The Private Equity Giant Investing $217 Million In European Soccer

Friends,

Looking to continue the multi-year trend of US capital flowing into European soccer, Ares Management, a US-based investment firm with more than $225 billion in assets under management, announced a significant investment in La Liga’s Atlético Madrid yesterday.

Here’s a high-level overview:

• Ares will invest ~$217 million for a 34% stake in Atlético Madrid.

• Atlético Madrid plans to use a majority of the funds to reduce debt mainly caused by COVID-19, investment in their new stadium, and the acquisition of players.

In a joint statement, Ares partners Mark Affolter and Jim Miller confirmed the investment and stated:

Competing in Spain’s top league, Atlético Madrid took home the championship this year, winning just their second La Liga title in the last 20+ years.

When it comes to soccer in the United States, La Liga — Spain’s 20 team league historically dominated by Barcelona & Real Madrid — falls behind Mexico’s Liga MX, England’s Premier League, and even Major League Soccer in terms of US fan viewership.

Most Popular Soccer Leagues On US TV

1. Liga MX

2. Premier League

3. Major League Soccer

4. La Liga

5. Bundesliga

Heading into the 2020 season, when talking to Sports Illustrated, La Liga president Javier Tebas stressed how important the US market has become.

But similar to most other professional sports leagues globally, COVID-19 wrecked La Liga’s business model and crushed any hope of increased international viewership.

After bringing in a record ~$7 billion in income during the 2019/20 season — the only one of Europe’s top five leagues to achieve positive net financial results — La Liga now estimates that income during the 2020/21 season will fall more than $2 billion to $4.85 billion — a 30% year-over-year decline.

Even worse? Despite being crowned La Liga champions this past season, Atlético Madrid has watched their total debt bill climb north of $1 billion for the first time in club history.

Now, they’ll digest a $217 million investment from one of the largest private equity firms in the world to help pay down debt & expand their footprint in the United States.

The interesting part: Private equity continues to fall in love with professional sports.

Here are just a few examples:

• CVC Capital Partners invested $952 million in Formula One in 2006, providing an almost $7 billion return by its exit in 2016.

• Arctos Sports Partners purchased a 5% minority stake in the NBA’s Golden State Warriors earlier this year, valuing the team at $5.5 billion.

• Silver Lake paid $280 million for a 12.5% stake in the New Zealand Rugby Union.

• CVC also purchased a 14.3% stake in the Six Nations rugby tournament, paying about $500 million over five years.

• RedBird Capital Partners agreed last week to acquire a 15% stake in the Rajasthan Royals, a cricket team in the Indian Premier League, with the deal valuing the Royals at around $250 million.

So why has private equity taken an interest in professional sports?

Well, there are obvious things like the ability to diversify against traditional investments (stocks, bonds, etc.) and the outperformance vs. the broader stock market — the average major US pro franchise has appreciated ~500% over the last decade — but ultimately, COVID-19 has accelerated the pace of capital inflows.

Whether you talk to a private equity CEO, managing director, associate, analyst, or even summer intern, they all believe the same thing — pro sports are set to come back stronger than ever before.

Over the last decade, the increase of broadcast rights has attracted investors, as revenue from these agreements effectively creates downside protection. Still, the operational experience of PE investors can’t be overstated either.

They have deep pockets to weather the financial storm caused by COVID-19 and arrive with operational experience to transform a business typically driven by wins & losses into a data-driven, financially disciplined profitability machine.

Some pro sports teams/leagues have avoided institutional investments for that exact reason, but if they are unable to quickly back bounce to pre-pandemic revenue, don’t be surprised if more PE-focused capital comes calling.

Have a great day, and I’ll talk to everyone tomorrow.

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