So, you want to buy a football club?

Had to take the opportunity to repost David Roberts excellent insight into the acquisition and investment into football clubs.

Having been fortunate to have undertaken most types of role in professional football from touchline to Boardroom, there is not much I have failed to experience in this industry.

Why do people buy football clubs? This is a complex and fascinating question and one that I wrestle with constantly in my current business and like David, I always ask my clients Why? This was never more appropriate than when I was a member of the elite group of Premier League Shareholders and Vice Chair of Southampton Football Club. I began that journey when Markus Liebherr, a Swiss businessman decided to acquire Saints when the club was in administration in 2009. Like all would be purchasers Markus had a team of Bankers, Lawyers and Financiers advising him on the purchase and conducting the Due Diligence on the business. In League 1 with a 10-point deduction it was a 'no brainer' investment. Southampton was a founder member of the PL and had freehold assets and the potential to get back into the Premier League. The issue would be, did it actually have the 'capacity' to get into the Premier League and what would be the required strategy to achieve this? I was hired as a consultant to evaluate the 'football' potential and make the necessary recommendations to achieve the new owners' aspirations. I won't go into detail here, but I was eventually hired on a full-time basis to implement the strategy and manage it as Executive Director of Football.

Why is this relevant to Davids Post? Well, I thought every acquiring investor acted this way; 'Football Due Diligence', but only when I began working my way around the Boardrooms of clubs, attending the EFL shareholders and latterly the Premier League shareholders meetings did I realise this was rare. It is still rare. I have worked with enough owners as a coach, manager, executive, Sporting Director, Director of Football and Board member and had my brains picked by others to be clear on three things about the motivation related to buying a football club:

1. There has never been and will never be a 'one size - fits all'. Ownership motivations have similarities, but they are all unique.

2. Nobody 'wants' to lose money, they all want to profit from owning a football club but not all in the same way (David points out some of the nuances around this)

3. There is always an element of 'ego' some want to raise their own profile, but many are simply intrigued by the industry and like to think they can bring something new, different or unique to the table. Some want a legacy.

Whatever the motivation, no aspiration can be achieved without a strategy but before you can create and implement a strategy you have to understand the ' capacity' of the club to achieve your football ambitions. How often do we hear new owners make bold statements about future objectives without considering whether a club is capable of reaching them.

David starts with a look at the assets that you acquire when buying a club, there are essentially four assets:

1. The Stadium
2. The Training Ground
3. The Club as an entity (The Company)
4. The Player registrations

You can make money out of the stadium as an event venue, staging the matches and exploiting the accompanying hospitality and merchandise. You may be able to host other events if the stadium is appropriate, outside of matchday. These revenues tend to be ploughed back into the operational side of the club and its cashflow. The long-term investment in Tottenham Hotspur stadium is an example of a multi-use arena that should generate strong revenues over time but will also of course have to service the debt used to build it.

The training ground may be a freehold asset but in most cases is a cost item and does not generate revenue although there have been some innovative activities where facilities allow. Manchester City Campus being a prime example.

The club, as an entity is a saleable asset and can create revenue as a brand and attract sponsorship and marketing opportunities in its own right. The uniqueness of the brand coupled with on field success will dictate what this revenue looks like. Clubs like Manchester United can still make money based on the brand despite a downturn in on field success but in these circumstances, there is a need to protect the brand by quickly addressing the on-field problems and if handled badly this can be costly and counterproductive.

As David points out the Playing Squad or more accurately the player registrations are the most liquid of assets and creative and resourceful player recruitment and succession planning can quickly realise significant profit or as he says geta club out of trouble.

David also mentions ' The dark arts' of ownership

"The dark art of owning a football club comes from the player trading side of the business and when clubs are struggling for cash, they can generate short term cash hits via selling player registrations during transfer windows to generate up front and tail commissions / payments." David Roberts.

But there is more to the 'Dark Arts' and when he mentions Charlton Athletic and Roland Dutchalet it highlights the need to know exactly what you are buying when acquiring a club. It doesn't always mean you get all four assets as described above. It won't please Charlton fans that the club does not own the freehold assets, and the club (as an entity) is renting them. It

should not be a surprise that many clubs are in this situation and would be owners need to factor this into the business plan. When fans get frustrated when a failing club seems to keep reaching a false dawn and takeovers fall apart the 'what' in terms of what you are buying is often the complex factor (Derby County). If an investor opts to buy the club as an entity (i.e., a piece of paper) the single physical asset being the player registrations they should have a very robust business plan that balances outgoings, including rent along with wages, operational costs, debt support and normal business costs against income. In this model of ownership that income is reliant on success on the pitch (that may include prize money), commercial income (matchday, sponsorship and merchandising) and player trading. This income will also need to service any debt or borrowing. Without freehold assets such as a Stadium or Training Ground borrowing is more difficult and usually serviced by guarantees on future player sales or advances (as David says) on season ticket sales.

