April 21, 2021

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Liverpool FC owner FSG seeks new teams and possible listing

4 min read

Fenway Sports Group, the owner of Liverpool football club and baseball’s Boston Red Sox, will seek to acquire more professional sports teams and potentially a future stock market listing after securing new investment that values the US group at $7.35bn.

Earlier this week, private investment group RedBird Capital and basketball star LeBron James acquired minority stakes in FSG, in a transaction that confirms its position as one of the most valuable ownership groups in global sport.

Speaking to the Financial Times, FSG chairman Tom Werner and RedBird founder Gerry Cardinale committed to using the new capital to buy teams in other leagues, such as North America’s National Basketball Association and National Hockey League, as well as elsewhere in European football.

“Fenway Sports Group was started two decades ago and I think we have a lot of knowledge and experience in creating and launching new businesses and in sports and entertainment and media,” said Werner. “We look at Gerry as being a critical partner in our interest in identifying and acquiring more assets.” 

The push for growth comes, however, after earlier talks with RedBird and its special purchase acquisition company, RedBall, about a potential reverse-merger fell apart. 

That would have listed FSG publicly and given the group’s owners, led by billionaire John W. Henry, a faster and potentially greater near-term financial reward following years of careful stewardship of the Red Sox and Liverpool, both of which have achieved great on-field success in recent years.

Asked if FSG could yet sell either club and seek a swifter payday, Werner said: “If someone comes into your house and offers you an insane price, you examine it. But our interest certainly is to retain and grow the properties that we have. I think that we see a lot of upside, not just in a financial sense. We have a commitment to our supporters.”

Werner’s answer underscores a broader problem for FSG, and indeed majority owners of other blue-chip sports franchises: the ability to find buyers flush enough to write a multi-billion-dollar cheque. 

In the US, top sports franchises regularly exchange hands for billions of dollars, such as baseball’s New York Mets, bought in October by hedge fund titan Steve Cohen for $2.4bn. 

But such purchase prices have yet to be achieved in European football. Roman Abramovich, the Russian-Israeli billionaire who owns Chelsea, last year demanded a price in excess of £2bn from those seeking to acquire his Premier League club. 

“How do you get to a £2bn plus valuation for [a club in] a league with total revenue of £5bn and total net operating profit before tax of £500m,” said Bob Ratcliffe, an executive at Ineos, the UK chemicals group that had examined purchasing Chelsea as part of a wider sports portfolio. “How does that ever reconcile itself?”

That problem is one that faces FSG with Liverpool, one of England’s most successful clubs, which it acquired for £300m in 2010. Since then, the team has won the Champions League, Europe’s top club competition, and last season won the Premier League, securing its first English league title in 30 years. FSG’s valuation suggests the football club alone is worth billions of dollars. 

“The business of sports is something that has not kept pace, in my view, with team valuations”, said Cardinale, a former Goldman Sachs executive who helped launch the regional sports network for baseball’s New York Yankees, before founding RedBird, a sport-focused private investment group. 

“These sports assets and leagues, they are mini businesses in today’s world, the way technology has transformed the way people want to receive and do receive content, and particularly live programming”, he added.

A banker advising buyers of sports assets said there are a number of factors leading investors to own multiple teams in different sports, including diversification and scale. 

“Owning multiple sports franchises within the same market gives the team owner more leverage over media partners when negotiating new media rights contracts,” said the banker, who asked not to be named as they were not authorised to speak to the press. “If it’s a team that plays during the summer and a team that plays during the winter, then you also have year-round content, which is valuable if you have your own network.” 

“If the two teams share the same arena, then there can certainly be benefits from an operational perspective of selling tickets and suites across both teams. Finally, owning multiple franchises will give the company much greater scale and can mitigate swings from season to season, which can matter more for smaller market teams given the lower revenue base,” they added. 

In the meantime, private capital has been pursuing minority positions in big leagues and teams, including Italy’s Serie A and the NBA’s San Antonio Spurs. Both Major League Baseball and the NBA have recently expanded bylaws to allow such institutional investment.

As a result, and with the pandemic continuing, Cardinale said a private investment in FSG made the most sense until markets “normalised”. “Down the road, we might think at that point we can be a leader in sports and introduce the public construct and the kind of capital that comes with that”, he said.

Werner said that ultimately FSG will adhere to the same principles that have guided their stewardship of the Red Sox and Liverpool thus far.

“The reason we’ve grown is that we focused on building a winning team on and off, whether you call it ‘the diamond’ or ‘the pitch’”, he said. “The most important thing for us is to try to be best in class.”

2021-04-03 06:00:55

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