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Liverpool Echo
Liverpool Echo
Dave Powell

Changing ownership landscape could trigger FSG Liverpool sale rethink

While Fenway Sports Group are willing to listen to major offers for Liverpool they could well remain custodians of the club for some considerable time yet.

The American ownership group, who acquired the club for £300m in 2020, were revealed last month to be open to the idea of selling the club, with the ECHO understanding that only bids in excess of $4bn (£3.3bn) would be considered before any conversations even began around the club changing hands.

Liverpool chairman Tom Werner told the Boston Globe last month that it was a case of "business as usual" for FSG and their stewardship at Anfield, and well-placed sources in the US have told the ECHO that a "strategic partner" would be preferred and that there was presently little happening behind the scenes in terms of a sale of the club or any "real" interest from would-be bidders.

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That could all change, of course, with a club of the global reach and scale of Liverpool, one that sits in the elite category of world football and has won both a Champions League and Premier League within the last five years, appealing to some with deep pockets and grand ambitions.

As with most sports team valuations there is an element of LIFO (last in, first out) involved, where the last deal struck tends to set the tone for the next and so on. Valuations have seldom gone beyond equity research from the likes of Forbes magazine in the US, with the rather perfunctory method of using a simple multiple of revenue often being where the number is found. In reality, they are worth what someone is willing to pay for them, and there are certainly investments that can be made in non-sporting sectors that can offer a greater return.

But this isn't all about returns, or at least not in every case. For FSG, having acquired the club for £300m, to sell it for £3.3bn would mean that they have achieved a profit on their investment of over 1,000 per cent, a remarkable rate of return in any sector of business. The boom in media rights deals, the resilience of sport in the face of harsh economic headwinds and a global pandemic has seen valuations soar over the past decade, and for those that got in at the right time it has been a shrewd investment.

The view is that media deals will continue to be strong in the coming seasons, and with new revenue opportunities likely to come on board as technology and its adoption throughout fanbases improves, there is some runway to travel down before any kind of bubble is burst. But there is the view among some that it is slowing, and that there will be a plateauing of what these clubs can be worth, and with many of them not huge profit making assets, and with a transfer market in European football that has become something of an arms race, some may get squeezed out at the top.

"We are going to get to a point in European football where US guys, unless someone from Silicon Valley takes an interest in football which doesn't look likely right now, find it harder to compete at the top level," one US investment executive told the ECHO.

"Valuations are starting to plateau a bit and there comes a point where you can only try and effect so many things before you run out of avenues to explore. If the rate of return isn't all that great for investors then it starts to become a less attractive proposition.

"There has been a changing landscape in football, it's gone from millionaires to billionaires, from China to the US, and now we see there is the move towards the Middle East. When those guys get involved and return on investment becomes less of an issue then you will see it happen a lot more as there might not be the appetite from the US to get involved. Then there are other frontiers, emerging economies and the likes of India, do they start to take a look as it will get to the point where only these huge entities with near limitless wealth can get afford to be involved."

That view is one that is shared by former Arsenal vice-chairman David Dein, a man who was one of the main architects of the modern-day Premier League and who saw its potential for enormous global appeal early on.

Speaking to the Times, Dein said: "When I joined Arsenal, the people buying were local businessmen investing in their club and then it changed, they became millionaires [buying], then billionaires, and it will change again and become sovereign states."

Manchester City have been owned by the Abu Dhabi-based City Football Group since 2008, while Newcastle United's acquisition by the Saudi Arabian Public Investment Fund (PIF) in 2021 was not without its controversies owing to the country's poor human rights record and the inescapable link between the PIF and Saudi Crown Prince Mohammed bin Salman.

While change has been effected at Newcastle they haven't yet had to seriously lean on their financial might, which with PIF sitting on a £330bn fund isn't small change. They are playing their hand smartly at present and that will set them up to challenge what has been something of an established order in the English game in recent years, one that has created a 'big six' of Liverpool, Manchester United, Manchester City, Chelsea, Arsenal and Tottenham Hotspur and seen the chasm between them and the rest grow ever bigger to the point that the six were part of the failed European Super League plot before renouncing their intentions.

FSG supremo John W. Henry made his fortune as a commodities trader, the idea being to buy cheap and sell high.

