The relationship between the world of football and finance is becoming increasingly tight and dynamic, outlining a scenario where investment strategies are crucial for football clubs' sporting and economic success of football clubs. The report "Private Capital and Football: A Winning Combination" by AIFI, with the support of Fineurop Soditic and Legance, offers a comprehensive overview of how private equity, venture capital, and private debt are influencing the governance and financial dynamics of major European clubs, with a particular focus on Italy.

The Growing Role of Finance in Football

With €295 billion in revenues across Europe and over €5 billion in Italy, football has emerged as a key sector of the economy, significantly impacting GDP and employment. In this context, finance plays an increasingly central role by providing clubs with the resources needed to face competitive challenges both on and off the field. The AIFI report highlights that 27% of clubs in the top five European leagues have financial investors as majority shareholders, a sign of the growing importance of private capital in football.

Valuation and Acquisition of Clubs: The Case of Milan and Everton

The valuation of a football club for acquisition by financial investors requires a comprehensive analysis of several key factors. Among these, the main elements to consider are sporting performance, the value of broadcasting rights, brand value, infrastructure (such as stadiums and training centers), and the fan base. In addition to these traditional parameters, integrating ESG (Environmental, Social, and Governance) criteria is increasingly relevant in influencing the perception of a club's value and attractiveness to investors.

A paradigmatic example of this dynamic is AC Milan, which has attracted significant capital thanks to its established reputation, global fan base, and solid sporting performance. The acquisition of the club by Elliott Management, followed by the subsequent sale to RedBird Capital, highlights how investors evaluate factors such as financial management, the club's growth potential, and opportunities to expand the brand internationally. Specifically, the transactions involving Milan showcase a structured process where the club's valuation extended beyond sporting results, including a broader perspective of financial consolidation and infrastructural development.

Similarly, Everton represents another significant case, albeit with a series of specific challenges. Despite facing financial and sporting difficulties, the club attracted external investment, most recently through the Acquisition by Dan and Ryan Friedkin, despite facing financial and sporting difficulties. The deal, estimated at around £500 million, underscores how investors see the potential for restructuring and growth, despite substantial challenges.

One of the key areas of interest for investors includes debt restructuring and infrastructural investments, such as the construction of the new Bramley-Moore Dock stadium. However, Everton presents a series of financial issues, including:

• Sensitivity to the transaction timing, with implications tied to market conditions and the club's sporting results at the acquisition time.
• Financial losses recorded in six of the last seven years, a key indicator of the difficult economic environment in which the club operates.
• Negative cash flow, representing a barrier to short-term financial sustainability.
• Assets represented by player contracts, which, while valuable, are subject to market fluctuations that could negatively affect the balance sheet.
• Significant CapEx requirements for infrastructure improvements to increase the club's competitiveness, with the new stadium being a top priority.
• Regulations on investment limits and financial performance, which can influence the club's strategic decisions in the medium to long term.
• High levels of financial debt, a crucial variable requiring a complex restructuring plan to ensure long-term sustainability.

In this context, the recent acquisition by the Friedkins demonstrates how, despite difficulties, the football sector remains an area of interest for investors with a long-term strategic vision, particularly for clubs with untapped potential both in sports and commerce.

Determining the Monetary Value of Everton

The attractiveness of a business in the football sector, as in many other sectors, derives from several key factors that influence its value and growth potential. First, the industry has seen a significant increase in value for top clubs in recent years, driven by a combination of factors, including the rise of broadcasting rights, global sponsorships, and the expansion of the international fan base. This has caught the attention of investors who view football as a sector that is still relatively accessible in terms of price compared to other entertainment industries.

The scarcity of football clubs available on the market makes each transaction highly competitive, adding further appeal to the investment. Furthermore, football clubs often generate revenues secured by long-term licensing contracts, such as broadcasting rights and sponsorships, offering a relatively stable revenue stream. Improved sporting performance can open new revenue-generation opportunities, such as participation in prestigious international competitions that significantly increase earnings.

