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Speaker 1: Hello, Welcome to the Bloomberg Business of Sports podcast, where

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Speaker 1: we explore the big money issues in the world of sports.

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Speaker 1: I'm Michael Barr, him Scarlett Phil and I'm Damian Sasawer,

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Speaker 1: and we are talking about the NFL versus European club

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Speaker 1: football and more importantly, the franchise evaluations. With us to

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Speaker 1: talk about that is Bloomberg Quick Take correspondent Alex Webb.

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Speaker 1: Thanks Alex for joining us on the show. Thank you

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Speaker 1: so much for having me on. So let me ask

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Speaker 1: a big question. First of all, there's a lot of

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Speaker 1: components to sort out here. Uh. Let's start with the

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Speaker 1: NFL versus the European club football or which we call soccer.

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Speaker 1: Uh here in the US, what are the big differences

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Speaker 1: between the two. Well, the fundamental difference is that there's

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Speaker 1: no relegation and promotion in US sports as a whole,

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Speaker 1: And what that means is that you can predict your

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Speaker 1: future earnings with a great degree more accuracy accuracy than

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Speaker 1: you can in Europe. And that's also compound by the

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Speaker 1: fact that in the US and leagues like the NFL

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Speaker 1: and the MLS, the a lot of the broadcast rights

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Speaker 1: are held centrally as actually some of the commercial rights,

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Speaker 1: so it means that revenues are distributed pretty evenly between

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Speaker 1: all the teams. And at the same time, finally, there

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Speaker 1: is a salary cap, so you have a keen sense

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Speaker 1: and not just how much money you're going to make

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Speaker 1: in a few years time, but also how much money

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Speaker 1: you're going to spend in a few years time, so

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Speaker 1: you know, as with any other valuation model, you're usually

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Speaker 1: do it based on how much money you expect to

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Speaker 1: give and company to make over the next few years.

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Speaker 1: The more certainty you have, the higher that number is

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Speaker 1: going to be, the higher the valuation is. In Europe

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Speaker 1: it's a lot harder to do because you might get promoted,

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Speaker 1: you might get relegated, you might buy a player for

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Speaker 1: a hundred million, you might sell a player for a

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Speaker 1: hundred million. All of these things create a huge the

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Speaker 1: amount of unpredictability and make valuations harder to land on.

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Speaker 1: So very interestingly, in the NFL, you've got rich teams

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Speaker 1: basically subsidizing poor teams because you have the league sharing

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Speaker 1: broadcast and merchandise revenue across the teams, there's a salary cap.

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Speaker 1: There's more parody as a result. On the field, whereas

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Speaker 1: it sounds like in European soccer it's a bit of

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Speaker 1: a free for all. If you have the means, then

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Speaker 1: you go for broken. If you don't, you're kind of struggling. Um,

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Speaker 1: what does that mean in terms of when a team

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Speaker 1: is potentially up for sale, Because when it comes down

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Speaker 1: to it, there's no transparency in uh, the sale of

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Speaker 1: European soccer clubs or NFL clubs. These are all private transactions.

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Speaker 1: It's not like anyone has a history that they can

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Speaker 1: really fall back on and compare and contrast. Yeah, exactly,

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Speaker 1: And I mean, look, you have an advantage in the UK.

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Speaker 1: Do you have a body called Companies House where you

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Speaker 1: have to file your accounts publicly so you have some

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Speaker 1: visibility into the earnings of every English soccer team. You

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Speaker 1: don't have that in France, Germany, Italy and beyond. There

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Speaker 1: are a few publicly traded teams, big teams like Manchester United,

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Speaker 1: Juventus in France or Lampi Guillone until recently, but was

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Speaker 1: your dotmund in Germany, so you have a sense to

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Speaker 1: some of those. But you know, Manchester United public public

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Speaker 1: value right now is one point billion dollars. The Glazers

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Speaker 1: they're the American family that owns Manchester United or the

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Speaker 1: Manchester United. They are seeking a six billion dollar valuation

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Speaker 1: according to Bloomberg's reporting. So you know, the difference between

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Speaker 1: what the owners think they're valued at and the public

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Speaker 1: markets think they're valued is quite considerably different. Well, let's

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Speaker 1: let's take step back here. You know, we had heard

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Speaker 1: rumors that Apollo was interested in taking an equity stake

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Speaker 1: in Menu. It sounds now though, that they wanted to

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Speaker 1: provide the debt funding. So my question for you is

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Speaker 1: what role the private equity firms. I'm talking non bank lenders,

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Speaker 1: shadow financiers. You know, silver Lake comes to mind. Haven't

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Speaker 1: funding these huge team buyouts? And more importantly, how much

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Speaker 1: of these outrageous valuations. I mean, forget about man you

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Speaker 1: we talked about the Denver broncos Man City are being

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Speaker 1: driven by this era of rock bottom interest rates and

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Speaker 1: the ability for these teams or these owners to borrow

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Speaker 1: large amounts at a low cost. So there's undeniably a

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Speaker 1: certain element of that. The low interest rates of the

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Speaker 1: past few years have driven something of a feeding frenzy.

