Sport has become an investment asset class

Sport is becoming an investment asset class for sovereign funds, high net worth individuals and family offices, with several examples in the Gulf region.

Owning a football club used to be seen as something of a hobby, with the club as a trophy asset or a vanity project. Owners were often passionate about the sport, but the venture was seen as more of an expensive leisure activity than an investment.

In the past few years, that has changed. The increasing riches of the most high-profile leagues, the globalization of the supporters’ base and the increasing reach of broadcasters, have meant that an astute purchase of a club and management of the asset has become appealing to high net-worth individuals, family offices and sovereign funds. While the narrow measure of the profit-and-loss account may still be in negative territory over shorter time frames, wealthy owners have broader, long-term goals of building brands, networks and influence. Selling merchandise, and building a retail chain, feature as part of the club’s revenue streams. Ownership or sponsorship of an iconic stadium can also be attractive.

Investors from the Gulf region have become some of the most significant, especially in European football clubs. Key to the purchase is to identify an under-achieving club, in a wealthy league, with a large and passionate fan base. The club Newcastle United fell into this category and was the subject of a ￡305 million ($375 million) by the Saudi Public Investment Fund in October 2021. Within a year of the new ownership, the club went from the brink of relegation to competing for a place in the European Champions League.

The clubs Manchester City and Chelsea were under-achieving prior to their takeovers and significant investments in the early 2000s, since when they have won many major trophies. Manchester City have won four of the past five Premier League titles, but in 1999 the club was in the third tier of English football, nine years before completion of a takeover by the Abu Dhabi United Group.

Qatari investors have been significantly involved in sports ownership, most notably Paris St Germain, purchased by Qatar Sports Investment in 2011. Although the English Premier League is the wealthiest in Europe, Paris St Germain have three of the most outstanding players in the world: Lionel Messi, Kylian Mbappe and the Brazilian star Neymar. The club was valued at around €4 billion in late 2022, compared with a purchase price of around €70 million 11 years earlier. ?In that period the owner invested significant sums in the club, including €1.3 billion on player transfers.

Also in late 2022, QSI signalled an interest in selling minority stakes in PSG, to help generate revenue for player transfers and other ways to develop the club. This has become increasingly common practice at many clubs, as a low-risk way of injecting capital and building the club without losing ownership control.

Multi-club ownership has become common across Europe. UEFA rules prohibit an owner having a controlling interest in clubs that compete in European competitions. This month bids were confirmed for a takeover of Manchester United from the American owners club, the Glazers. By the ‘soft’ deadline of 17 February, Sheikh Jassim Bin Hamad Bin Jassim Bin Jaber al-Thani (via Sheikh Jassim’s Nine Two Foundation) and British billionaire Jim Ratcliffe, owner of Ineos, had confirmed bids. A day later it emerged that the US hedge fund Elliott Investment Management had also expressed interest, though potentially for financing a bid, rather than a takeover. More bids may emerge.

Paris St Germain has Qatari ownership, but the club was bought by Qatar Sports Investments, a separate organisation, so a Manchester United takeover could potentially be approved. The purchase price could be in the region of ￡5-6 billion. The stock market valuation of the club is just under $4.5 billion.

There are moves for greater regulation of football clubs. The wealth of the English Premier League’s leading clubs has grown considerably in recent years, relative both to the lower divisions and to other leagues in Europe, and there are concerns both over fairness of competition and transparency over finances. The UK government has been preparing proposals for independent regulation. Meanwhile Manchester City have been charged by the Premier League over 100 alleged breaches of its financial rules, charges that the club are strongly resisting.

Some investors in sport own different parts of the value chain. Broadcasting rights for some may be available for ownership. The Qatar-based media group beIN has several TV rights for sports coverage, and is a sponsor of Paris St Germain. Qatar Airways is a sponsor of a range of teams and events in different sports, including cycling, tennis, golf and basketball as well as football.

Global investment in sports is a priority for Qatar, for financial returns, to encourage sports participation following the successful hosting of the 2022 FIFA World Cup, and to boost the nation’s soft power around the world.

The world of sport, rather like real estate, has moved from being nationally based to being truly global, in the past couple of decades. The investment levels required are considerable but so are the potential returns with careful identification and nurturing of the asset. Club ownership is no longer a hobby.