Game On: Record breaking investment in Manchester City football club
December 28, 2019
2 min read
What's going on here?
The US Private Equity firm Silver Lake has bought a 10% stake of Manchester City’s parent company, City Football Group (CFG).
What does this mean?
The investment of £389 million values CFG at a record sum in global sports valuations of £3.73 billion. CFG, which is an Abu-Dhabi controlled organisation, owns stakes in football teams all over the world including US, Australia and Japan with the aim of profiting through the sale of large media rights. Firms like Sky, BT and Amazon are all competing intensely to give audiences at home a slice of the action.
Football is increasingly a contest on the pitch and in the boardroom. Manchester City has seen 11 years of growth, with last year’s earnings totalling a record £535.2 million. It is the world’s fifth richest team, with its 18/19 season seeing titles in the Premier League, FA Cup and Carabao Cup.
On the other hand, Silver Lake, based in California, normally prefers to invest in technology above all else. Investments in Skype, Dell and Alibaba have given them big returns in the past, with a cumulative deal value of $320 billion in tech firms over the past twenty years. Now Silver Lake is showing that there should be more confidence in the profitable future of sports teams, especially given Manchester City’s prominence in the football industry.
What's the big picture effect?
Whilst Manchester City has seen consistent profitability, there are bumps on the road ahead. The club risks being banned from the Champions League after failing to secure the right to appeal to the Court of Arbitration for Sport. They are under scrutiny for possibly having breached the Financial Fair Play rules, having paid £49 million in 2014 for breaching the same regulation.
CFG’s list of football clubs may have a global expansion but are not necessarily at the same level as Man City. Existing clubs include China’s third-tier Sichuan Jiuniu, Melbourne City FC and New York City FC, who were joined this week by Mumbai City FC. Hardly football franchise royalty! Moreover, the battle for Premier League broadcasting rights is giving signs that interest in the industry may have peaked, with a 10% decrease in the amount of royalties spent by broadcasters in last year’s auction. In addition, the trend amongst European football fans is that they are less and less willing to pay to watch football. The sport, media and entertainment sector could be on a downturn.
Nevertheless, Silver Lake’s investment in the sector has had a positive knock-on effect. Manchester City’s local rival Manchester United saw their shares jump 13% following the announcement of the deal. Silver Lake, despite its main success in tech, is not completely inexperienced in this sector. In 2012 they invested a stake in Endeavor, which represents the sports stars Serena Williams and Novak Djokovic, in addition to film stars and supermodels. But whether they can prove their ability to find value behind the glamour of the sport, media and entertainment sector remains to be seen.
Report written by Will Holmes
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