A group of US investors took control of the British soccer team Chelsea FC last month, and some Wall Street pundits are still struggling to understand why.
Los Angeles Dodgers co-owner Todd Boehly, whose free-spending strategy over the past decade has been credited with reviving the MLB team, promised a similar tactic for Chelsea when he announced 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, has also tried 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-year ownership stint, shelling out more than £2bn on team payroll. and redefining a new era of lavish spending in football.
Specifically, sources close to the situation say Boehly and his lead joint venture partner Clearlake Capital, a Santa Monica, California-based buyout fund, are eyeing Liverpool, which happens to be owned by another US-based investor. ., billionaire John Henry’s. Fenway Sports Group: As an example they would like to follow.
Liverpool generates £200m in Ebitda, or earnings before interest, taxes, depreciation and amortization, a closely watched financial metric, compared to £50m for Chelsea, according to a source briefed on the teams’ finances. If Chelsea can match Liverpool’s Ebitda, the acquisition will look like a relative bargain, according to sources familiar with Boehly and Clearlake’s thinking.
In the 2021-2022 season, Chelsea had the second-highest payroll in the Premier League at £355 million. Liverpool was fourth with £314m, according to soccer site Marca. Meanwhile, sources close to Chelsea’s new owners say Boehly’s Dodgers have 30 people hired to study “data analytics,” a practice commonly used to seek out strong players at good prices, as depicted in the movie “Moneyball.” , while Chelsea currently have four.
Abramovich’s lavish spending produced results, with Chelsea winning five Premier League titles and two Champions League trophies as the best club team in the world.
Evidence of a tougher, numbers-driven approach emerged last week, when it was leaked to the press that Boehly was happy to allow Romelu Lukaku, a Belgian soccer star Chelsea had signed last summer for £97.5m, back. to Italian. Inter Milan football club.
However, experts say it’s not clear that such adjustments will be enough to deliver the huge returns Clearlake and its investors have become accustomed to. The company’s 2012 and 2015 buyout funds produced net internal rates of return of 41% and 33% per year, respectively, as of June 30, 2021.
That made the funds among the best performers for those raised at the time, even compared to veteran takeover heavyweights like Blackstone Group or Carlyle Group, according to public records.
Clearlake and Boehly, each of whom has put up more than $1 billion in stock in the deal, share governance control over budgets, including payroll. Sources close to Clearlake insist the company is less focused on cutting costs than increasing revenue, which they recently said was less than £500m, compared to Manchester United’s estimated £700m in revenue. The plan is to take advantage of naming rights and endorsement opportunities, the sources said.
However, bankers close to the deal say the gains face at least one big hurdle: the promise to rebuild Chelsea’s 117-year-old Stamford Bridge stadium in London at an estimated cost of more than £1bn to increase its capacity. of seats. Fans worry that the result will be more luxury suites and higher ticket prices for fans, with Boehly struggling to assuage concerns about the latter in recent weeks.
“You need to invest £1bn in a new building and they lose money,” said a sports banker. “I’m not a big fan of this deal.”
Chelsea lost £146 million ($178 million) for the year ending June 30, 2021 as stadiums emptied amid the pandemic. He made a profit of £39.5 million ($48 million) the previous year, according to Football.london.
Whatever happens, Clearlake co-founders Behdad Eghbali and José Feliciano will make money from the Chelsea deal. That’s because Clearlake charges its investors a 1.7% annual management fee on investments, and Clearlake partners deposit money at most equal to 2% of their fund, according to a November filing by Clearlake to the Treasury. from Conn. These kinds of fees are typical of the private equity industry, and part of the reason US sports leagues don’t allow private equity firms to own controlling stakes in teams.
Over five years, Clearlake partners will earn 8.5% of the money the firm’s fund invested in Chelsea in fees, while only risking 2% of their own money in the fund that actually buys the team. Clearlake also takes a 20 per cent cut of the fund’s earnings, so it stands to gain more if Chelsea is a good investment.
“Clearlake’s assets under management and transaction volume have continued to grow at a substantial rate, raising concerns about potential adverse impacts on Clearlake’s investment discipline and the team’s ability to effectively deploy pools of capital each time. largest,” Connecticut pension adviser Hamilton Lane said in a report, according to state records.
Lane ended up recommending that the state invest in Clearlake. But some Chelsea fans are less thrilled.
“In general, Americans don’t understand ‘soccer’ and my fear is that if there is no passion or desire for the club among the owners, then we are no longer a soccer club and we become just a business,” Martin Pearce said. , a Chelsea Season Ticket Holder for over 30 years
“Roman Abaramovich was very popular, aside from politics, and he was clearly passionate about the team and the success it brought us,” Pearce added. “Rumors say that real fans will have to give way to ‘corporate fans.’ As soon as this happens, the atmosphere and the passion are gone.”