With Manchester City, Investors Look Beyond Tech And On The Turf

Valuations are high.

Not just in the stock market.

Pretty much everywhere you might look.  And as investors look across various asset classes, might the gaze be sweeping across eCommerce, FinTechs, maybe even bricks and mortar (sorry, WeWork) … to kicks and scorers?

In an age where private equity has seen the trials and tribulations of investing in companies that promise to disrupt the status quo and where red ink flows — there seems to be promise in cleats, balls and jerseys.

As reported earlier this week, the parent company of the soccer club Manchester City, City Football Group, struck a deal where US private equity firm Silver Lake will take a roughly 10 percent stake.

The 10 percent stake, with a purchase price of 389 million pounds, puts the value of City Football Group at the equivalent of $4.8 billion.  The company owns seven football clubs across the globe, spanning China, Japan, Australia, the United States and the UK.

The interesting wrinkle here is that Silver Lake might be among the marquee names in technology investments — and with the latest deal has said that the investment would “help drive the next phase of CFG’s growth in the fast-growing premium sports and entertainment content market.”

The crossing of the Rubicon, so to speak, beyond tech and onto turf, has been seen before. This year, Joe Tsai, the co-founder of eCommerce juggernaut Alibaba, bought a stake in the Brooklyn Nets basketball team, which valued the outfit at $2.4 billion.

Soccer has been good to City Football Group. Manchester City has had 11 straight years of revenue growth, and, according to BBC.com, logged more than 535 million pounds in revenue last year and netted 10 million pounds. Manchester City should not be confused with Manchester United, a rival team.  Manchester City also has an annual contract with Puma, which is worth as much as 45 million pounds annually. Equity owners, such as Silver Lake, would ostensibly get a piece of those cash streams.

Silver Lake joins other investors who are all in on soccer’s potential as a global phenomenon. The majority owner of City Football Group is a member of Adu Dhabi’s royal family, according to The Wall Street Journal, and who owns 77 percent of the company. And separately, news came Wednesday that Meg Whitman, once of Silicon Valley, has bought a minority stake in FC Cincinnati, a move that values the team at $500 million.

The move into soccer, for Silver Lake, complements a previous investment Silver Lake made in the mixed martial arts company UFC.  And, according to the Journal,  CVC Capital Partners bought an equity stake in the management of the United Kingdom’s top rugby championship.

As quoted on the BBC site, Will Walker-Arnott, senior investment manager at Charles Stanley, told BBC Radio Four’s Today program that: “Silver Lake is a US private equity firm which is better known for investing in technology stocks such as Alibaba and Skype. But more recently, it has been getting into sports rights and got invested in the Ultimate Fighting Championship.”

Manchester City, of course, has media rights. So do other teams.

As Fox Business noted earlier in the week:

“Team valuations are reaching record heights across all four major sports, driven by multi-billion dollar media rights deals, massive state-of-the-art stadiums and the ever-growing appeal of professional sports as live content. A 10 percent stake in a top franchise can cost tens or hundreds of millions of dollars — a steep price for an individual writing a check, but reasonable for an investment vehicle with multiple backers.”

The National Football League (NFL) has rules that state that only individuals can hold ownership stakes. All other leagues are seemingly fair game. Interesting, while soccer may be viewed as being more valuable — global phenom that it is — the NFL has a number of games hosted in London. There even has been speculation, as reported in Newsweek, that there could, at some point, be a National Hockey League (NHL) franchise in London.  Thus, might investors eye the NFL a bit more closely if geographic reach broadens?

The recent investments spotlight a trend that will continue — and to change a quote by hockey great Wayne Gretzky: Wall Street skates to where the money will be, not where it’s been.