an analysis of recent investment in European Football
Author: Gaetano Taormina
As Italians marched the streets of New York during the recent Columbus Day festivities, one color broke from the traditional red, white, and green—the color purple worn by A.C.F. Fiorentina supporters. In June 2019, Fiorentina was purchased by Mediacom’s Italian-American chairman Rocco B. Commisso.1 The club, known as the Viola, is the premier club in Florence and was owned by Diego Della Valle for 17 years after the club entered into bankruptcy.2 Reports suggest that Commisso purchased the club for approximately US$150 to $200 million.3 The purchase of Fiorentina is indicative of a trend in Italian football (also known as “Calcio”), which is the growth of foreign investment in Italian football. For example, the prestigious clubs of A.C. Milan and A.S. Roma are owned by Elliot Management and James Pallotta, respectively.4 Other clubs like Bologna and Venezia also have American-linked ownership.5 Notably, American investors are not the only buyers in the market. Asian and Middle Eastern buyers are also in the mix as evidenced by China’s Suning Holdings Group’s purchase of a majority stake in Inter Milan for $307 million in 2016.6 The growth of foreign ownership of Italian clubs speaks to a larger story and trend: football clubs are becoming more attractive investment opportunities.
There are four primary factors that have contributed to the increased appeal of investing in football clubs. The first is that the large U.S. and Asian markets for both viewership and commercial sponsorships have shown significant opportunities for growth and exploitation.7 As seen in the English Premier League, large broadcasting deals continue to provide clubs and their owners with a substantial source of revenue.
The second catalyst is UEFA’s Financial Fair Play regulatory regime (“FFP”). The FFP regulations were promulgated to limit the spending ability of football clubs to secure their long-term financial stability. The regulations call for budget constraints that prohibit a club from spending substantially beyond the amount that it earned from approved revenue streams. To compete under the FFP regulatory regime, football clubs must show substantial profitability because a club’s capacity to go out into the market and purchase players is limited by the club’s earning power. In other words, under FFP, football club owners with competitive aspirations must ensure that the football club, as its own entity, is financially successful. Moreover, the source of the revenue is crucial under FFP. Revenue that comes directly from wealthy owners is not permitted under FFP, as it is not included in the regulatory definition of “relevant income.”8 To be eligible to participate in the market for quality players, clubs and their owners must invest in real and reliable assets that produce revenue acceptable under FFP. Some acceptable forms of income are revenues generated from gate receipts, sponsorship and advertising, broadcasting rights, and commercial activity.9 Furthermore, the costs related to investing in these assets are excepted from the FFP budgetary restraints.10 In so doing, FFP steers investment towards reliable sources of revenue such as infrastructure, rather than risky assets such as players. Under FFP, investing in infrastructure is likely the most effective way to generate more revenue.11 Examples of how investment in infrastructure improves football clubs’ revenue are Arsenal’s move from Highbury to Emirates,12 Juventus’ move from Stadio Delle Alpi to Allianz Stadium,13 and Liverpool’s renovation and expansion of its main stand.14 Consequently, investment into football clubs and their assets are appealing to potential investors who have football and financial aspirations.
The third factor is that for most leagues, there is likely substantial upside due to the lack of modern and sustainable infrastructure and unrealized commercial revenue. Italy serves as a prime example where the stadiums and surrounding community have significant growth potential. This is primarily a result of the fact that many of the stadiums are owned by the city in which they are located.15 Additionally, many Italian stadiums require renovations and modernization to reach the level of other European stadiums. Inter and A.C. Milan, acknowledging this reality, have followed Juventus’ example and proposed plans to build a new stadium that they will own, as opposed to leasing from the city of Milan. Rocco Commisso also discussed opportunities regarding renovations or potentially building a new stadium.16
The fourth factor is that generally, due to relatively low interest rates, the cost of borrowing funds is historically cheap. As a result, borrowing to fund the purchase of an international football club and the development of the club’s assets is more economically efficient than in prior years. Moreover, there are more wealthy investors who are in search of higher yield in the current financial climate. Therefore, for parties interested in investing in football clubs through the utilization of debt or other financial instruments, the present economic environment is encouraging.
To conclude, it appears that the current regulatory and economic environment are conducive to investment in football clubs. As evidenced by the rumored sales of U.C. Sampdoria and Newcastle United F.C., we may witness more acquisitions of football clubs and investment into their infrastructure and commercial assets.
[1] https://www.nytimes.com/2019/06/06/sports/rocco-commisso-fiorentina-cosmos.html
[2] See id.
[3] See id.
[4] See id.
[5] See id.
[6] https://www.reuters.com/article/us-soccer-inter-milan-suning/chinas-suning-buying-majority-stake-in-inter-milan-for-307-million-idUSKCN0YR03T
[7] https://www.bloomberg.com/news/articles/2018-06-12/soccer-is-the-world-s-most-popular-sport-and-still-growing
[8] Annex X of the 2018 UEFA Club Licensing and Financial Fair Play Regulations (A)(1)
[9] Annex X of the 2018 UEFA Club Licensing and Financial Fair Play Regulations (A)(1)
[10] More specifically, expenditures on youth development, community development, non-monetary debits and charges, finance cost directly attributable to the construction or substantial modification to tangible fixed assets and costs of leasehold improvements are all excepted from the budgetary calculus. Annex X of the 2018 UEFA Club Licensing and Financial Fair Play Regulations (A)(2)
[11] https://bleacherreport.com/articles/1968457-why-stadiums-are-increasingly-crucial-to-football-clubs-commercial-strategies
[12] https://www.forbes.com/sites/bobbymcmahon/2016/10/04/tracking-the-impact-of-arsenals-move-to-emirates-stadium-ten-years-on-was-it-worth-it/#57a1f71a537e;
[13] https://en.as.com/en/2019/04/20/football/1555749827_484528.html
[14] https://www.telegraph.co.uk/football/2018/03/01/liverpools-new-main-stand-earns-club-extra-12m-last-year/
[15] https://www.nytimes.com/2019/06/06/sports/rocco-commisso-fiorentina-cosmos.html
[16] https://www.nytimes.com/2019/06/06/sports/rocco-commisso-fiorentina-cosmos.html