Alongside the rise of investment from sovereign wealth and
private equity funds, sport has also seen an increase in
multi-club/franchise ownership groups. These groups, often spanning
across different sports, leagues, countries, and continents, allow
investors to diversify their portfolios and spread their risks.
However, in football, the rise of the Multi-Club Ownership
(MCOs) model poses a challenge for how the sport is governed and
has implications on current and future financial regulation. MCOs
acquire multiple football clubs, building a network of related
teams in the process. This, consequentially, has a knock-on effect
on player transfers, commercial opportunities, and the overall
competitive balance of football across the globe.
In this article, we discuss the benefits of MCOs for both clubs
and owners, the potential competitive advantages clubs can gain
through MCOs, and whether the existing financial regulations are
fit for purpose given the increasing number of MCOs within the
sport.
Governance
One of the key benefits for clubs under an MCO structure is the
ability to leverage centralized governance infrastructure and apply
lessons learned from across the group. By centralizing key
departments at the portfolio level, and incentivizing knowledge
sharing within the group, MCOs can apply synergies and implement
best practices with each new acquisition, leading to a more
effective and efficient operation. Additionally, the centralized
governance structure within an MCO brings with it opportunities for
financial benefits in the form of cost savings and potentially
increased revenues.
Sponsorships and Commercial Deals
Operating under an MCO allows clubs to benefit from sponsorships
and other commercial deals negotiated at the group level, while
also increasing individual brand awareness for each respective
club. For example, an MCO could negotiate a group sponsorship
agreement with a kit manufacturer or shirt sponsor covering a
number of teams within the group, including the flagship club.
Agreements of this kind would be beneficial for all parties
involved. The sponsor increases its own profile by being associated
with the flagship club, while also getting instant access to a
variety of markets through the other clubs in the agreement. At the
group level, the homogeneity created by having clubs within the
group playing in similar kits creates a stronger brand identity,
whilst also boosting the brand profile for the smaller clubs by
further associating them with the flagship club. Additionally, a
group agreement would allow the MCO to secure a competitive rate
that may have been unattainable for a solitary club.
Player Scouting, Acquisition, and Development
The other major financial benefit for clubs in an MCO structure
relates to how players are scouted, acquired, and developed. A
common feature of MCOs is the application of a uniform strategy,
across all portfolio clubs, set at a group level by a
Sporting/Technical Director. When trickled down to each club, this
results in a global scouting network, acquiring local talent with
the group’s playing style in mind. These players will then be
brought into an academy, through which they will be developed to
play in the MCO’s preferred playing style.
While this does not represent an immediate cost saving, this
network of local scouting and academies at the club level can lead
to a significant competitive and financial advantage as players
move within the group from smaller clubs to the flagship club. By
transferring or loaning players “in-house”, MCOs can
ensure that a player’s development is not hampered by being
played in an unfavorable position, or by being asked to perform a
different role, protecting their value.
Additionally, by acquiring players from within the group, clubs
save both time and money on scouting, as players are already a
known quantity within the network. Furthermore, the receiving club
acquires a player tailor-made to their playing style, reducing the
time required to bed them in.
“In-house” Transfer Agreements
As exemplified by the transfer of Hassane Kamara between Pozzo
family-owned clubs Watford and Udinese, “in-house”
transfers can be leveraged to alleviate financial constraints for
clubs within the group.Kamara, initially
purchased by Watford in January 2022 for £4m, and who went on
to be Watford’s player of the season, was subsequently sold to
Udinese in August 2022 for £16m.
However, Kamara was then loaned straight back to Watford for the
2022/23 season. Although prima facie, this transfer does not
benefit Udinese, it allowed Watford to recognize an £8m
profit on Kamara while retaining his services, and strengthening
their cash flow at a time when they were negotiating contracts with
other star players. While “in-house” transfers of this
kind raise questions regarding their fitness and propriety, they
also have implications on competitive balance.
Parent Feeder
The most recognizable transfer strategy within MCOs is the
feeder club model. This can be mutually beneficial to both clubs,
with the best-performing players transferring to the
“parent” clubs” and the “feeder” club
receiving transfer income, as well as occasional loan transfers of
youth team players to develop while remaining in the MCO
structure.
