Will the private equity squeeze hit football?

On a trip to Stamford Bridge this week, I saw first hand the potential in front of US investors Clearlake Capital and Todd Boehly. Fans of Chelsea FC, the English football club they bought for £2.5bn last year, might hope I mean silverware. And sure, that might yet happen.

But I’m talking about real estate. The 40,000-capacity stadium feels small and tired compared to other top clubs. Some might say it’s got character, but sentiment doesn’t produce revenue.

Tottenham Hotspur’s swanky new stadium has transformed the club’s earnings potential, and Chelsea would love to give rich fans similar opportunities to part with their cash.

With the right facilities, corporate hospitality clients would surely be queueing up to spend a small fortune on a box at Stamford Bridge for a season to entertain wealthy VIPs. The question is whether Chelsea’s owners can find a way to navigate their straitjacket of a plot, nestled between train tracks in one of the world’s most expensive real estate markets.

This week, we look at the changing winds in private equity and what it means for sport, and how Saudi Arabia snagged the 2034 World Cup. Do read on — Samuel Agini, sports business reporter

Fifa lands the big fish for 2034: Saudi Arabia

Ahead of the 2022 World Cup in Qatar, many in football thought the tournament would be a blip. The winter event would prove a one-off, the thinking went, the last lingering artefact of Fifa’s ancien régime.

With hindsight, that feels rather fanciful. Instead, images of Fifa president Gianni Infantino wedged between Qatar’s emir Tamim bin Hamad Al Thani and Saudi Arabia’s Crown Prince Mohammed bin Salman at the opening ceremony heralded football’s new era.

Less than 12 months on from that moment, Saudi Arabia this week effectively secured hosting rights to the 2034 World Cup, following a blistering campaign to grow its footprint in the most loved sport on the planet.

You don’t have to look hard to find signs of Saudi Arabia’s sudden obsession with global football. Riyadh Season, a series of big events in the Saudi capital, is now the front of shirt sponsor of AS Roma. Riyadh Air, the yet-to-fly new carrier, adorns Atlético Madrid’s red and white jersey. Last month alone, Visit Saudi — the country’s tourism board — agreed new deals with La Liga, and both the Asian Football Confederation and CAF, its African counterpart.

A report out this week from Play the Game, an initiative run out of the Danish Institute for Sports Studies that seeks to promote ethics and transparency, showed the huge reach Saudi Arabian sponsors now have across sport. Entities from the country have more than 300 commercial agreements in place in the industry, 84 of them in football.

For Infantino and Fifa, Saudi Arabia’s successful bid solves several problems. The expanded World Cup — it goes from 32 to 48 teams in 2026 — has greatly raised the costs of hosting, and so shrunk the pool of potential venues. Saudi Arabia’s deep pockets and huge infrastructure plans make it one of the few countries with a realistic claim to solo hosting.

Those deep pockets also come in handy when looking at Fifa’s revenue projections. Qatari sponsorship deals helped push revenue from the most recent four-year World Cup period to $7.5bn, up from $6.4bn brought in from the tournament in Russia in 2018. The next cycle is expected to yield at least $10bn. The prospect of attracting more Saudi sponsorship — not just of the 2034 tournament but potentially all Fifa events for the next 11 years — increases the chances of beating expectations in future.

Perhaps the key lesson from the Qatar experience is that all the bad press about human rights, worker safety and climate change do get drowned out once the football starts. At least that appears to be the calculation for 2034.

Instead the big question for Fifa, which already has more than $4bn sitting in its reserves, is what to do with all that cash.

Will football’s private equity backers stick it out?

The era of cheap money is at an end, and the painful consequences are ricocheting across private equity. That’s the takeaway from a masterful deep dive into the industry this week by the FT’s finance team.

Sport has readily taken capital from private investment firms, a trend accelerated by coronavirus-battered balance sheets at leagues, clubs and competition organisers. Now the risk is that a vital source of capital steps back in order to deal with trouble elsewhere.

Banks can be wary of lending to football clubs or often don’t provide all the funding required. It’s not just football’s troubled business model that puts traditional lenders off. There’s also the question of whether it’s worth extending credit given the possibility of fan protests when the bank cracks down on a club that falls behind on payments. Good luck seizing a stadium when a loan goes unpaid without causing a riot!

So when football needed money in the depth of the pandemic, in stepped private equity. European firm CVC Capital Partners owns a slice of La Liga’s media and commercial rights, a bet on the Spanish football league. But it also has exposure to French football through a €1.5bn investment in a commercial subsidiary created in 2022. The French league is now struggling to renew its domestic media rights deals at an attractive valuation.

That’s also a potential problem for Ares Management, the alternative lender that backed US businessman John Textor when he bought French football club Olympique Lyonnais last year.

Despite ambitions of returning Lyon to the Champions League, the club is rooted to the bottom of Ligue 1 and yet to win a game this season. Coupled with the challenging media rights auction, Textor’s Eagle Football would suffer a huge hit to revenues if Lyon gets relegated from the French top flight.

There are signs that Textor is also feeling the pressure in Brazil. Make sure you scroll to the end of Scoreboard to watch the Eagle Football chief rage about “fucking corruption” after Botafogo, his Brazilian side, threw away a three-goal lead to lose a crucial match in the title race.

And don’t forget Chelsea FC. Private equity firm Clearlake Capital and financier Todd Boehly led the £2.5bn acquisition of the Premier League club last year. It’s still the record price paid for a football club anywhere but, so far, the investors have little to show for it.

Chelsea have spent more than €1bn on signing players under US ownership, according to Transfermarkt, but the team enters the weekend stuck in the lower half of the English top flight. The club made a pre-tax loss of £121mn in 2021-22.

Ares has jumped in to provide around £500mn to Chelsea, via a payment-in-kind senior subordinated loan. This means the interest can be added to the total borrowings instead of being paid off immediately, hinting at a desire to preserve cash.

While CVC’s media rights deals and the Chelsea buyout are seen as long-term projects, the question is whether trouble in private equity slows down future deals in sport. Can football do without its new sources of capital?

Highlights

• Former Spanish football boss Luis Rubiales has been banned from the sport for three years as a result of his conduct at the women’s World Cup final in August, when he forcibly kissed Spain player Jenni Hermoso. The decision is subject to possible appeal. Rubiales has denied the accusations.

• CVC Capital Partners has postponed its initial public offering until next year, amid earnings woes for listed private equity rivals, wider economic concerns and conflict in the Middle East. The European firm is a high-profile investor in sport, with stakes spanning cricket, football, rugby, tennis and volleyball.

• The US Justice Department is stepping up its scrutiny of sports, with antitrust enforcers looking far beyond the tactics used by the PGA Tour to defend its position against Saudi-backed rival LIV Golf.

• South Africa’s triumphant Rugby World Cup winners received a hero’s welcome on their return from France. But South Africa president Cyril Ramaphosa’s declaration of an extra public holiday has drawn criticism from the opposition Economic Freedom Fighters, amid rolling blackouts, a stuttering economy and a national crisis of confidence, the FT’s Joseph Cotterill reports.

Final Whistle

Botafogo remain top of the Brazilian football league table, for now, but had their advantage over second placed Palmeiras cut from six points to three this week after a ludicrous match in Rio de Janeiro. The club’s US owner made his feelings clear about a red card decision, which he believes was key in his side’s dramatic second half collapse. His expletive-laden rant will no doubt be of interest to Brazil’s footballing authorities.