The purchase of Chelsea FC football club by American investors intrigues Wall Street
A coterie of American investors took control of British football team Chelsea FC last month – and some Wall Street insiders are still struggling to understand why.
Todd Boehly – co-owner of the Los Angeles Dodgers whose free spending strategy over the past decade has been credited with reviving the MLB team – promised a similar strategy for Chelsea when he announced on May 30 that he and a consortium of investors had bought the team for £2.5 billion, or more than $3.1 billion.
Boehly, however, also sought to draw a line between his cash-intensive approach and that of Russian oligarch Roman Abramovich, who reportedly lost £900,000 a day during his 19 years of ownership, shelling out more than 2 billion on the team’s wage bill. and redefining a new era of lavish spending in football.
Specifically, sources close to the situation say Boehly and its lead co-investor partner Clearlake Capital, a Santa Monica, Calif.-based buyout fund, are eyeing Liverpool – which is owned by fellow US investor, billionaire John Henry’s Fenway Sports Group – as an example they would like to follow.
Liverpool generate £200m from Ebitda – or Earnings Before Interest, Tax, Depreciation and Amortization, a closely watched financial metric – compared to Chelsea’s £50m, according to a source familiar with team finances. If Chelsea can match Liverpool’s Ebitda, the acquisition will look like a relative bargain, according to people familiar with Boehly and Clearlake’s thinking.
In the 2021-22 season, Chelsea had the second-highest wage bill in the Premier League at £355million. Liverpool came fourth with £314m, according to football site Marca. Meanwhile, sources close to Chelsea’s new owners note that Boehly’s Dodgers have hired 30 people to study ‘data analytics’ – a practice commonly used to find strong players at good prices, as seen on movie “Moneyball” – while Chelsea currently have four.
Abramovich‘s overspending produced results, with Chelsea winning five Premier League titles and two Champions League trophies as the best club team in Europe.
Evidence of a more bewildered, numbers-driven approach emerged last week, when it was leaked to the press that Boehly was happy to let Romelu Lukaku, a Belgian soccer star whom Chelsea signed last summer for 97.5 million pounds, return to Italian football club Inter Milan.
Still, insiders say it’s unclear that such tweaks will be enough to achieve the outsized returns that Clearlake and its investors have grown accustomed to. The company’s 2012 and 2015 buyout funds produced net internal rates of return of 41% and 33% per annum, respectively as of June 30, 2021.
This made some of the best performing funds for those raised in that era, even compared to veteran takeover heavyweights like the Blackstone Group or the Carlyle Group, according to public records.
Clearlake and Boehly, who each invested more than $1 billion in equity in the deal, share governance control over budgets, including payroll. Sources close to Clearlake insist the company is less focused on cutting costs and more on growing revenue, which they say was recently under £500m, down from £700m revenue estimated by Manchester United. The plan is to pursue naming rights and sponsorship opportunities, the sources said.
Nonetheless, bankers close to the deal note that profits face at least one massive hurdle – a commitment to rebuild Chelsea’s 117-year-old Stamford Bridge stadium in London at an estimated cost of more than a year. billion pounds sterling, in order to increase its reception capacity. Fans fear the result will be more luxury suites and higher ticket prices for fans – with Boehly working to assuage concerns over the latter in recent weeks.
“You have to invest £1billion in a new building and they lose money,” said a sports banker. “I’m not a big fan of this case.”
Chelsea lost £146m ($178m) for the year ending June 30, 2021 when stadiums were emptied amid the pandemic. He made a profit of £39.5m ($48m) the previous year, according to Football.london.
Whatever happens, Clearlake co-founders Behdad Eghbali and Jose Feliciano will make money from the Chelsea deal. Indeed, Clearlake charges its investors a 1.7% annual management fee on investments, and Clearlake’s partners have invested no more than 2% of its fund, according to a November presentation by Clearlake to the Connecticut Treasury. These types of fees are typical of the private equity industry and are part of the reason why US sports leagues do not allow private equity firms to hold majority stakes in teams.
Over five years, Clearlake’s partners will earn 8.5% of the money the company’s fund has invested in Chelsea in fees while risking just 2% of their own money in the fund that actually buys the team. Clearlake also gets a 20% cut in fund profits and will therefore earn more if Chelsea are a good investment.
“Clearlake’s assets under management and trading volume both continued to grow at a substantial rate, raising concerns about potential negative effects on Clearlake’s investment discipline and the team’s ability to deploy larger and larger pools of capital efficiently,” said Connecticut retirement adviser Hamilton Lane. a report, according to state records.
Lane ended up recommending that the state invest in Clearlake. But some Chelsea fans are less enthusiastic.
“In general, Americans don’t get ‘football’ and my fear is that if there is no passion or desire for the club within the ownership, we are no longer a football club and we are becoming purely a business,” said Martin Pearce, a Chelsea Subscriber for over 30 years.
“Roman Abaramovich was hugely popular, politics aside, and was clearly passionate about the team and the success it brought us,” Pearce added. “Rumors say that the real fans will have to give way to the ‘corporate fans’. As soon as that happens, the atmosphere and the passion disappears.