“It is about networks,” says one financial advisor. “If you are a billionaire, you
can speak to anyone, anytime.
Increasingly, investors take advice from specialist sporting advisory firms or boutique investment
banks. Oakwell Capital’s partners have previously assisted in takeovers at Manchester City,
Leeds, West Ham and Tottenham.
Doug Harmer, a partner at Oakwell, says that “less than five per cent” of investors
who make contact with his company will actually end up buying a football club.
His colleague Andrew Umbers continues: “Investors are more professional now. They demand that
we articulate the media strategy of the league and the commercial strategy of the club to
see whether there is underperformance or outperformance relative to income streams. They have conversations
with the leagues as they want to know about the governance of the league, such as voting
rights and potential salary caps, and how that may change.
Increasingly, we also draw on partners in the performance side of football,” Hamer
continues. “This manifests itself around player values and how to develop academy players."
Sam Rush, the former chief executive of Derby County, recently reunited with his former
Derby chairman Andy Appleby, after Appleby’s General Sports Worldwide acquired Rush’s
366 Group. The pair have considerable experience in buying and selling clubs.
“Agreeing a value or price is the easier part” he says. “The harder part is finding
out the ongoing commitments. Football clubs have significant property deals: someone may
own the club, someone else may own the training ground and someone else may own the stadium.
There may be debts to be settled.”
It’s also a testing period for any selling party, as they rarely operate from a position
of strength and are sometimes forced to place their trust in questionable figures.
A financial advisor to investors adds: “There are these estate agent types; a cadre of people
who fool around. They may say to a rich person ‘Are you interested in buying Gillingham
(as an example)?’ The rich person may ask how much it would cost. Then they phone the
Gillingham owner and say ‘I hear so-and-so really wants to buy your football club. Would
you be willing to sell it?’ If a deal happens, they get paid a commission on the deal.”
When a potential investor is actually identified, there are key stages in the process. These
include striking a deal over valuation, access to a club’s data room, the due diligence
process and a period of exclusivity to complete the deal. As investors close in on a purchase,
strategies also develop for a public relations drive.
The financial structure of deals is also becoming increasingly innovative.
Rush, the former Derby executive, explains how owners may be prepared to drop the asking
price for the initial instalment if clauses can be agreed based on future performances.
“A club could, in theory, sell for £50 million and have clauses to say a further
£25 million would be awarded to the selling owner if the club is promoted. Or he could
insist that he receives 20 per cent from the sale of the leading goalscorer or request
a percentage of the transfer fee from an academy product his investment has helped create.”
Even when it appears that the interest is genuine, the intricacies have all been navigated
and the terms of a deal are close, stumbling blocks can still appear. Due diligence works
both ways, as clubs and leagues seek to vet potential buyers, while the buying party is
granted access to the financial details of a club.
There are precedents where investors fail to do due diligence. Newcastle owner Mike
Ashley famously admitted he did not do so when buying the club for £134 million from
the Hall family in 2007 and subsequently discovered the club still owed £27 million on transfer
deals for players.
For those who are more cautious, that brings the chance to study the books.
Keith Wyness, who was Everton’s Chief Executive between 2004 and 2008, describes the benefits.
“A data room is a secure computer room within a stadium or a dropbox style transfer. It
is secured by passwords and you can track who goes in, what they copy, what they download
and what they don’t. Most clubs on the market create a data room. This includes all playing
and staff contracts, all contracts related to services for the club, contracts regarding
the ownership of stadiums and training grounds, catering contracts and all forecasts. It is
everything. This is opened to a potential buyer to analyse with advisors and justify
the price. A club then has a chance to answer questions.”
A prospective buyer and his incoming executives will also be required to pass an Owners and
Directors’ test by the Premier League or Football League.
Mark Palmer, a former Wycombe Wanderers executive, says: “There are two aspects: the individual
director’s test where you need different types of ID; proof of residency, utility bill,
passport or driving licence and then checks on you, as to whether you have a criminal
record or are barred from corporate ownership.
If you are the source of money, you must prove the source of money, if it is clean or hedged.
The other aspect is a Financial Forecast Indication (FFI). You basically have to do your business
model for two years on how you structure the club. There are cases where the Football League
will also want to meet personally with potential owners.”
In some cases, a deal is agreed only for it to fall through at the very final moment.
One current owner of a Championship club, for example, lowered his bidding for the club
simply because the team lost a game, much to the bewilderment of his predecessor.
So, it is an imprecise world in which matching a club for sale with an investor with the
means to buy it is only the beginning of the process. And, in many cases, the start of the difficulties.