By Alex Felton, Senior Account Director, Reputation, The PHA Group

Widespread outrage greeted the news earlier this year that the Premier league’s self-ascribed “big six” – Manchester City, Manchester United, Liverpool, Chelsea, Arsenal and Tottenham – would break away, and with the top clubs in Spain and Italy form a new European Super-League. The only clubs who rejected advances to join the league were Germany’s Bayern Munich and France’s Paris Saint Germain. The news sent shock waves through European football as fans realised the enormity of the situation and how any break away league would impact domestic football and change the way it was played completely. Fans took to the streets in protest outside their club’s gates, the pundits and commentators were relentless in their widespread condemnation of the plans and other owners and clubs openly voiced their displeasure.

Before we knew it, the plans had been ditched and the clubs were busy issuing sweeping apologies to their supporters and the wider British public. The dollar signs had come down in front of the owners’ eyes and impeded on their best judgement and the reputational implications were both devastating and long-lasting.

The six English clubs which secretly agreed to play in a European Super League have now agreed to pay a combined £22m to draw a line under their ensuing row with the Premier League. The figure was announced in a joint statement by the Premier League and the Football Association. Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham have also agreed to an additional £25m fine and a potential 30-point deduction for any similar transgression in the future. A costly slap on the wrist for their short-sighted transgression from the league they intended to turn their backs on.

The entire episode has left a terrible taste in the mouths of those who support their clubs and follow football closely. Sport and finance have always had an uneasy relationship as bedfellows. Naturally, one cannot function without the other but when those grey lines are blurred, is often where the most intense criticism and tension persists.

To run a sports club is fraught with financial implications and there can be no similar businesses with the same emotional attachment than the ownership of a football club. Fans are stakeholders with no formal financial input to the everyday running of the business, players are employees but now with more power than their bosses and owners may not even live in the same country or even truly understand the sport in which they are invested. All the above make for a catalyst that proves a lucrative but reputationally dangerous minefield for potential investors including private equity firms who can see the potential growth year-on-year.

The pandemic has devastated team sports from football to rugby, cricket and F1. Lucrative sports with mass sponsorships, broadcast deals and gate receipts for ticketing were suddenly staring at their balance sheets with a real shock to the system with no revenue forecast for the foreseeable future with substantial overheads that had to be paid and quickly. It is at times like these where private equity can see the best opportunities and start to pick up the phone to those in need with offers of fresh capital injections.

Towards the end of 2020, reports emerged in the Financial Times that one of the great sporting brands in the world was in talks with private equity for a deal to refinance. The All Blacks (New Zealand Rugby), a national rugby team, were looking for a cash investment into the commercial interest of their rugby union, making it the first time the All Blacks would not solely belong to New Zealanders. Both CVC capital partners and Silver Lake were rumored to be in talks with the latter now considered the frontrunner with the most recent reports stating that the two are in late-stage negotiations over a 12.5% stake. The Pacific nation’s 26 provincial rugby unions have voted unanimously to back a proposed NZ$387.5m (US$281m) investment in New Zealand Rugby by Silver Lake. Criticism has been levied at the All Blacks who have had a hole blown through their finances because of the pandemic but they argue that any deal would transform the game and provide investment for grassroots rugby, technology and other initiatives that would grow the sport. You can hear the purists and journalists sharpening their tongues.

Similarly, another sport that has traditionally struggled to find financing has been targeted by private equity firms in recent months. CVC Capital Partners is considering a minority stake worth $600 million in a combined tennis entity born out of a possible merger of the men’s and women’s professional tours. The ATP, WTA, the four Grand Slams and the International Tennis Federation run different parts of the game and calls for a unified body for the sport have grown stronger after it was ravaged by the shutdown due to the COVID-19 pandemic in 2020.

It is undoubtedly true that sports such as tennis and rugby could do with the investment. Tennis enjoys a massive worldwide following but there are different ranking systems, logos and websites while viewers need multiple pay-per-view TV platforms to watch matches. Any investment could help bring all this under one roof, make it easier for the end consumer and fans to follow as well as impact positively on the bottom line.

The unease felt by fans and the media over these proposed private equity deals into sport has been well-publicised with criticism of big money investment in football and more than one or two eyebrows raised at the prospect of US-based financiers having such a controlling stake in sports like tennis and rugby. The reputational pitfalls for these private equity firms are obvious and navigating each deal to completion and then implementation must be managed carefully under the media spotlight.

As with the fallout from the European super league, if fans are not happy with what they see, they can turn their ire onto the sport in front of the cameras and make the situation very reputationally dangerous for firms looking to enter these sports. Private equity doesn’t have to be a dirty word in the sporting world but it just needs to communicate clearly to fans, the media and those key stakeholders.