Here’s some sporting news as dramatic as the finale to the 2011-12 Premier League, described by many as the greatest moment in the English football league’s history. US private equity firm Silver Lake has acquired a 10% stake in City Football Group, the parent company of current Premier League champions Manchester City F.C., for US$500 million, valuing the whole group at around $4.8 billion.
According to some reports, this makes Manchester City the most expensive sports franchise in Europe, although those calculations may be based on confusion between the club and its owners. Either way, it looks like Silver Lake has paid top dollar against the earnings potential of media, content and access rights to the Boys in Blue.
Existing shareholders in City Football Group are Arab and Chinese private equity groups and investors of Abu Dhabi United Group, CITIC Capital and China Media Capital.
None of the players in this particular match have a lot of fans at the moment. China is hardly riding high in public esteem after events in Hong Kong, and private equity firms are getting a drubbing from Democratic presidential candidates in the US.
An analysis in the Financial Times puts it very succinctly: “If there’s a concern that Gulf states are using their riches as part of a public relations campaign to distract against failings elsewhere (not least poor records on human rights) there’s little doubt what private equity is after: returns”.
Rather than Silver Lake’s ethical priorities in the deal, it’s worth pausing to consider its business and financial priorities. The firm is in essence a technology buyout house, but as with the rest of the private equity industry right now, it has a lot of money to deploy, and may be less than careful about where that money is deployed. It has already invested in media assets such as Madison Square Garden Co. and online sporting merchandise retailer Fanatics.
Silver Lake’s technology expertise may help tap lucrative streaming opportunities, especially in Asia with its sometime partner Alibaba, but all the same, one can’t help but be concerned about mission creep.
Honeymoon periods between football club fans and players and club owners can be short, and the aftermath bitter. Look at Alan Sugar’s fraught experience with Tottenham Hotspur. It makes you wonder whether Manchester City fans now have to change their tune to: “I never felt more like singing the blues/When Silver Lake win/And United lose/Oh City/You’ve got me singing the blues”.