More than a game: Chelsea’s multi-billion pound price tag

Sascha: [00:00:02] From Equity Mates media. This is the dive and I'm your host, Sascha Kelly. This week saw the sale of one of the world's most coveted assets and it wasn't $1,000,000,000 tech unicorn or a one of a kind Picasso or even a Stradivarius violin or a Superyacht. It was a football club, and not just any football club. It was one of the big six clubs of the English Premier League Chelsea, which finally sold after being seized from its Russian owner, Roman Abramovich.

Audio clip: [00:00:30] The club was put up for sale. The sale was overseen by this New York based investment. 

Sascha: [00:00:36] Bank, and the battle to bid for the club was fierce. A queue of billionaires, along with some of the best money managers and investment firms in the world, were all clamouring for ownership. 

Audio clip: [00:00:45] Further details have emerged today of a new bidder and an increased bid from one of the others.

Sascha: [00:00:51] But a deal has finally been approved. This week UK government has issued a licence that permits the sale of Chelsea, one by a consortium of owners led by the American Todd Foley. It's Friday, the 27th of May, and today I want to know why was there such fierce competition to own a football club? Just how good of an investment are sports teams? And is there any way I can get involved? To help me answer this, I'm joined by my colleague at Equity Mates Media, Darcy Cordell. Darcy, welcome. 

Darcy: [00:01:22] Thanks, Sascha. Looking forward to this one. 

Sascha: [00:01:24] I know you are. You are mad keen sports fan and I'm looking forward to hearing all about it. So let's start with a quick recap. Can you tell me what happened with Chelsea? 

Darcy: [00:01:33] So Chelsea has just been sold. The UK government has accepted an offer of £4.25 billion from a consortium led by American Todd Boehly. I'll touch on why the UK Government's involved in a minute, but this is a big deal. The biggest sports franchise acquisition ever. To be exact. It's so rare for a club of Chelsea whose popularity and calibre to be up for sale. None of the big six clubs had been sold in over a decade. Now, as an investment, it was a rare opportunity for investors to buy a club in the English Premier League. It's the richest domestic football competition in Europe and it has a global audience. The previous owner, Roman Abramovich, bought Chelsea in 2003 and he was believed to have paid £140 million or around 175 million USD. Now the clubs accepted a deal of £4.25 billion, more than 25 times what Abramovich paid about 20 years ago. It is important to note, though, that over the years Abramovich has invested hundreds of millions of dollars in the club. 

Sascha: [00:02:38] but 25 X is like an incredible return to us. But let's talk about why the UK government is involved. Abramovich, as I understand, won't be receiving any of this money from the sale himself. He's been forced to sell the club because of sanctions. Is that right? Breaking news, the government has sanctioned Roman Abramovich. 

Darcy: [00:02:59] Yeah, that's right. So the sanctions were placed on Russian oligarchs after Russia's invasion of Ukraine and Abramovich was moving to sell all of his UK assets, houses, cars, anything that he couldn't move out of the country. And one thing he definitely couldn't move was a major English football team, Chelsea. 

Sascha: [00:03:17] And especially a major English football team named after a suburb in London. You can't really move something that's namesake is where it is. 

Darcy: [00:03:26] Yeah, the heart of London. It's not going anywhere. So the UK government eventually extended sanctions to Abramovich and forced this sale. But we talk about the UK government because they had to give the final greenlight on Chelsea's sale and they've now accepted this bid from Todd Bowley and the consortium. The proceeds from the sale will actually be used for humanitarian aid in Ukraine. 

Sascha: [00:03:47] So can you tell me more about this consortium led by Todd Bailey and what the winning bid looks like. 

Audio clip: [00:03:53] You've been looking at, as the Europeans would prefer to call it, football, specifically the Premier League in the UK. What appeals to you there? Football is the biggest sport in the world. 

Darcy: [00:04:02] This bid was the second time lucky for Boehly. He offered a bid back in 2019, but Abramovich ultimately decided not to sell the club. Boehly is the former president of investment manager Guggenheim Partners, and he's a renowned investor in professional sports. He owns stakes in the Los Angeles Lakers basketball team and the L.A. Dodgers baseball team already. 

