What Stands Between You and Successful Multi-club Ownership?
Multi-club ownership (MCO) models are common in the sports world. Some in the industry believe it will eventually become the norm. What does the MCO model offer to aspiring purchasers? What challenges does it bring? And how can aspiring purchasers know when they are ready to buy?
The MCO trend shows no sign of slowing
MCOs have seen rapid growth across the sports world over the past ten years. According to UEFA’s 2022 Club Licensing Benchmarking Report, the number MCO transactions in association football had increased year-on-year over the previous 11 years. From 2012 to 2022, the number of clubs that were part of MCOs increased by 4.5 times (from 40 to 180).
Figure 1: Multi-club Ownership Transactions from 2012-2022
While Europe has seen multi-country groups focus predominantly on association football (e.g., City Football Group), Indian groups are focused on cricket. 80% of Indian Premier League (IPL) franchises own one or more teams in foreign cricket competitions: Caribbean Premier League, SA20 (South Africa), International League T20 (United Arab Emirates), and Major League Cricket (USA). The IPL franchises are likely to be very interested when the England and Wales Cricket Board sells 49% of its shares in its Hundred franchises later this year.
North America has a plethora of multi-sport groups with a predominantly North-American focus (e.g., Fenway Sports Group). However, these groups are increasingly turning their interest to European football clubs. Jamie Dinan, hedge fund billionaire and co-owner of the Milwaukee Bucks, believes “there’s a lot more low-hanging fruit in European football.” European clubs are attractive because often there is significant opportunity to improve their business operations (low hanging fruit) plus they often own their own stadia.
MCOs strengthen clubs’ two main assets: players and revenue
Why are MCOs so popular within the sports world?
The most obvious reason is that MCOs have greater access to and ability to control players. By competing in multiple countries, they better understand they global player market. They can also offer a more attractive career path to up-and-coming players than a traditional club. Once they’ve signed a player, big MCOs like City Football Group can move players among their clubs, optimising the player’s game time and development.
Another reason is to protect against the risk of relegation. If a traditional club gets relegated, its future revenue instantly falls and its ability to maintain players is jeopardised. As a portfolio of clubs, if one club is relegated, an MCO’s overall revenue is not greatly affected. And it can reallocate players amongst its other clubs.
Perhaps a less-obvious benefit of MCOs is the opportunity to cross-sell sponsorship through commercial portfolios. The cost to acquire a sponsor is significant for any club. MCOs have an ability to sell sponsorship across multiple teams in multiple markets. Why spend all that effort to sell one front-of-shirt patch if you can sell three?
MCOs bring new complexities
A single club is a complex operation in its own right. It must consider its players, fans, league, sponsors, broadcasters, local government, etc. It has multiple revenue sources (match-day, broadcast, sponsorship, etc.). It must honour its history while piloting its future. It has many interests to balance and agendas to manage.
MCOs have all of these considerations plus additional complexity related to strategic alignment, decision making, internal reporting… the list goes on. MCO groups reflect conglomerates like Unilever as much as they do traditional clubs.
In the world of corporate finance, conglomerates’ values are often discounted. This “conglomerate discount” reflects difficulties in acquiring and managing a collection of companies: paying the right price for acquisitions, managing a broader strategic perspective, realising integration synergies, efficiently allocating capital, providing transparency to the market, etc.
Figure 2: Persistence in the Conglomerate Discount – Worldscope, FactSet, and Citi
Is the MCO model right for you?
Each sports club has its own unique circumstances. Making an acquisition (or being acquired) will not suit every club. I have developed five high-level questions that organisations should ask themselves to determine whether the MCO journey is right for them.
Figure 3: Questions for Self-determining Suitability for Multi-club Ownership
Each of these high-level questions can be broken into more granular questions looking at motivation, alignment, current ways of working, and financing. They are useful for leadership teams to consider at any stage of their MCO journey.
1. Do you know why you want to acquire?
This group of questions looks at your drivers for starting or growing an MCO. Do you understand your rationale for acquiring another club? And, more importantly, is that rationale aligned to your overall strategy?
“Do you have a clearly articulated vision for your group of clubs?”
Questions such as the above challenge you to define your objectives in concrete terms. They test whether you understand the trade-offs required to pursue MCO, and whether your leadership team is aligned on this approach.
This first group of questions is the arguably the most important. Without a vision, a strategy, and leadership alignment, there’s no point starting the MCO journey.
2. Do you know for what you are looking?
After establishing your strategic intent, you must define the characteristics required in an acquisition target. This next set of questions ensure you’ve fully considered what will contribute to your strategy, what will detract, and what will be inconsequential. For example,
“Does your search criteria consider your and your targets’ cultures and values?”
These questions address the full range of considerations: not just cost, location, and performance, but also values, culture, and operating principles. They ensure that your criteria address all considerations required for a successful acquisition and integration.
3. What is your approach to integration?
Before going to market, it is important to have a high-level understanding of what happens once you make an acquisition. You don’t require a detailed plan (yet), but some general principles are useful. They will inform your discussions with potential targets as well as your acquisition business case. For example,
“What will you communicate to fans, sponsors, players, and staff? When? How?”
What you communicate to stakeholders is only one of many factors to consider. Defining your approach to these factors up front will improve the efficiency of your MCO process.
4. Are you set-up to search, evaluate, and acquire?
This is arguably the hardest group of questions to answer because it requires brutal honesty. For example,
“Do you have an established process for searching for and evaluating potential targets?”
You will likely kiss a lot of frogs on the MCO journey. It’s important to have an efficient process for identifying, evaluating, and negotiating with potential acquisitions.
Getting to contract negotiations will require a lot of effort, but there’s no holiday once the contract is signed. As with any conglomerate, MCOs will find it harder to make decisions, manage processes, report on performance, align strategies, etc. Not every club is set up for this extra effort. The MCO journey can be fatal to the unprepared.
Before you begin, it is imperative you truly understand whether your current organisation is ready to build and lead an MCO.
5. How will you build your business case?
Your acquisition business case should not be simply based on numbers. To be realistic and robust, it must synthesise the answers to all of the above questions, while also considering the various outcomes possible following the acquisition. For example,
“What happens to your business case if things go wrong (e.g., relegation; negative fan reaction) or right (e.g., two of your clubs qualify for the same inter-league tournament)?”
Especially important, your business case must link directly to your strategic objectives. Without that, you cannot be sure the acquisition is in your club’s best interests.
Summary
MCOs are increasing in popularity, but they might not be for every club. There are many internal considerations to make before a club starts its MCO journey: culture, values, strategic alignment, decision making, processes, and data flows, to name but a few.
I have developed a checklist that provides more detailed questions to help determine whether your club is ready for MCO. Club leaders and group CEOs can use the checklist to ensure they have a strategy in place; understand what they want in a target; and are truly prepared to search for, evaluate, and acquire another club. It is a great way of structuring and managing internal MCO discussions. Get your copy using the “download checklist” button below.
I hope you found this article interesting and useful. If you have further questions or comments, please don't hesitate to reach out. I'm always happy to help.
Jacques