Such a relationship can be seen between Red Bull owned, RB
Leipzig (RBL) and FC Red Bull Salzburg (FCS). Since 2015, twelve
players have transferred directly from FCS to RBL, with transfer
fees totaling £119.75m. Eight of these players, bought for a
total of £73.85m have subsequently been sold for a total of
£117.50m, generating £43.65 profit RBL. The cumulative
market value of the four players still playing for RBL has risen by
£26.32m since their relevant transfers. For perspective,
there have only been four transfers from RBL to FCS in the same
period.1
Competition Integrity
Although centralized governance structures provide a wealth of
benefits to clubs and owners within MCOs, there is a regulation to
limit the effects of centralized governance on the integrity of
competition.
UEFA’s regulations on common ownership prohibit teams from
competing in the same competition where a single person or entity
has a de facto control over both clubs. For clubs under
common ownership to compete in the same competition, they must
demonstrate that there are disparities within the clubs’
corporate matters, financing, personnel, and sponsorship
arrangements.
On only one occasion
since 2002 has UEFA’s rule on common ownership been considered.
RBL and FCS both qualified for the 2017/18 Champions League and had
to make significant structural changes in order for both teams to
be admitted to that season’s edition. Therefore, as long as
MCOs are willing to sacrifice centralized operations to an extent
satisfactory to UEFA regulations, mutual competition is allowed.
However, while many smaller clubs within more centralized MCO
structures may not have short-term goals of European Football, UEFA
regulations do raise questions over the investor’s long-term
footballing ambitions for those clubs.
Financial Sustainability Regulations
In addition to the on-field benefits, being part of an MCO also
provides opportunities for clubs to improve their financial
position, and potentially exploit loopholes in existing financial
regulation. UEFA’s recently introduced Financial Sustainability
Rules (FSR) are built upon three pillars: solvency, stability, and
cost control. The new cost control regulation, known as the squad
cost ratio, states that a club’s outlays on wages, agents’
fees, and amortization costs must be less than 70% of club
revenues.2
In a scenario where an MCO owned club requires to decrease their
squad cost ratio, it is possible that group sponsorship agreements
and in-house transfers could be used to achieve this. By selling
players within an MCO, and then receiving those players back on
loan, clubs will recognize a profit on the sale for the purposes of
FSR and bring down their squad cost ratio.
When considering group sponsorship agreements in respect of FSR,
it is also possible that the accounting treatment of this contract
at the club level could be engineered to assist a club in complying
with the squad cost ratio. The allocation of revenue from a
group-level sponsorship to each of the clubs under the agreement is
not required to be split evenly, which provides MCOs with an
opportunity to funnel revenues from group sponsorships to their
clubs complying with FSR. With no current guidance or regulation on
how group sponsorships should be treated from an accounting
perspective, group sponsorships are another tool that can be
utilized to improve their squad cost ratio.
Fair Value Regulations
Although MCOs bring opportunities to improve squad cost ratios,
the FSR regulations also require all transactions to be made at
“fair value”. This means that financial arrangements for
sponsorships and player transfers must be accounted for on an
“arm’s length” basis. Where there are doubts amongst
the Club Financial Control Body (CFCB) board, it can request an
adjustment of the proceeds resulting from the transfer of a player,
or the allocation of sponsorship monies.
However, there is currently no precedent or evidence to indicate
how UEFA would view the accounting treatment for a club under a
group sponsorship agreement or the transfer of players within MCOs.
Furthermore, while there is a clear means to value a sponsorship
agreement, this is considerably more difficult with regard to
transfers, specifically the valuation of a player.
While age, injury record, marketability, and contract length,
are all attributable factors, a player’s worth comes down to
how much the selling club desires weighted against how much the
buying club is willing to pay. An MCO structure circumvents this
issue and allows for “in-house” transfers at an inflated
value stipulated by the shared owner/s. Given the regulations, it
is unlikely any club would want to pique the interests of the CFCB
by hyper-inflating the value of a transfer, but whether MCOs will
be deterred from increasing the value of in house transfers by
smaller, nominal values remains to be seen.
The Future of MCOs
Recent trends have shown that the existence of MCOs will be
sustained over the coming years. Sport has developed alongside the
increasingly commercialized world, resulting in significant growth
in investor interest across multiple clubs and sports. However, how
the governance and regulation of MCOs evolves will define their
development in the long term. Another factor that must be
considered is whether investors will prefer multi-sport ownership
(MSOs), which bring with them their own regulatory considerations,
particularly in relation to conflicts of interest. Nonetheless, in
the immediate future we expect continued investment in Football,
the question is whether they remain satisfied with just one club,
or one sport.
Footnotes
1 All figures have been taken from
2 A full copy of UEFA’s new regulations can be found
here
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