While little has materially changed for Fenway Sports Group since they intimated that they were willing to sell their stake in Liverpool back in November, it is the potential for a minority share sale that remains the most likely outcome.
The sale of Chelsea for £2.5bn, allied with some FSG partners hinting at divesting their interest in the not too distant future, provided the catalyst for FSG to go to market and see what the appetite for a sale or investment into the club would be.
A full sale over and above the $4bn valuation that Liverpool has remains an option, but given that some investors have yet to glean the kind of returns that they would have been expecting from FSG investment, and with Liverpool such a valuable part of John W. Henry's sporting empire that is now worth more than $10bn that also features the Boston Red Sox MLB team and Pittsburgh Penguins NHL franchise, there is a growing feeling that a partial sale is more likely.
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Selling a stake in Liverpool would allow them to recapitalise the business at a time when cash flow is likely to be impacted given the need for the owners to commit to transfer spend this coming summer. Quite whether any capital raise, if a partial sale is concluded in time, aids that effort remains to be seen, but it would have its merits for FSG. For Liverpool to keep seeing its value rise and revenues grow it is vital that success is the bedrock of that, after all, it is the success that has arrived once more under Jurgen Klopp that has provided the leverage for global growth.
Institutional investment has arrived into European football in a big way in recent seasons, with the lucrative nature of the Premier League and its positioning as the world's biggest, most watched and most valuable competition meaning that is has tremendous value proposition for investors, particularly at the biggest clubs in the league that do not have the relegation risk attached to them to a large degree.
Sports team values have grown exponentially over the past decade or so. When FSG acquired Liverpool in 2010 they did so at a £330m purchase price, with the following 12 years of ownership having seen the value of the club rise more than 950 per cent.
When Chelsea came up for sale following the Russian military invasion of Ukraine, as Roman Abramovich was sanctioned for his historic ties to Russian president Vladimir Putin, there was major interest from around the world. Eventually it would be US investor Todd Boehly and investment fund Clearlake Capital that would win out in the race, the co-owners having gone on to spend big in the two transfer windows since their arrival, shelling out more than £550m on new players in an effort to have success on the pitch underpin their plan for a return on their investment further down the line.
While the ECHO has been told by US financial sources that there have yet to be any formal talks take place between FSG and any interested parties, there is understood to be institutional investment and sports-specific funds that see the Reds as a suitable vehicle for their plans, although it will likely be FSG's preference that any minority partner, if it is to be that, brings expertise to the table and aids their building of the business and search to release some of the latent value they believe exists within the Premier League.
The argument from some quarters has been that Liverpool's value won't increase much further and that it would be folly to take a partial stake. But the view from investors the ECHO has spoken to is that there is a changing broadcast picture to come, where direct to consumer content will place greater power in the clubs hands and with rights holders, while the technology to tap into the millions of global fans that clubs like Liverpool have around the world makes it a unique investment opportunity.
Those views have been backed up by the publication of the latest edition of the Global Sports Survey from international consultancy firm PwC, where 83 per cent of the 507 senior sports executives from 43 countries canvassed for their opinion revealed their expectation that institutional investment and investment from sovereign wealth funds will go on rising over the next three to five years.
Those surveyed expected team valuations to experience a 6.6 per cent growth rate over the next three to five years, the positivity underlined by the increase in sports mergers and acquisition activity seen globally and the recent valuations that have been achieved.
"The interesting finding is the perception that private equity and sovereign wealth investment is going to continue to grow. We certainly would support that as well from what we’re seeing," Clive Reeves, global sports leader at PwC, told City A.M.
"I think it’s a combination of more opportunities in the market, a growing openness of sports to partner with private equity firms, and having new owners looking to enter sports like football is only a good thing for current owners looking to make a sale.
"We’re seeing more consortiums and collaborations across different funds and firms. The valuations being reported for [Manchester United and Liverpool] are high, Chelsea was a record transaction for a football club globally and just look at the make-up of that ownership group in the end. It was very much consortium based.
"At the elite sport level I think that’s where we’re going to see the trend follow. It brings together different expertise which should be able to unlock more value, although it is a bit more complex in both the transaction and how it is structured going forward."
Of the responses from sports industry executives, areas where institutional investment can aid growth were telling.
The opportunity to seize new streaming distribution, betting and/or digital opportunities came out as the area where there was the most value to be unlocked moving forward, followed by better alignment across stakeholders, whereby getting a team of investors together with varying expertise could help achieve the growth objectives. It is those two things where FSG see future value in Liverpool.
"Sport is the biggest community in the world and represents an unrivalled opportunity for institutional investors," Luis Vicente, chairman of APEX Capital said in the report.
"In recent years we have witnessed a sea change in perception within the industry, particularly outside of the US, with sports properties warming to the benefits and value of institutional investment. Similarly for investors, the appetite for sports properties continues to grow. Investors understand that sport represents more than a financial opportunity, it represents a chance to buy into a culture, a brand and new demographics.
"These factors also have secondary benefits in terms of business synergies and access to new markets. From an industry perspective, I also feel it’s healthy to have new groups influencing the rules of the day, not just the sporting regulators."
Liverpool and FSG have already aligned themselves with one of the world's biggest athletes in basketball icon LeBron James. The billionaire Los Angeles Lakers star and entrepreneur owns one per cent of FSG, while FSG and partners RedBird Capital, along with Nike, took a stake in James and his business partner Maverick Carter's SpringHill Entertainment Company back in 2021. That synergy, Vicente believes, will be a driver of growth opportunity in the future, with James already collaborating with Liverpool and Nike on new merchandise and bringing the brand to a wider audience.
Vicente said: "Successful projects of the future will combine institutional investors with fans and athletes.
"Athletes in particular hold a unique advantage within the sports investment arena. Not only do they inherently have the mindset and tools to succeed in business, but they also are better placed to win in a digital world. Athletes today are digital natives who understand the value of direct community engagement through technology. The shift of athletes to business leaders and owners is ultimately a game changer for sports."
While a major offer well above valuation would undoubtedly tempt FSG and their partners, the thought process around making a decision on ownership steps will attempt to look into the trends for the future and assess whether there is greater value in remaining at the helm and bringing on board a new partner or partners who can help take them to the next level. Ultimately, however, competitive success will provide the foundation for any growth opportunity, and that is something that needs investing in very soon.
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