However, additional revenue streams often remain unexplored or underutilized, such as monetizing the fan base through merchandising, digital platforms, and engagement strategies. While large and loyal, the fan base is often not fully leveraged in terms of revenue, providing a growth opportunity for new owners.

Investments in infrastructure (CapEx), such as stadium development or construction, not only increase the club's revenue capacity but also add long-term value to the business, enhancing the fan experience and attracting new sources of income. Additionally, a club that has underperformed for several years presents a turnaround opportunity for an investor, who can implement restructuring and development strategies to return it to the highest competitive levels.

A football club's valuation depends on the perceptions of both buyers and sellers. Each party involved has different motivations and expectations, often related to the specific circumstances and timing of the transaction. Keeping one's timing intentions confidential during negotiations can be crucial to securing more favorable terms. Occasionally, club owners may find themselves in a forced sale situation but will attempt to hide this fact to avoid weakening their negotiating position.

Financial advisors or investment banks typically conduct the club valuation process using models based on several factors, including the balance sheet, revenues, profitability, and future capital expenditure requirements. As with any other business, these models account for past performance and future projections, adapted to the specific nature of the football sector, where sporting performance directly impacts revenues and the business's overall value.

Football Club Valuation: A Unique Process

The valuation of a football club is a complex process influenced by a unique combination of factors. Despite the existence of traditional valuation models, many struggle to fully capture the complexity and nuances of the variables that characterize each club. The specifics of the club distinguish every transaction in the football sector, the seller's profile, and the potential buyers' identities. In this regard, the sale of Newcastle United or Chelsea does not represent a reliable benchmark for determining the value of a club like Everton, precisely due to the unique circumstances that define each club and transaction.

From the seller's perspective, the sale price of a football club will be influenced not only by the investments already made but also by future return expectations. However, these must be discounted by recognizing that achieving such returns will require significant further investments. The seller may also consider the sale prices of other clubs, such as Newcastle or part of West Ham, but these comparisons are of limited utility due to structural differences between the clubs.

Analyzing Everton's equity value on a purely fundamental basis, we observe that its value may be very low or even close to zero. Everton presents several factors that diminish its intrinsic value, including negative cash flow, a depreciable inventory (players), the need for significant capital investment (stadium), high R&D costs (academy), and a lack of governance and historical success in managing the club. However, the seller, in this case, Moshiri, may have a different view, believing that the club's current position results from an investment period that has yet to fully mature and that the Covid-19 pandemic delayed the fruits of those efforts.

One of the selling points Moshiri might put forward concerns the intangible assets, such as Premier League membership, which acts as an annual license renewed based on the club's performance (avoiding relegation). Additionally, the prospect of qualifying for European competitions represents an opportunity to significantly increase future revenues.

Players, often considered one of a club's main assets, can indeed impact valuations, but they are also subject to depreciation. The player contract inventory ties up capital and requires costly replacements. Moshiri could argue that Everton's inventory is worth more than its acquisition value, but this argument may be weak if it is not supported by convincing sporting performance.

Another important element is the club's academy, which functions as the R&D department, producing players that can either be sold or integrated into the first team. A successful academy can represent a future source of value, creating a distinctive style of play or supplying high-quality players, as seen with renowned clubs like Ajax. Despite recent staff changes in Everton's academy, Moshiri could argue that the club still has good potential for development in this area.

From a commercial perspective, Moshiri might claim that Everton's brand holds significant global market value. However, the absence of high-profile sponsorships could indicate a weakness in this argument, as a football brand's market value should be reflected in the sponsorship levels secured.

Finally, the progress of the Bramley-Moore Dock stadium project, with the related construction permits and milestones achieved, represents another value element. Moshiri could emphasize that the stadium's completion will contribute to future revenue growth and should, therefore, be considered in the sale price.

Management and Governance: Crucial Valuation Factors

Another crucial aspect of a club's valuation is the quality of its management and governance. A competent management team and transparent governance systems can add value to the business. However, in Everton's case, the buyer may demand a discount due to past performance and the potential costs associated with management replacement.

