Sterling is on a downward spiral… and we’re not talking about the Chelsea forward’s lackluster performance for England during the international break. The value of the British pound has dropped significantly in recent days, briefly reaching an all-time low against the US dollar before rallying off its lows. The effects of chancellor Kwasi Kwarteng’s mini-budget, which announced the new government’s economic policy changes, are being felt throughout the economy. In the case of the country’s national sport, recent events may simply be accelerating a trend that has been in place for some time. The sporting gold rush that is American money pouring into English football may have only just begun.
Understanding what this means for football requires at least a basic understanding of what Kwarteng’s “fiscal event” on Friday caused. The financial markets reacted immediately. The pound fell after the chancellor announced tax cuts at a time of rising inflation. In response, the Bank of England attempted to calm the market’s immediate panic by committing to a £65 billion package to buy back government bonds, though this left the pound hovering at just over a dollar.Furthermore, the bank appears destined to raise interest rates to mitigate the impact of Kwarteng’s tax cuts for top earners, a move that would have a significant impact on the nation’s homeowners while also putting the central bank at odds with the government. In technical terms, everything is a colossal shamble.
The Premier League will not be harmed by economic uncertainty.
The UK economy may be in crisis, but as the pound falls, opportunities for foreign investment emerge, including in that great bastion of British soft power, the Premier League. Joe Ravitch, the banker who assisted Roman Abramovich in his breakneck sale of Chelsea earlier this year, gave a bullish assessment of the game’s current state earlier this week.”When it comes to English football, no one is suffering as a result of the pound’s decline,” Raine Group’s co-founder said at the Forbes Global CEO Conference.
The British economy’s woes, according to Ravitch, will not prompt investors to flee the UK football market. Indeed, his recent experience suggests that the English game continues to entice him. “Those are huge opportunities regardless of currency,” he said. “Based on the diverse and broad range of buyers we had for Chelsea, I believe that has been proven.”
Manchester United is up against some unique challenges.
The falling value of sterling complicates matters in the UK game, including at Manchester United, where the sterling value of their debt increased from £419.5 million to £514.9 million in the year to the end of June, which they attributed in part to the pound’s deteriorating position against the dollar. In that regard, United, which has traded on the New York Stock Exchange for over a decade, will have a less appealing balance sheet.
United has publicly stated its desire to redevelop Old Trafford; if those plans are realized, the club’s debt burden will increase significantly, but it will presumably provide the club with an asset from which it can significantly increase its revenue. “It’s a challenge for clubs with dollar-based debts,” says Kieran Maguire, the Price of Football podcast, book, and website expert.
However, United’s situation is unique. Some factors are more universal, such as outstanding transfer fees, which are frequently in Euros.
The pound’s fall against its European counterpart has not been as severe as the dollar’s; in fact, the Euro fell below $1 at the start of the month after Russia announced it would shut down its main gas pipeline to the continent.
Some clubs will need to find a few more pounds in their pockets to pay off transfer debt in Euros than they would have otherwise, but the impact is not as severe as one might think; the biggest teams who pay the highest fees hedge against currency fluctuations.
Increased likelihood of US investment
The impact of the falling pound may be most felt on money coming into the English game from the United States in particular. Tariq Panja of the New York Times captured the reasons to relocate now. Chelsea was purchased by the Clearlake-Todd Boehly consortium in May for $3.15 billion. The same transaction on Monday, according to Panja, would have cost the Blues’ new owners $2.68 billion.
It’s a good time to be a foreigner doing your shopping in England, whether you’re looking for Yorkshire tea, Barbour jackets, or Premier League clubs. “The overall impact of sterling over the last five years has been quite spectacular,” Maguire observes. “Today, one dollar equals £0.94, whereas five years ago, it was around £0.77.” It has significantly reduced the cost of acquisitions in the United Kingdom.”
Jordan Gardner, an American sports executive who has invested in several football clubs, including Swansea City in the Championship, agrees. “There’s no denying it’s more appealing. The US dollar makes any investment go further, whether it’s buying clubs, or infusing capital, infrastructure, equity, or debt.
“It will take time, but over the next few months, you will see this financial climate push deals to completion.” That will undoubtedly occur. I believe that more institutional investors will be interested in it as well. Most investors I speak with want deals, not just to throw money at something.
“At some point, the pound will presumably recover, and those who got in now will feel pretty good about themselves.”
The Premier League is an excellent value for American owners.
Of course, this isn’t going to happen overnight. The Glazer family at Manchester United, the Kroenke’s at Arsenal, and Fenway Sports Group at Anfield have all had a long history in the Premier League. However, there has been a rapid expansion in recent years, from the billions of dollars spent by the consortium that won the race to secure Chelsea to the Ryan Reynolds-Rob McElhenney duo that saw the opportunity for content in the purchase of National League side Wrexham. If a consortium led by Vegas Golden Knights owner Bill Foley is successful in its pursuit of Bournemouth, American investors will own more than half of Premier League clubs.
Their number could still increase. Gardner, who sees his stake in Swansea as a “long-term play,” believes that institutional investors such as CVC, who have previously looked at larger-scale transactions at the league level, may also look to capitalize on the strength that their sizeable capital in dollars provides them, possibly with more “micro-transactions” at the club level. Infrastructure projects and direct investment in a team are two examples. Maguire believes that struggling Leicester City and Wolverhampton Wanderers, which were purchased by Chinese conglomerate Fosun before Beijing backed down from its plan to turn the country into a footballing superpower, could be available in the future.
Even without the dollar’s favorable position on the continent, it is unsurprising that US soccer investors have looked beyond their borders. According to Sportivo, the average value of an MLS franchise is $582 million. LAFC, the league’s most valuable club, was valued at nearly $1 billion, with a revenue forecast of $71 million in 2021.
“The valuations on assets in North American sports beyond soccer are exorbitant,” Gardner observes. “A Championship club’s valuation could range from £30-40 million to £100 million if it has Premier League infrastructure.” That’s a drop in the bucket when compared to MLS.
When a club is promoted to the Premier League, it is likely to be worth two to three times that amount.
“The bottom line is that you can join the Premier League for a third to half the price of joining MLS. You’ll get $5-10 million in TV money there. You get £100 million in the Premier League.”
Boehly and others believe that there is still plenty of juice to be extracted from the Premier League’s fruits. Ravitch cited non-fungible tokens, business-to-business data, and Asian markets as untapped resources in suggesting that Chelsea’s value could double in the next five years.
Another revenue source for Maguire is in east London, where a Swedish pop group is allowing fans to experience them in their 1970s glory through holographic avatars.
“American investors are very bullish on the metaverse and bringing augmented reality to the home or, having seen the ABBA avatar show, [something similar] to that.” What will technology be like in 2030 if this is the case 2022?
“It is theoretically possible to have 12,000-seater indoor arenas in New York, Boston, and San Francisco all showing Premier League matches in some form of 3D representation, effectively beamed from Old Trafford and Anfield to events where people are willing to pay far more than they would for watching the match on television. It becomes an occasion.
“When you crunch those numbers, the Premier League must still appear to be a steal. If you charge $30-40 per ticket in six cities in the United States, six cities in China, a few more in Africa and Australia, and the rest of the Asian market.
Suddenly, you’ve got a million people ready to ‘watch the match.’ On a good day, Manchester United will make £5 million from a home game. That £5 million turns into £30 or £40 million.”
If that vision becomes a reality, the fluctuations in the British currency and economy do not appear to be as concerning. Whatever the state of the pound, American investors see the Premier League as having enormous growth potential. They can currently get a piece of the action at a knockdown rate.