The opening game of this year’s English Football League Championship was not short of drama. Ipswich’s last-minute penalty rescued a draw for a team filled with Irish internationals. It was a cruel blow for their opponents, Birmingham City, a League One outfit last year that deserved to beat a side fresh off Premier League relegation.
The narrative in the owners’ boxes was equally noteworthy. Some billed this as Tom Brady vs Ed Sheeran, the former NFL quarterback putting his stake in Birmingham against the pop star’s investment in his hometown Ipswich.
These are not the only famous faces involved in UK sport. We’ve all seen Ryan Reynolds and Rob McElhenney’s investment in Wrexham, the Welsh club going from non-league football to the Championship. Will Ferrell has a stake in Leeds United. Snoop Dogg is involved at Swansea.
Conventional wisdom dictates that sport is a risky investment. Football clubs tend to operate at a loss. None of the A-listers are buying clubs earning Premier League money. Yet they continue to jump on the ownership bandwagon. For some, it is a passion project. Sheeran is an Ipswich fan, and the club gave him a squad number.
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For others, emotion cannot be the only factor. Individuals of such wealth don’t part with cash unless they think more will come flowing back. Is sport suddenly a good investment?
The answer inevitably depends on circumstances. Football’s oval ball cousin, rugby, is struggling in the UK market. Three clubs have gone bust. One, Worcester Warriors, has come back under new management but must start outside the top tier. Another, London Irish, was taken over by a consortium led by Kyle Jordan, son of Irish Formula One mogul Eddie.
Jordan wanted to take Irish out of the UK structure and into the United Rugby Championship. Hosting Irish and South African teams in a city with a significant diaspora from those countries could draw crowds. It remains to be seen if that plan will come to fruition.
Some international investment is trickling into the sport. Energy drink company Red Bull has bought Newcastle Falcons. Maybe not at the same volume, but perhaps the overseas investment playbook seen in English football will seep into rugby.
For all the public attention they garner, very few of football’s Hollywood class are the brains behind their clubs. Sheeran owns 1.7 per cent of Ipswich. Brady has 3.3 per cent of Birmingham but no voting rights. Knighthead Capital, spearheaded by venture capitalist Tom Wagner, is the head honcho in Brum.
Foreign money in football is not new. After Roman Abramovich’s trend setting, the latest developments can be crudely split into two camps. The Gulf states, powered by oil money, versus American venture capital.
Down the football pyramid, more than 20 of the 72 clubs in the Championship, League One and League Two have American interests. No region has fallen as hard for English soccer. At the top level, it’s clear to see why. Arsenal and Liverpool’s American owners are rich enough to also own sports teams in their own country. Why not add Champions League regulars to their portfolio? They can afford it. The value of these clubs continues to rise.
Buying lower down the food chain brings more risk but increased upside. At that level, venture capitalists are not competing with petro states. Clubs are cheaper, with significant room for growth.
The blueprint is simple. Find a distressed asset below the Premier League. A club in debt. A former powerhouse languishing in the lower leagues. One with a dilapidated stadium. A small, non-league outfit. “In property terms, they’re all fixer-uppers,” says one industry source. “They’re not buying mansions.”
Assets come with the cheaper club. A stadium. Land. In United States, the done thing for the billionaire class is to invest in American football, basketball, baseball and ice hockey – four of the world’s most profitable sports. Membership is both expensive and exclusive. If you convince an owner of an American franchise to sell and can stump up the cash – the Boston Celtics recently changed hands for over $6 billion – other league owners still have to vote to let you into the club.
Reynolds and McElhenney spent just £2 million to acquire non-league Wrexham with no rival approval required. Now in the Championship – with eyes on the Premier League – the Welsh club is currently worth £150 million according to some estimates. Promotion and relegation, absent from American sports, presents an opportunity.
On a day-to-day basis, most football clubs lose money. This is difficult to change, but the Americans still see themselves capable of finding small wins. English sport lags well behind the American counterparts for fan experience. More efficient ways of selling food, drink and merchandise have increased one English club’s match-day revenue more than threefold. New technology comes into the kiosks. Better queuing systems are implemented. One League One club doesn’t have enough staff to man the bars aside from half-time. Inefficiency baffles the VC bros.
The leveraging of networks is also significant. Delta Air Lines are sleeve sponsors on Birmingham’s shirt despite operating zero flights into the city. “With England’s profit and sustainability rules (PSR), a petrochemical giant from Ukraine can’t just pump money into a club,” says one industry figure. “It’s all about legitimately getting money into the club’s bank account. Americans are better at that.”
Yet the overall goal is still long-term valuation. Buy better players. Rise up the leagues. Access the TV money of the Championship and Premier League. Sell for a big pay-day.
How clubs go about this process differs. Wrexham released a documentary on Disney+ charting their rise. The club didn’t make a huge profit, but the exposure earned across the pond is worth millions. Such is the interest of American fans, The Athletic now has a full-time Wrexham correspondent.
Other owners operate a multi-club system, diversifying their portfolio across different competitions. Trivela Group, owners of Drogheda United in the League of Ireland, have multiple clubs. Their model actually came back to bite them when Drogheda were kicked out of the European Conference League due to Uefa’s rules forbidding multiple teams under one owner featuring in the same competition.
While the hiccup stalled it, Trivela’s plan is clear to see. When Shamrock Rovers made the knockouts of the Conference League (ECL) last year, they earned around €6 million in prize money. The 2024 League of Ireland champions have a relatively straightforward path to the ECL knockout stages. Trivela acquired Drogheda for just €1 – albeit that more than €2.4 million has been invested in the club since the takeover. If they can compete with the likes of Rovers, Shelbourne and St Patrick’s Athletic for European spots, a distressed asset all of a sudden becomes valuable. If that doesn’t work, Walsall – another Trivela team – might still get promoted from England’s League Two.
The multi-club model can also extend across sports. Birmingham owners Knighthead want to turn England’s second city into a sports hub. They just bought 49 per cent of a local cricket team. They’re aiming to invest £3 billion into a sports quarter, including a 62,000 seater football stadium and a separate 15-20,000 seat arena. Copying the model of Tottenham’s shiny new ground, Knighthead wants to bring concerts and NFL matches to the midlands, increasing revenue streams from the initial football investment.
The benefit to the community, say Knighthead, is an increase in employment while developing local infrastructure. Others point to the risk of gentrification forcing the local community elsewhere.
If the benefits for all these owners are clear to see, so are the pitfalls. Significant infrastructure plans, turning a football club into an events company, will likely only work in cities with large populations. Birmingham and Leeds can go down this road. Wrexham and Swansea might struggle. Promotion and relegation also work against VC owners. Last season, all three newly promoted Premier League teams were sent straight back down to the Championship.
Potential investors on the outside of this trend are still excited by the opportunity. Those already there estimate they probably have about two years before the window of opportunity closes, such is the settled nature of Premier League clubs like Bournemouth, Brighton and Crystal Palace. If it becomes impossible to break into the Premier League and then stay there, the bubble will burst.
For smaller clubs, what represents a satisfactory return on investment? Does five years of yo-yo movement between leagues, increased in-game revenue and maybe a slightly better stadium increase overall value sufficiently to sell up and make a quick buck?
Fans fear being left with disinterested owners trying to offload a distressed asset which they can no longer improve. Ed Sheeran may stay forever, such is his love for Ipswich. Whether he can convince his American investment fund partners to stick around, should they fail to jump back up to the Premier League, is another question entirely.