Sascha: [00:04:24] Look, Darcy, you know that to call me a sports fan might be a bit of a stretch, but even I've heard of those sporting teams. So he obviously owns some big name, some.

Darcy: [00:04:36] Big, big names. He's not messing around. So Boehly Won with this offer to acquire Chelsea for £2.5 billion. But he actually committed to invest a further 1.75 billion in the club's stadium facilities and playing squad in the coming years. So that as a total is £4.25 billion or around 5.3 billion USD. And as we mentioned, the bid is with a consortium which is like a combination of companies. In that consortium is California based investment firm Clearlake Capital, Swiss billionaire Hansjorg Wyss and Guggenheim Partners chief executive Mark Walter. With the sale now complete, it's interesting to note that American investors now control four of the so-called big six clubs in the English Premier League. A look through the list shows Arsenal is owned by Stan Kroenke. The Glazer family controls Manchester United and John Henry's Fenway Sports Group owns Liverpool. So actually in total, American investors control half of the teams in the 20 team competition. 

Sascha: [00:05:38] Wow, that's so interesting. I didn't realise that Americans like soccer that much to own half of the English Premier League, but there must have been a line out the door of people interested. I mean, I personally saw headlines naming Lewis Hamilton and Serena Williams as part of bidders of another consortium. 

Audio clip: [00:05:54] I mean, look, I've been a football fan since I was a kid. 

Sascha: [00:05:57] I played with other celebrities fighting to be amongst this prestigious few who own football teams. 

Darcy: [00:06:04] There were even Conor McGregor was part of a consortium that was interested. It was overall one of the most fiercely contested takeovers in football history. More than 20 different parties showed interest in submitting an offer, but realistically, it was only billionaires and institutional investors that were going to be able to afford Chelsea. I'll give you the names of a few that stood out to us. Sascha There was Woody Johnson of the Johnson and Johnson family and owner of the New York Jets, Ken Griffin, hedge fund manager and the founder of Citadel. There was a consortium from Saudi Arabia, Nick Candy, a British property developer and lifelong Chelsea fan. 

Sascha: [00:06:42] And I know that name. He's married to former neighbours. Actress Holly Valentine unfortunately obviously can't. 

Darcy: [00:06:49] Very good knowledge. That's very good. The we also had the Ricketts family who owned the Chicago Cubs Baseball Club and Howard Marks Oaktree Capital Management. They've got $166 billion under management. 

Sascha: [00:07:04] Wow. 

Darcy: [00:07:05] So these are some of the best money managers in the world. But perhaps the more telling story is the only one of those names are a Chelsea fan, let alone British. These aren't the who's who of Britain's rich list trying to buy a central London club their Middle Eastern and American billionaires. 

Sascha: [00:07:22] Yeah, and the Chelsea fan didn't even end up as the winner, so he must be so disappointed. 

Darcy: [00:07:27] Shattered. 

Sascha: [00:07:28] Okay, so we had a huge list of millionaires, billionaires, fund managers, celebrities that were all interested in buying this club that had more than 20 excess valuation over the last 20 years. But this brings me back to the question at the top and the one that I want to unpack after the break, which is, are sports teams in general a good investment or is Chelsea a bit of a standout? But first, let's take a quick break. Welcome back to the Dive. I'm joined by my colleague Darcy Codell. And today we are talking about the investment case for sports teams. 

Audio clip: [00:08:06] I want and everyone in this town wants an NFL team. 

Sascha: [00:08:10] So, Darcy, we want to talk about how good sports teams are as an investment across the board, not just Chelsea, which we've been talking about. Can you give me a brief history? And I do mean brief because I know you're a massive sports fan of the investment returns of professional sports teams. 

Darcy: [00:08:28] To answer your question, professional sports has been one of the best performing asset classes of the past 50 years. 