What this means for achieving a new owners' aspirations is; where does the money for investment in squad improvements come from? Is there enough cash and capital available for the club / team to grow? This related to ' capacity' that I mentioned earlier. An owner, new or incumbent should clearly understand ' capacity' and set their goals and objectives accordingly but so many have failed to understand this, and this is where ' Football Due Diligence' is critical. In my business I attempt to help potential owners answer the question:

Is this Club 'capable', now or in the future of achieving my aspirations. There are several key elements to this:

1. What level is the club playing in and are they under or overachieving?
2. Does the Football infrastructure meet the needs of my ambitions, or will I have to invest here?
3. Does the playing squad have the necessary strengths and quality technically, positionally, in depth, age and experience to compete now and in the future or will I have to invest here?
4. Is the playing squad supported well enough on and off the pitch? Are the coaching staff good enough? Are the support staff qualified and experienced enough and are there people in the right roles and enough of them?
5. Is the football side of the club set up well structurally? what does football leadership look like?
6. Is there a football strategy? what is it? is it robust and fit for purpose?
7. Is there a development pathway for players? what is the balance between player development and Player recruitment? is it planned?
8. What does recruitment look like? Is it the best model?

These questions must be answered and the biggest question of all is for an owner to ask themself. Am I the best person to answer those questions and make those judgements? If not, who is?

Here is an example of where it can all go wrong.

This was a small club punching above its weight in a league where they are hitting their ceiling. Attendances are maxing out; they are comfortably mid table and pushing the teams immediately above them whilst fending off the teams below. The attendances reflect the density of the surrounding population, and it is unlikely that there is potential for significant growth in the fanbase. They are achieving results on the pitch with a conservative playing budget that suits their means and are doing so with young players in the main. It looks like a perfect scenario for investment.

I have witnessed an example like this, where new owners came in and dreamed of going to the next level and promising this to the fans and the community. They increased the capacity to get more fans in and borrowed to invest in this. They also borrowed (based on future success and revenue) to ' tweak the squad a bit' increasing the wage bill and buying more experienced players. What compounded issues was that new player recruitment was handled by the owners and heavily agent influenced incurring inflated salaries and agents' fees. The club infrastructure had been built on young player recruitment, free transfers of youth players from bigger clubs and the development of home-grown players. The scouting and recruitment department was experienced and knowledgeable in this field of operations but not in the world of player trading, so the owners took that on. In essence they did not have the capacity to operate in the player trading model. Performance suffered, the new seats were empty and within two years the club were relegated twice. Unable to service the debt the owners entered into a CVA and put the club up for sale.

The decision to try too quickly to push an overachieving club further was ego led. The objective should probably have been sustainability. Consolidate and take small steps, protecting the progress already made and make enhancements based on the true capacity of the club. Bournemouth is a prime example of this approach done well. They may never play at home in front of 40,000. fans but may be in the Premier League for many years. Let's see what new ownership does here.

Finally, let's take a look at David's words one more time:

"Having worked for countless bidders over the years, the first question I ask a new bidder is, “Why are you doing this?”

Often, it’s ego. Sometimes it’s for business reasons or it’s a property play to buy the training ground, build some flats and move the training ground out of town. Sometimes it’s for fun (i.e.: Wrexham), sometimes it’s because they have a system or player formula approach like on Moneyball (i.e.: Brentford) and sometimes it’s because they are bored, or they see it as a way to improve their local prestige or to get them a footprint into a new local market.

The worst reason to buy a club is because you are a fan. Those deals tend to go badly.

The worst way to buy a club is via a consortium, as they are traditionally hard to fund and difficult to close.

I have had the same experiences and listened to the same rationales and quite honestly it doesn't matter what the motivation is, what matters is how they will go about achieving what they want from the purchase. Whilst my clients Rob and Ryan are having immense fun owning Wrexham AFC, there is a deeper purpose which centres on legacy. We are building a community asset which will stretch beyond the city and encompass all of the surrounding region of North Wales. To achieve this the club must grow, it must be sustainable with or without Hollywood and it has the ability to do this because the foundations are being built on sound research, strategic planning and a strong understanding of the football capacity of this great club. I thank them both for allowing me to get involved and trusting me and the great team they have pulled together.

I have clients who are taking small steps, wanting to take minority investments to learn about this industry, assess the landscape and begin to understand the 'game' and I have clients with the potential to invest significantly. With all of them my role is to help them answer the questions that the M&A experts can't. I do not replace the M&A teams but supplement their great work by adding an element of due diligence that prevent owners making the same mistakes as many of their predecessors.

You don't have to be mad to buy a football club, you do not have to accept that you will lose money, you can be a fan, a consortium or a wealthy individual. You can make money and if you learn how to lose it, you will understand how to prevent that.

Thank you, David Roberts, for inspiring this article, I hope you don't mind.

Les Reed - Reed Consulting Sports Advisory