In summary, governance and the quality of relationships with regulators can significantly influence a club's value. Strong management and best practices increase attractiveness to investors, while lacking these elements could reduce the offered price or deter potential buyers altogether.

What Is the Friedkins' Rationale for the Acquisition

The acquisitions of a club like Everton must consider not only the capital required for the acquisition and the future investments needed to improve the club's performance and ensure a return on investment. This involves a clear understanding of the football sector and the club's specific geographic characteristics. An acquisition of this magnitude also requires a solid strategy to increase future revenues, which may include the pursuit of commercial partners and sponsors.

Since the football sector is subject to specific regulations, the buyer must also assess the regulatory implications related to spending limits, particularly those tied to financial fair play. In Everton's case, the club's current financial situation and future CapEx requirements to complete the Bramley-Moore Dock stadium are critical. For example, an acquisition financed mainly through debt, for example, could result in debt servicing costs that would reduce the net cash flow available to the club, affecting its long-term marketability.

Investments in Infrastructure and Stadium Financing

Regarding the Bramley-Moore Dock stadium, the buyer will need to carefully evaluate the status of the works, costs already incurred, and those still to be financed, and the potential for cost overruns and delays. This is crucial not only for determining the overall project cost but also for establishing a revenue model that includes sponsorship packages, naming rights, premium seat sales, and ticket revenues. Future opportunities related to stadium expansion, once completed, must also be evaluated in terms of costs and potential benefits.

An acquisition involving significant debt financing will directly impact the acquisition's value, as acquisitions will influence the club's ability to generate future net cash flows. This aspect is critical, directly affecting the club's marketability and future investment opportunities.

Commercial Growth Potential and Overall Valuation

The buyer must also assess the club's untapped commercial potential, seeking to understand how much of the club's revenue streams have already been leveraged and how much more growth can be achieved. This aspect directly impacts the purchase price, as greater growth potential equates to the club's perceived value.

Everton's overall valuation will need to consider all these factors. While some estimates suggest a figure of £500 million for the club and an equal amount for completing the stadium, these figures could be considered excessive if the club's current financial and sporting difficulties are considered. On a fundamental basis, the club's equity could be worth much less, especially when considering future costs associated with stadium construction and the investments required to revitalize the team.

Moshiri, as the seller, will argue that the costs already incurred for the stadium and past investments in the club, should be reflected in the sale price. However, the buyer must consider future operating and capital costs, including those necessary to restore the club's competitiveness at the highest levels.

Conclusion: A Complex but Promising Opportunity

In conclusion, an acquisition of this magnitude presents a significant level of risk, and the return on investment margins may be limited in the short-to-medium term, especially considering the need for further investments to improve the club's performance. The final price will need to reflect these complexities, considering both the investments already made and those still necessary to make the club competitive and profitable in the future.

As highlighted in the analysis of Everton's case, the acquisition of a football acquisition complex is a unique process that goes beyond traditional financial valuation. Football clubs represent hybrid entities, with value derived not only from tangible assets like stadiums and infrastructure but also from intangible factors like brand, fan loyalty, sporting performance, and future growth prospects.

Due diligence plays an essential role in understanding the club's financial and operational health of the club, revealing information that may not be immediately visible and potentially affecting the final transaction price. At the same time, buyers must consider not only the initial investment for the acquisition but also the resourAcquisitiond to ensure the club's future growth, particularly regarding investments in the team and infrastructure. Intangible assets, such as the academy and brand value, can significantly contribute to long-term strategy, but effective management is required to maximize their potential.

The challenges are numerous: the risk associated with investments in stadiums and infrastructure, the sector's financial regulations, and the unpredictability of sporting results. However, for investors capable of navigating these complexities, the opportunities to enhance the club's value can be considerable for investors capable of navigating these complexities, mainly when supported by solid governance and a clear strategic vision.

Ultimately, acquiring a football Acquisitionverton requires a combination of financial analysis, risk management, and strategic insight. Only an integrated approach that considers all these factors can turn a complex challenge into a long-term success opportunity.