Audio clip: [00:08:34] Force is not like any other business. When, you know, when you walk into an arena, if if we're doing a good job, if I'm doing a good job, you feel the energy, you feel the electricity. 

Darcy: [00:08:44] Here's some data from Forbes and the Financial Times that shows how well American sports teams have performed between 1991 and 2016. So the S&P 500 returned 7% a year. The tech heavy NASDAQ returned 10% a year. The worst of America's four major sports leagues, Major League Baseball. It returned 11% a year. So better than the stock market. The NHL, the hockey league returned 12% a year and the NBA and Nflx both returned 13% a year. 

Sascha: [00:09:15] And Darcy, just to be clear, that's the average of all those teams. That's not even the standouts. 

Darcy: [00:09:21] Exactly right. Just the average. So some of the blue chip sports franchises have seen more incredible returns. The NFL's Dallas Cowboys were purchased for 140 million USD in 1989, and they're now valued at around $7 billion. We've spoken about Chelsea, obviously bought for £140 million now worth over 4 billion. And the NBA's most valuable franchise, the New York Knicks, has increased from $655 million to almost 6 billion in the past ten years alone.

Audio clip: [00:09:54] Do you manage it like a business? Yes. Do you run it like a business? But when you in a traditional business, when you make a decision, there's one set of factors. But in the professional sports business, there's a different set of factors. 

Sascha: [00:10:04] And it's just extraordinary numbers. It's kind of hard to keep it in perspective when you're talking about the amount of zeros behind some of these digits. 

Darcy: [00:10:11] So many zeros. The thing that brings me back to it is that there are a thousand millions in a billion. So there's a lot of it's a lot of zeros being added to these valuations. But it's not just the professional sports teams that are seeing investment interest. Recently, we've seen CVC Capital Partners invest in a Six Nations rugby tournament, and Cosmos invests in the International Tennis Federation's Davis Cup competition. The leagues themselves are also getting investment interest. 

Sascha: [00:10:41] Well, Darcy, I think that kind of answers my question. Sports seems to be a great investment case, but why is the question at the front of my mind, can you unpack the actual drivers behind these investment returns? 

Darcy: [00:10:54] Yeah. So there are three main drivers of these booming valuations for professional sports teams and their TV and media rights, globalisation and scarcity.

Sascha: [00:11:05] Okay. Well, can you start by unpacking the TV landscape? For me.

Darcy: [00:11:09] The value of TV rights has exploded. 

Audio clip: [00:11:11] Ready to make his move on Bhopal. 

Darcy: [00:11:13] Before COVID, the appeal generated over $5 billion in revenue per season, and of that, 60% came from media rights, including massive TV rights deals. The TV rights deal for the next three seasons is worth £10 billion. For context, the original deal in 1992 was worth £11 million per season.

Sascha: [00:11:35] That's amazing. 

Darcy: [00:11:36] Amazing. Remember, 1 billion is a thousand millions. 

Sascha: [00:11:40] You keeping that in front of my mind for perspective is exactly what I need right now.

Darcy: [00:11:44] And it's not just the appeal in the NFL. The value of broadcasting rights deals has increased more than 12 fold since the eighties, and recently they announced an 11 year deal worth 110 billion USD, nearly doubling the per year value of the previous contract. Now this ranks the NFL's deal on par with the entire GDP of Morocco, or about the 60th largest country by GDP in the world. Wow. Absurd. And the NBA doesn't miss out on the fun either. They've got a deal worth $2.7 billion per season, Anthony, for $3, up from 615 million in 1998. And here in Australia, the AFL TV rights deal has had a compound annual growth rate of nearly 10% since 2002. So we're getting 10% on 10% on 10% four years. Currently they receive $320 million per season. The most lucrative deal in Australian sport. 

Sascha: [00:12:45] Wow. Well, there's always a lot of sports on television and now I know how much it costs. All right. Let's talk about globalisation then. That was your second point. 

