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American investors’ purchase of Chelsea football club puts Wall Street in a dead end

Last month, a group of American investors took control of the British soccer team Chelsea, and some Wall Street insiders still can’t figure out why.

Todd Boly — co-owner of the Los Angeles Dodgers, whose free-spending strategy over the past decade has been hailed as the MLB team’s renaissance — promised a similar tactic for Chelsea when he announced on May 30 that he and a consortium of investors had acquired the team for £2.50. billion pounds, or over $3.1 billion.

Boeli, however, also sought to draw a line between his approach to cash and that of Russian oligarch Roman Abramovich, who was reportedly losing £900,000 a day during his 19-year tenure, shelling out more than £2bn on team salary. and redefining a new era of lavish football spending.

In particular, sources close to the situation say that Boely and his main co-investor Clearlake Capital, a buyout fund based in Santa Monica, Calif., are reaching out to Liverpool, which happens to be owned by another American investor, billionaire John Henry. Fenway Sports Group is a role model.

Chelsea owner Todd Boly
Todd Boly, co-owner of the Los Angeles Dodgers whose free-spending strategy has been credited with resurrecting the MLB team, promised Chelsea a similar approach.
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Liverpool’s Ebitda is £200m – or earnings before interest, taxes, depreciation and amortization, a closely monitored financial figure – compared to Chelsea’s £50m, according to a source briefed on the teams’ finances. If Chelsea can match Liverpool’s Ebitda, the acquisition would look like a relatively good deal, according to people familiar with Boely and Clearlake.

In the 2021-2022 season, Chelsea were second in the Premier League in terms of wage bill, £355m. According to football website Marca, Liverpool finished in fourth place with £314m. Meanwhile, sources close to the new Chelsea owners note that the Dodgers hired 30 Boelis to study “data analytics” – a practice commonly used to find strong players at good prices, as shown in the movie “Moneyball”. , while there are currently four at Chelsea.

Abramovich’s profligacy paid off: Chelsea won five Premier League titles and two Champions League trophies as the best club team in the world.

Roman Abramovich
Roman Abramovich’s profligacy has paid off: Chelsea have won five Premier League titles and two Champions League trophies.
Popperphoto via Getty Images

Evidence of a tougher, numbers-based approach emerged last week when it was leaked to the press that Boeli was happy to let Romel Lukaku, The Belgian football star Chelsea signed a contract last summer for £97.5m.to return to the Italian football club Inter Milan.

However, insiders say it’s unclear if such a setup would be enough to achieve the incredible returns Clearlake and its investors are used to. The firm’s buyout funds in 2012 and 2015 generated a net internal rate of return of 41 percent and 33 percent per annum, respectively, as of June 30, 2021.

According to public records, this made the funds some of the best for those raised at the time, even when compared to veteran buyout heavyweights like the Blackstone Group or the Carlyle Group.

Clearlake and Boehly, who each contributed more than $1 billion in capital to the deal, jointly control budgets, including the payroll. Sources close to Clearlake insist the firm is less focused on cutting costs than boosting revenue, which they said was less than £500m recently compared to Manchester United’s estimated £700m. . The plan is to take advantage of naming rights and sponsorship opportunities, sources say.

Chelsea footballers celebrating
Chelsea lost £146m ($178m) in the year ending 30 June 2021 when stadiums were emptied due to the pandemic.
Anadolu Agency via Getty Images

However, bankers close to the deal note that profits face at least one major hurdle – a commitment to restore Chelsea’s 117-year-old Stamford Bridge stadium in London, at an estimated cost of over £1bn to increase its capacity. . Fans fear the result will be more luxury suites and higher ticket prices for fans as Boeli has struggled to allay concerns about the latter in recent weeks.

“You need to put £1bn into a new building and they will lose money,” the sports banker said. “I’m not a big fan of this deal.”

Chelsea lost £146m ($178m) in the year ending 30 June 2021 when stadiums were emptied due to the pandemic. It made a profit of £39.5 million ($48 million) last year, according to Football.london.

Whatever happens, Clearlake co-founders Behdad Egbali and José Feliciano will cash in on the Chelsea deal. This is because Clearlake charges its investors an investment management fee of 1.7% per year, and Clearlake partners invest no more than 2% of their fund, according to Clearlake’s November presentation at the Connecticut Treasury. Such fees are typical of the private equity industry, and are one of the reasons US sports leagues do not allow private equity firms to own majority stakes in teams.

Over five years, Clearlake partners will receive 8.5% of the money the firm’s fund invests in Chelsea as commissions, while risking only 2% of their own money in the fund that actually buys the team. Clearlake also receives a 20 per cent share of the fund’s profits, so he will earn more if Chelsea is a good investment.

“Clearlake’s assets under management and transaction volume continue to grow at a significant pace, raising concerns about the potential adverse impact on Clearlake’s investment discipline and the team’s ability to effectively leverage ever-larger pools of capital,” Connecticut-based pension advisor Hamilton Lane said. report, according to government records.

As a result, Lane recommended that the state invest in Clearlake. But some Chelsea fans are less excited.

“As a general rule, Americans don’t understand ‘football’ and I’m afraid that if there is no passion or desire for the club in ownership, then we are no longer a football club and become purely a business,” said Martin Pearce, Chelsea season ticket holder More 30 years

“Roman Abaramovich was very popular, not to mention political, and was clearly passionate about the team and the success he brought us,” Pierce added. “There are rumors that real fans will have to give way to “corporate fans”. As soon as this happens, the atmosphere and passion disappear.”

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