City Football Group (CFG), the owner of Manchester City and Melbourne City, has become the world’s most valuable sports group, after a private equity firm bought a 10 per cent stake in the group for $US500m (AU$737m).
The record-setting deal with California-based SilverLake was announced on Wednesday (UK time), and saw CFG’s valuation rise sharply to US$4.8 billion (AU$7.1 billion).
Analysts describe it as one of the biggest sports deals in history.
But was it a deal worth making?
How much is CFG worth?
CFG has eight football clubs in its stable, but current English Premier League (EPL) champions Manchester City are its most valuable asset by some distance.
Forbes valued the club at US$2.69 billion (AU$4.0 billion) in May, and last year it brought in record revenues of £535.2 million (AU$1.02 billion).
That was the first time revenues had surpassed £500 million, but profits were a much more modest £10.1 million (AU$19.3 million), with wages totalling roughly £315.8 million (AU$602.1 million).
Ignoring revenues from CFG’s much smaller clubs – such as New York City FC, which Forbes says brought in US$42 million (AU$62.0 million) in 2017 – CFG’s new valuation is roughly seven times its annual revenue.
That’s at the high end of valuation multiples used for sport team purchases, putting SilverLake’s investment at the expensive end of sport team buy-ins.
For example, baseball’s Kansas City Royals was sold earlier this year for a reported US$1 billion, or 4.1 times the club’s annual revenue, while the NFL side Carolina Panthers was sold in 2018 for US$2.3 billion, 5.9 times the club’s annual revenue.
That said, CFG’s expansion shows no signs of slowing, and neither does the EPL’s.
Just days after the SilverLake announcement, CFG announced it had purchased a 65 per cent stake in Mumbai City FC, its eighth football club.
And the EPL’s broadcast revenues for the current 2019-2020 season are up 8 per cent on the previous season – partly thanks to the pound’s depreciation following the Brexit referendum.
Global Sports and Media director Colin Smith told The New Daily the future looked bright too – so long as CFG continued to invest heavily.
“[CFG] has been unbelievably focused in terms of its performance, since they bought into Man City [in 2008]. They’ve spent hundreds and hundreds of millions of pounds on players, and that’s delivered returns for them on the pitch,” he said.
“But it’s not like you can stand still with this – that’s got to continue.”
How does Manchester City make money?
Most of the club’s revenue comes from live TV deals, though commercial sponsorships contribute a pretty sum, too.
It’s a similar story for most premier league clubs, according to Deloitte.
The professional services firm’s latest football finance review found broadcasting rights on average comprise 59 per cent of club revenue in England.
Sponsorship money comes in second, with 27 per cent, and match day revenues make up 14 per cent.
Why has SilverLake invested in a football team?
Buying a 10 per cent stake in the biggest football group in the world might sound like a great investment, but it’s relatively uncharted waters for a private equity firm.
That’s because a football club’s financial success is closely tied to its on-pitch performance, making it a relatively risky investment.
And its profits are small beer, compared to those recorded by Alibaba, Dell, Skype and other tech companies in which SilverLake has previously invested.
So much so that one “Wall Street veteran” told the Financial Times that SilverLake managing director Egon Durban has bought shares in the club to improve his social standing more than anything else.
“He’s one of four managing partners at the most important technology private equity firm in the world,” the source said.
“But he’s tried to reinvent himself as something more than that, someone whose contact book stretches from Michael Dell to Elon Musk to Ari Emanuel, who can make deals that rely on bringing unique combinations of people together.”
According to the Financial Times, SilverLake plans to hold onto its shares for ten years.
Over the past five, CFG’s valuation has grown from US$3 billion (AU$4.4 billion) to US$4.8 billion (AU$7.1 billion)
The world’s most valuable sports teams (Forbes, 2019)
- Dallas Cowboys (NFL) – US$5 billion (AU$7.4 billion)
- New York Yankees (NLB) – US$4.6 billion (AU$6.8 billion)
- Real Madrid (Football) – US$4.24 billion (AU$6.3 billion)
- Barcelona (Football) – US$4.02 billion (AU$5.9 billion)
- New York Nicks (NBA) – US$4 billion (AU$5.9 billion)