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Speaker 1: We also saw KKR get involved at her tebellin the

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Speaker 1: you know German bundes Leigua Team UM. But underpinning it

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Speaker 1: is the expectation is the feeding frenzy over the broadcast rights.

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Speaker 1: The you know, as as you get streaming platforms and

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Speaker 1: few the greater fight over all sorts of intellectual property.

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Speaker 1: The value of broadcast rights continues to go up. The

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Speaker 1: Champions League, which is the premier kind of European club competition,

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Speaker 1: you're talking about a dub doubling of their valuation of

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Speaker 1: their broadcast rights in just the US got to one

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Speaker 1: and a half billion dollars. So that's why if you're

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Speaker 1: in the interest, if you're a private exty funds, getting

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Speaker 1: on on the debt side of things is a far

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Speaker 1: safer way than on the equity side, where you know,

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Speaker 1: if it's debt, you're kind of guaranteed a certain return

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Speaker 1: in a way that you maybe aren't to the same

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Speaker 1: extent on the equity side. But the flip side of that,

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Speaker 1: of course, is the upside is potentially colossal if you

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Speaker 1: get involved. If you purchase a stake in a team

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Speaker 1: that is not doing very well and that team is

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Speaker 1: able to generate a certain amount of finance, sing the

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Speaker 1: valuations can become stratospheric pretty quickly. Good example of this

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Speaker 1: is aston Villa happens to you. My team, Um, they

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Speaker 1: were's Eden's you know, the guy who owns the Milwaukee Bucks.

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Speaker 1: He with an Egyptian investor acquired as No Villa for

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Speaker 1: about a hundred million dollars a hundred million pounds I

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Speaker 1: think it was. That club is now valued at nine

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Speaker 1: hundred million because when he acquired them they were in

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Speaker 1: the Championship, that's the second tier of English football. They've

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Speaker 1: put a lot of money into the club, it got promoted.

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Speaker 1: It is now worth a huge, huge amount. More So,

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Speaker 1: almost investing a football team is like it's like a

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Speaker 1: growth stock. It's like a It's like it's like almost

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Speaker 1: like a venture investment, where you're not necessarily looking at

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Speaker 1: the bottom line. You're looking at the growth potential and

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Speaker 1: how you can multiply revenue. But you know, sometimes people

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Speaker 1: in the midst of all that forget the bottom line

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Speaker 1: and the huge unpredictability of earnings. I want to talk

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Speaker 1: more about Man You and Elon Musk. Last week, Elon

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Speaker 1: Musk said, you know, I want to buy man You.

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Speaker 1: It's like I was just joking, Well, okay, you get

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Speaker 1: your name in the news and this and that whatever.

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Speaker 1: But it does more than that, because when Elon Musk said, hey,

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Speaker 1: I want to buy a Manchester United, Uh, the stock

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Speaker 1: started going up a bit and then you know, hey,

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Speaker 1: I'm just joking and then everything just cooled off. Can

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Speaker 1: you talk about the impact of what Elon Musk did

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Speaker 1: or or is that a problem? In all honesty, I

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Speaker 1: think Elon Musk was a little bit of red herring

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Speaker 1: with Man United that um we knew for a little while.

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Speaker 1: And actually something we've been reporting out that there were

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Speaker 1: some people trying to put together um funding to maybe

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Speaker 1: get involved in acquire man United, and that have been

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Speaker 1: reported and you know, some some big Man United fans.

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Speaker 1: It's sustinctly possible. I don't know this, This is just

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Speaker 1: guess guesswork, but maybe someone did go to Elon Musk

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Speaker 1: and say, hey, would you be interesting getting involved from this?