Darcy: [00:12:54] So as the world becomes more connected and globalised, it has increased the rates of sports and the size of fan bases. The English Premier League is the best example of this global push. While it's based in England, it's a truly global league. The league makes over £1,000,000,000 a year from international media rights, so money coming in from anywhere but England. And that's comfortably the highest earning sports league from media rights in non domestic markets. Chelsea specifically, they have a global network of 500 official supporters clubs across more than 100 countries. The BBC estimates they have a global fan base of 135 million people, second only to Manchester United. 

Sascha: [00:13:36] You know, that's five times the size of Australia's population. For a sports team they could be a nation if they all banded together.

Darcy: [00:13:44] It's a crazy amount of people and I'm sure most of them haven't even seen Chelsea play live. But it just shows that interconnectedness of the world that they can still be fans. It's not just English football, though. We're seeing NFL games played in the UK, Mexico and soon to be Germany. The NBA plays in France, Mexico, the U.K., and has preseason games in China, Japan, India and Brazil as these leagues globalise. And the Internet enables global fan bases. Professional sports teams are saying fast rising valuations. 

Sascha: [00:14:15] Is such a good point. And I know, as you said, quite a few people here in Australia who are just mad fans of overseas sports teams and many of them probably haven't seen them play live, but it doesn't mean that they don't feel a part of the team and like some kind of loyalty to the brand and they know all the players. So I think that point really makes sense to me. So let's move to your final point, which is scarcity. Can you tell me what you meant by this? 

Darcy: [00:14:42] Yeah. Let's come back to our Chelsea example. And there's a clue that Chelsea is part of the big six clubs. There's only 20 teams in the English Premier League and the Big Six are deemed the blue chip teams or the most expensive teams. Now, that's not a lot when you compare it to other asset classes. There's more than six yachts around. There's more than six companies on the stock market that are seen as blue chips, and there's more than six properties that are blue chips. And to further prove my point, just remember that list of names that I read out that lined up to buy Chelsea? 

Sascha: [00:15:13] Yeah, absolutely. All those billionaires. 

Darcy: [00:15:16] So many billionaires and the number of billionaires is only increasing, Sascha. According to Forbes, there were 2755 billionaires in the world last year. That was up 660 from the year before. 

Sascha: [00:15:29] Oh, my goodness. That's an incredible jump in the number of billionaires. 

Darcy: [00:15:33] Yeah, COVID clearly made a lot of people richer and some far less rich. We'll leave that for another day. 

Sascha: [00:15:39] Yeah, that sounds like another episode. 

Darcy: [00:15:41] Darcy And we've talked about globalisation and media rights, which support the economic fundamentals of these teams as investments. But this scarcity point isn't about economic fundamentals, it's about supply and demand. And supply of these teams is fixed. There's only so many blue chip sporting brands in the world available to buy. But as these billionaires grow in number, there are more that can afford a sports team or afford to become part of a consortium to bid on a team. 

Sascha: [00:16:09] So really, Darcy, you're talking about these blue chip teams being a prime example of supply and demand. So I guess where does that leave me? Look, it's no secret I'm not going to be a billionaire tomorrow as much as I try, as much as I listen to Equity Mates. Is there any way that I can get involved in investing in sports teams? 

Darcy: [00:16:26] The good news for us is that there are some ways we can get involved. 

Audio clip: [00:16:29] Manchester United Football Club has signalled its intention to list on the US Stock Exchange.

Darcy: [00:16:34] I'll give you a couple of examples. The F1 Formula One, which I know you love, Sascha, it's. 

Sascha: [00:16:39] Probably the only sport that I watch. 

Darcy: [00:16:42] So Liberty Media is actually the owner of the F1 brand and their listed company, Manchester United. Another one of these big six English clubs is listed on the New York Stock Exchange. And here in Australia the Brisbane Broncos are listed on the ASX. So there are some ways that we can invest in these companies, but I don't think we're going to have outright ownership. 

Sascha: [00:17:04] Look, that sounds like a perfect segue for me to go and do my own research and come back with a bit of a list of the sports teams that I might be able to put my money in. So I guess in the meantime, I've just got to work at being a billionaire so I can afford one outright. 

Darcy: [00:17:19] Love it Sascha