What’s the investment case for paying £3bn, where’s the growth?

As the deadline approaches, a queue is forming to buy Chelsea football club and with the price predicted to reach £3bn, one might wonder what exactly the investment case is for such a deal.

Consortiums led by LA Dodgers part-owner Todd Boehly and former Liverpool chairman Sir Martin Broughton lead the race, with the Ricketts family falling out of favour on racist comments, while Pagliuca’s consortium seems an unlikely candidate. Then there is the reported ‘mystery bidder’ who, according to the BBC, made the final shortlist.

“There is an organisation that prefers to keep their cards close to their chest and not reveal too much, rather than going public,” Kieran Maguire, football accountancy lecturer at Liverpool University, author and broadcaster, confirmed.

Mysterious ‘injury time’ bids aren’t unheard of in the football industry, according to Maguire, who highlighted that Roman Abramovich’s own takeover of Chelsea in 2003, Sheikh Mansour’s Manchester City purchase and the Glazier family’s Manchester United acquisition all came “out of the blue”. Burnley’s majority takeover by ALK Capital, Daniel Kretinsky’s West Ham and John Textor’s Crystal Palace minority shareholdings also “came out of nowhere” and were out of the public eye until the very last minute, he added.

So, what is the investment case for Chelsea?

Given the Raine Group, the US bank handling the sale, and Abramovich’s premium £3bn valuation for the football club, it perhaps sparks some debate why there were so many bidders lining up.

Presumably, the 25+ bidders that reportedly came forward must see the potential for significant growth, that is if they intend to make profits on the £3bn rather than simply score public relations points through so-called ‘sports-washing’.

So, if we take at face value that the reported deals are pricing in growth, where is it going to come from?

Streaming is one of the main reasons for optimistic financial projections, according to experts, as many predict future broadcast rights deals via streaming may provide clubs with a bigger slice of direct revenue and more centralised control into global markets. 

It comes after traditional broadcast and TV money flattened during the pandemic, as the Premier League rolled over its renewals on existing terms in a deal to ensure TV companies covered behind-closed-doors matches.

With four of England’s ‘big six’ currently under American ownership – possibly rising to five depending on the Chelsea negotiations – there’s also the open question of whether the changing ownership at Chelsea shifts renewed momentum back towards the previously bungled plans to break away into a lucrative new ‘European Super League’.

Effectively the establishment of a franchise-style competition without relegation or promotion, like in America’s elite sports leagues such as the NFL or NBA, would see the financial performance of participating clubs skyrocket.

Another potential growth angle is to expand Chelsea’s commercial strategy in a similar way to what the Glaziers did at Manchester United – in which the west London side may soon boast on social media of its new noodle or tractor ‘partners’. This route may also include some portion of shares going public via an initial price offering, potentially allowing fans to buy some token of shares in the club.

“I think lots of American owners feel that football clubs, in particular, are not that good at selling their commercial rights,” Maguire commented.

Abramovich’s forced sale of Chelsea has attracted much attention from American investors.

“They are mainly from the US and although £3bn seems a lot… it’s still relatively cheap compared to the cost of buying a US sports franchise,” Maguire told Proactive.

Digital assets perhaps open another potential area of growth, if Chelsea is to follow John Terry, the club’s former “leader and legend”, into non-fungible token (NFTs) dealing.

In the metaverse, another emerging digital economic space, Chelsea’s new owners may potentially create a virtual world that includes Stamford Bridge, which would provide the option for fans to buy match tickets and attend games virtually – making it feel like they’re at the game, Maguire explained.

It is not entirely clear. Nevertheless, serious investors are evidently putting serious cash on the negotiating table.

Who are the four known shortlisted bidders?

The consortium led by Todd Boehly, which is also backed by Hansjorg Wyss, Jonathan Goldstein, Daniel Finkelstein and Barbara Charone, was one of the two frontrunners.

The other confirmed party to make the shortlist was led by Sir Martin Broughton, the former Liverpool and British Airways chairperson, and is backed by Lord Sebastian Coe, Joshua Harris, David Blitzer, Wall Street investment banker Michael Klein and Sacramento Kings owner Vivek Ranadive.

Meanwhile, a joint bid by the Ricketts family and Ken Griffin, the hedge fund tycoon, received a setback last week when it emerged Joe Ricketts, the family’s patriarch, was accused of Islamophobia three years ago.

This caused much uproar from Chelsea fans, with 77% of them voting against their bid to buy the club.

Boston Celtics owner and private equity billionaire Steve Pagliuca reportedly approached several co-investors, including former Walt Disney chief Bob Iger ahead of Monday’s deadline.

The Raine Group will present their chosen offer to the UK government on Monday 18 April, after having just under a week to evaluate final offers.

Any deal must be approved by the government and the Premier League under its fit and proper ownership test.

How are Chelsea’s financials looking?

Abramovich was owed £1.5bn by Chelsea but the frozen-out oligarch has agreed to quash the club’s debt.

In the year ended 30 June 2021, Chelsea recorded a loss of £153.4mln, citing pandemic-related issues that impacted revenues. Commercial revenue and matchday revenue unsurprisingly also plummeted compared with the year before.

“The pandemic has had a severe impact on the club’s income for a second year in a row,” chairman Bruce Buck said in a statement. “Significant revenue was lost due to the majority of matches being played behind closed doors, however, with our success in the Champions League, we have been able to offset the huge impact of the pandemic on our revenues.”

Financial performance never had to match the on-field performance under Abramovich. Under new owners, whichever emerges with the keys to Stamford Bridge, this is very likely to change – what it means for football business more broadly will remain to be seen.