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Families and football financing a dream

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You say football, I say soccer … Americans have never previously shown a serious interest in the beautiful game, but recently some wealthy families have seen the business potential in owning England's top clubs. Where will it end? asks Marc Smith.

Marc Smith is deputy editor of Families in Business.

The "special relationship" has changed. President Roosevelt's message to Winston Churchill, requesting sensitive information about World War II, marked the beginning of one of the most extraordinary friendships in political history and the start of the oft-quoted relationship between Britain and America.

Today, as UK premier Tony Blair tries to convince a sceptical nation that being George W Bush's closest political confidant gives him some influence over US policy, American businessmen and some of England's top football clubs are developing a special relationship of their own.

Liverpool FC has just tied up a takeover deal with George Gillett Jr and Tom Hicks, which follows in the recent footsteps of Randy Lerner at Aston Villa FC and Malcolm Glazer at Manchester United FC. Forget world peace, it's the lure of big money and the opportunity to expand the brand recognition of their native sports teams that is causing Americans to ditch bucks and baseball for sterling and soccer.

Brand football
"I haven't slept for two nights because I'm so excited", Gillett Jr told a British newspaper after the press conference to announce the deal. "Liverpool is like the Boston Red Sox or the Montreal Canadiens; it's the best in sport, but there are economic drivers that make it a good investment."

Although foreign ownership isn't just the preserve of Americans – Egyptians, Icelanders and Russians all now own clubs – families are at the forefront of this revolution. Gillett Jr has three of his four sons already involved in his various business interests, and the fourth is due to join the board at Liverpool. Hicks has also said one of his sons will be a part of the new venture in the North West of England. In agreeing terms with the club, Gillett Jr and Hicks had to fight off competition from Dubai International Capital (DIC), an investment arm of Dubai Holding, which is owned by Dubai Crown Prince and UAE prime minister Sheikh Mohammed bin Rashid Al Maktoum and family. The trailblazers in this trend, meanwhile, are the Glazer family who purchased one of football's biggest brands, Manchester Utd, back in 2004.

Joe McLean is a partner at UK advisor Grant Thornton and their spokesperson on the football industry. As someone who has been a part of deals involving 14 English clubs over the past two years, he believes the Americans are bringing entrepreneurial success to the party. "Manchester Utd is one of the most recognised brands in world sport and the Glazers have an advantage in that the business is very mature. Gillett Jr and Hicks have bought into a brand that has not been as successful and has an old-fashioned stadium that doesn't produce major revenue streams. Having said that, despite acquiring an excellent stadium, the Glazers have taken on a large amount of debt, whereas Gillett Jr and Hicks aren't burdening their enterprise with the same problems."

Kop Football Ltd, the takeover vessel set up by Gillett Jr and Hicks, offered £5,000 a share, which, combined with £44.8 million of debt, values the club at £218.9 million. The total offer is worth in excess of £400 million, as the Americans have committed to providing an annual budget for player transfers and to funding the building of a brand new, 60,000-seater stadium. The partners will initially purchase 62.2% of shares, which are primarily owned by David Moores and Rick Parry, Liverpool's current chairman and CEO, but are expected to purchase the full 100% in due course. Both Moores and Parry are to remain at the club, with Moores being given the title of honorary life president.

"The partnership created by George and Tom is very special," said Parry. "They are bringing to the table tremendous and relevant experience, a passion for sport, real resources and a strong commitment to the traditions of Liverpool."

Business pedigree
Gillett Jr, 68, owned a variety of companies during the 1980s including several television stations and newspapers. He diversified into ski resorts, but his companies were forced to seek Chapter 11 protection in 1992. He restarted his business career in the mid-nineties and formed Booth Creek Ski Holdings Inc in 1995, while in 1997 he built Corporate Brand Foods America, which specialises in meat production. After failing with bids for several other sports franchises, he bought an 80% interest in the ice hockey team Montreal Canadiens in 2000. He also owns entertainment promoter Gillett Entertainment Group.

Hicks, described by Gillett Jr as "one of the outstanding businessmen of America", owns hockey franchise the Dallas Stars, as well as the Texas Rangers baseball team, and has built up a reputation for developing state-of-the-art stadiums for his teams. "He has a family with extraordinary experience in the management of very successful sports teams and I believe that we have supplemented the strengths that our family has with those of the Hicks family," said Gillett Jr.

"Both families have a good pedigree of business achievement and they have not tried to delude the fans that they have always wanted to own the club," says McLean. "They have said they want to use their business acumen and take Liverpool to the next level. This will be the most interesting thing to watch, and the likelihood is they will succeed."

Football in England has undergone fundamental change since the founding of the Premier League, the country's top league, in 1992. Stadiums are now some of the best and biggest in the world, the threat of hooliganism has largely been eradicated and spectator numbers have increased substantially. It is now the world's most watched sporting league and most lucrative football league. This is largely due to the television and associated media money that has poured into the league's coffers, and one reason why Gillett Jr and Hicks were so keen to get involved. The latest deal guarantees clubs a share of £2.7 billion, which equates to £45 million per year for the period 2007–2010.

However, football has a terrible history of as an investment option – you certainly wouldn't find your average asset manager recommending it as a sure-fire way of protecting your family's inheritance. So why do successful businessmen do it? "Largely, people will continue to struggle to make money out of football," believes McLean. "But there are exceptions and a select few clubs offer the opportunity for revenue and capitalisation growth."

Family ties
Away from the bright lights, inflated pay packets and land of milk and honey television deals, you will find clubs like Brentford FC, currently struggling at the foot of the third tier of English football's hierarchy. Brian Burgess is chairman of Bees United, a not-for-profit trust that aims to give ordinary supporters greater involvement in the club's future and bring it closer to the whole community. "The club has gone through a series of boom and bust cycles where various business owners have put money in while they enjoyed it, but got to a point where they wanted to sell the club when it was losing money every year," admits Burgess.

In 2001, when the club had run up £4.5 million of debt, the trust bought out the then chairman for a nominal fee of £1 and set about raising funds to clear the debt. In the event they found £5.5 million and, in January 2006, formally took over the majority shareholding. Community-based work is a central tenet of the trust – they involve over 30,000 local children in projects that include a learning zone to improve their literacy and IT skills. In recognition of that, Brentford have won the Football League Community Club of the Year award.

"I worry about the long-term future of clubs who are taken over by investors for huge sums of money because the future of the club is in jeopardy as soon as the investors want their money back," says Burgess. "Supporters are the only people who have a long-term perspective because the support passes down the generations." It will be interesting to see if these same family principles, which also founded the business interests of the Gilletts', Hicks' and Glazers', translate into the clubs they are now running.

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