The view of FSG among many US sports investors is that they sit at the very vanguard and what they do can often be seen as something as a guiding hand to the rest over time. FSG's adoption of the 'Moneyball' method at the Boston Red Sox and knack of implementing strategy with the right people in place helped them snap an 86-year streak without a World Series in 2004. They have since won three more, although recent struggles on the field and the lack of spending to keep their greatest assets has seen confidence eroded in the ownership among some fans.

Selling a part of Liverpool makes sense for FSG in terms of freeing up some capital to either invest into the team or for capital improvements in other areas of the business. One of the main reasons that FSG are understood to be keen to keep hold of the club if a huge offer doesn't materialise is that there would be an element of leaving some money on the table if they got out now, and for some partners whose investment into FSG is in its relative infancy, such as the 11 per cent stake RedBird Capital Partners acquired for $750m in March 2021, hasn't seen the kind of returns that they would have liked as yet, with Liverpool the most valuable asset in FSG's entire $10bn portfolio.

"Fenway getting out would be a significant signal to the market, it would signal to some that the party was over in some ways," said Stefan Szymanski, author of the lauded Soccernomics and the Stephen J. Galetti Professor of Sport Management at the University of Michigan, when speaking to the ECHO last month.

"We have seen a lot of investment into Europe, a lot of it from the US and through private equity. It strikes me that a lot of what happened here is part of it pandemic related. The pandemic devastated European football's bottom line, according to UEFA the total lost revenues were in the region of €5bn. That created a huge hole, and if you take a huge hole out of football clubs they are basically bust. They were more or less bust going into COVID.

"That meant that there was an opportunity for the gap to be filled by capital from private equity. People have been coming in and buying assets on the cheap. On the other side of that, private equity has been sitting on a boat load of money because the people who profited from COVID were businesses that had huge handouts, and a lot of that money has gone into private equity. There is a natural marriage between the capital and where the capital is short.

"The whole premise of private equity is go in, hang around five years and get out. Restructure the business, cut costs, refocus on your core activities and then sell out. The problem with that is the economic structure of European football doesn't allow you to do that. What are you going to do to cut costs, sign crap players?

"In the 1990s there were a lot of clubs that floated on the London Stock Exchange because Manchester United had been such a success. Investors thought 'yay, football, this will be a huge success'. It wasn't, Manchester United were exceptional not typical, the typical thing is you spend it all on players. That is what happened and now nearly all those clubs are no longer on the stock exchange.

"What might happen is these private equity guys might go in and in five years time realise that there is no money in it. What that says to me is that the source of this investment will disappear when that realisation sinks in, so the likelihood that American private equity coming in will be a fairly short-lived phenomenon until they learn the lessons that generations have learned going in to football not knowing."

There is seen to be something of a boom when it comes to the US and 'soccer', with the World Cup to be held in the US in 2026, the growth in interest in the Premier League demonstrated by the £2bn media rights deal struck earlier this year and the increasing prevalence of American players operating at an elite level in European football.

But as Szymanski alludes to, that window could be shorter than some think, and if and when it does close then the logical next step seems to be towards the increasing opening up of the market within the MENA region, whether through sovereign wealth funds, of which there are only a limited number, and the private sector. They may well be the only ones who are able to sustain the kind of spend that there has been seen in recent seasons without having the overarching requirement to see a return on their investments.

"Who do you have left? Bahrain, Kuwait, I don't think Dubai would ever put up for one, so you are running out of those kind of buyers," said Szymanski when discussing who may eventually show their hand for Liverpool when Henry and company decide to part ways with the Reds.

"The other option is someone in the Far East. Liverpool is such a big name in East Asia and there are billionaire Indonesians, Malaysians and Singaporeans, it would certainly sell well in that part of the world. It would be reasonable to think there would be a lot of interest."

For now things are understood to be quiet, and with some road left to travel down in terms of a return on FSGs existing investment, and with no urgent need to free up capital for the acquisition of a new team, with the NBA expansion franchise they seek in Las Vegas likely a couple of years off and the NFL currently having rules in place to prevent private equity being involved in team ownership, with FSG part owned by private equity, they have little need to rush to work out their next steps.


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