Sports and investment: allies with a promising future
The world of sports ignites the passions of millions of fans all over the world. However, as a form of economic activity, it also generates employment and revenues at levels comparable to those existing in other more conventional industries. The international scope of sports as a form of mass-market entertainment is now a major economic presence, representing around 1.5% to 2% of global GDP, 2% of Europe’s GDP, and more than 3% of Spain’s GDP.
As the economic power of sports continues to grow, and the influence of some of the most famous teams and athletes expands beyond all national borders, the way that sports teams and leagues are managed has become more professional. An increasing flow of investment has also come to exist, especially for some of the most popular sports such as European soccer. However, despite these upward trends, and the fact that in some countries this has already been a reality for decades, it is also clear that there is still much to be learned about the role of investment in the world of sports.
What can investment contribute to sports?
Many sports fans question the reasons behind the expansion of investment in sports. Will it have a positive effect? Luis García, an expert in this field and a manager at MAPFRE AM, explains that “sports are a form of business activity that is becoming increasingly complex, with its own development and marketing strategies and high numbers of employees”. There have frequently been cases of financially struggling clubs that have required shoring up with public funds, such as those collected as television fees. “There may be a need to move towards a more sustainable model”, he suggests.
In addition, when teams and clubs open themselves up to investment, it also results in greater transparency. Teams that opt for this model can end up with improved financial capacity, and in a context that is so competitive, where income levels can vary greatly year-by-year, increased solvency and liquidity can really make a difference for many teams. This is something that became very apparent during the pandemic, when teams were forced to play in empty stadiums.
Who owns the teams?
Sports teams and competitions have a variety of ownership models, which can generally be classified into six types:
- Clubs with members
These include everything from local neighborhood leagues to internationally known clubs such as FC Barcelona and Real Madrid.
- Single-sport investors
There are some large investment groups that specialize in a particular sport, such as the Pachuca Group in Mexico, which owns the Mexican soccer teams Club León and CF Pachuca, as well as Talleres de Córdoba in Argentina, Everton de Viña del Mar in Chile, Atenas de Uruguay in Uruguay, etc.
- Multi-support conglomerates
These are investment groups that invest in multiple sports. One good example is Fenway Sports, which owns the Liverpool FC soccer club, the Boston Red Sox baseball team in the USA, and a variety of NASCAR racing teams, among other investments.
- Mutual funds
These are groups that invest in a variety of industries and countries, and they are increasingly becoming interested in sports as well. Some of the most well-known cases include CVC, which acquired a stake in Spain’s LaLiga soccer league last year, participation by Ares in a capital increase for the club Atlético de Madrid, and various other recent transactions such as the one being negotiated for purchase of Italian club AC Milan.
- Clubs partly traded on the securities market
There are numerous examples of this phenomenon, including some of the most popular soccer teams: Manchester United, Benfica, Juventus, Olympique Lyonnais, Borussia Dortmund, etc. In Spain, the only club that has taken this step is Intercity, a third-division team from the Primera RFEF league, which began public trading of its shares in 2021.
- Customized ownership
In this modality, ownership is largely or entirely in the hands of a single investor.
Although each model has its own characteristics, Mr. García explains that multi-owner models offer “improved synergies” and can provide the most advantages in terms of access to private equity and also in terms of transparency. However, he also says that regardless of the type of investors involved, the key to success is to look for investors with a profile that is “long term, with patience and with a strategy focused on helping the club or league grow”.
Which countries show the highest levels of investment in sports?
Private ownership of teams and leagues, which sometimes includes public trading of shares, has been in existence the longest in countries such as the United States. However, it is becoming increasingly common in Europe, where soccer is king, and this is the sport that has attracted the most investment, often from international sources. Although the purchases made by buyers from countries in the Middle East have tended to attract the most media coverage, the countries that are the primary source of investment in European soccer are in fact the United States and China, in that order, followed by Saudi Arabia, the United Arab Emirates, and Qatar.
The soccer league that has attracted the most international investment is the English Premier League, although some of the largest teams from France and Italy are also among the top investment targets, often with trading on the securities market or with control by institutional investors. The German league represents a special case, with the teams VfL Wolfsburg and Bayer Leverkusen owned by the Volkswagen Group and the pharmaceutical giant Bayer, respectively. However, these situations, where the companies have been providing most of the funding for the teams for more than 20 years, are exceptions, and in general, there is a rule that a club’s members must maintain at least 51% of the ownership.
In Spain, although investment levels are increasing they are still relatively low. However, in the opinion of Mr. García, this is one of the most attractive markets worldwide. This is not just because of the international recognition of its major teams, but also because of “the good work that has been done in terms of financial control”. This was something initially promoted in 2011 by Europe’s administrative body for soccer, UEFA, and it has now resulted in a roster of clubs with solid financial statements. If any of Spain’s first-division teams are able to begin trading shares on the securities market, which is something that is happening in the rest of the top European leagues, this could create a real opening for investment, beyond the high-profile transactions that have tended to characterize Spain’s top league and some of its individual clubs.
Is investing in sports becoming fashionable?
As explained above, investing in sports has already become a growing trend. However, in the current financial context, investment with an emphasis on ESG (environment, social, and governance) criteria is becoming increasingly important. Mr. García believes that this could represent an opportunity for sports to become one of the primary channels for ESG investing. The history of sports “is one of continual improvement in corporate governance, with an ability to have influence over the others (social and environmental factors) like no other industry in the world”, he explains.
Mr. García manages the Behavioral Fund at MAPFRE AM, which is the MAPFRE Group’s asset management unit. That fund dedicates 25% of its portfolio to the world of sports, with approximately half of that amount being dedicated to soccer. The specific European teams with the highest weights in the Behavioral Fund are Borussia Dortmund, Olympique Lyonnais, and Ajax Amsterdam.