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Speaker 1: Maybe that's what prompted the tweet. They will see. The

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Speaker 1: thing that's concerning is man United is traded in the

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Speaker 1: US right, so given the problems he already has at

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Speaker 1: times with the SEC you kind of have to wonder

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Speaker 1: whether they would look at this as well or added

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Speaker 1: to the rap sheet. The problem with Man United is

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Speaker 1: that they are owned by this family that is not

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Speaker 1: very popular. I did the maths on how much money

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Speaker 1: has been taken out of the club. It was essentially

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Speaker 1: a leverage buy out seventeen years ago in two thousand

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Speaker 1: and five. Since then to repay and service the debt,

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Speaker 1: they've paid to one point one billion dollars. Given that

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Speaker 1: the Cubs market cap is just two point two billion dollars,

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Speaker 1: that's clearly a big chunk of change they've actually taken

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Speaker 1: out of the club in terms of cash to directly

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Speaker 1: line their own pockets about four million. Now, that four

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Speaker 1: hundred million sounds like a lot, but over the course

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Speaker 1: of seventeen years it comes down to about four million

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Speaker 1: a year, which is less than some of their top

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Speaker 1: players make. So in suit crystallize the value they have

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Speaker 1: in the team, they clearly have to sell a stake

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Speaker 1: and that's what has been reported might be happening sometime now.

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Speaker 1: Thank you for explaining that that. That's really helpful. I

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Speaker 1: guess when it comes down to these European football clubs,

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Speaker 1: what bewilders me a lot of times is how some

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Speaker 1: of these teams lose money regularly, yet they are still

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Speaker 1: extremely valuable. I'm thinking of Chelsea, which you point out

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Speaker 1: in one of your quick take videos loses more than

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Speaker 1: a hundred million dollars a year, but is somehow still

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Speaker 1: worth more than three billion. And I know, ultimately the

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Speaker 1: answer is it's whatever the market will bear, It's whatever

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Speaker 1: someone is willing to pay for it. But why or

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Speaker 1: how did a club like Chelsea come up with the

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Speaker 1: valuation of three billion plus when on a year to

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Speaker 1: year basis it loses a lot of money. So there

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Speaker 1: are you know, we talked about earlier how you might

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Speaker 1: value a typical business and you look at, you know,

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Speaker 1: future cash flows and you draw something out of there.

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Speaker 1: There's there's another model that a lot of sports investors

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Speaker 1: are certainly football team investors, use, which is called the

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Speaker 1: Markham multi variant model, and it's named after this guy,

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Speaker 1: Tom Markham, who came up with it about a decade

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Speaker 1: ago as a PhD student. UM. It looks at the

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Speaker 1: asset value of the club. So a team like Chelsea

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Speaker 1: owns prime real estate in London, UM and then then

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Speaker 1: the asset value will also include the value of its

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Speaker 1: playing squad and it's training around all those things. It

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Speaker 1: then looks at its ability to actually generate a profit

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Speaker 1: from that, how much money it makes from that, but

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Speaker 1: adds in a few variables which give a sense of

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Speaker 1: how well the club is run and how popular it is. So,

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Speaker 1: for example, how what percentage of the stadium is filled

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Speaker 1: for the average game. That's one factor crucially as well

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Speaker 1: what percentage of total revenue is used to pay player salaries?

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Speaker 1: And you know some teams might pay of revenue on

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Speaker 1: some player salaries. That suggests that earnings are not terribly stable.

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Speaker 1: If there are teams that maybe use as the clubs

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Speaker 1: like Liverpool and Tottenham Hotsburg do, perhaps they're slightly better run.

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Speaker 1: And so it's a way of generating a value which

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Speaker 1: I think isn't necessarily the deal of the value which

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Speaker 1: a deal is done, but it often becomes the starting

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Speaker 1: point for a discussion about investment and acquisition. Alex, you

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Speaker 1: mentioned American VIAB from KKR. We're talking about you know

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Speaker 1: Apollo you mentioned with Eden's who's the principle and co

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Speaker 1: founder of Fordress Investments. Today more than half of the

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Speaker 1: twenty English Premier teams are owned in full or part

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Speaker 1: by US entities. So my question for you is what

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Speaker 1: is the sentiment today for US ownership in English football,

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Speaker 1: it can't possibly be good. And my more importantly, do

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Speaker 1: you see the spilling over to American players themselves, players

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Speaker 1: like Brendan Aaronson right, who had that amazing goal for

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Speaker 1: Leads over the weekend, getting any blowback and quite frankly,

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Speaker 1: what type of reception can the U S team expect

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Speaker 1: during the World Cup and Cutter? So I don't think

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Speaker 1: there's been any blowback on the field to the players, right,

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Speaker 1: I'm not sure that there's At risk of sounding supercetious,

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Speaker 1: there's not that much you joined up thinking when it

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Speaker 1: comes to that sort of thing. There is a certain

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Speaker 1: amount of antipathy towards owners, but like not necessarily lumping

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Speaker 1: them all in together, you know. I think wes Eden's

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Speaker 1: Aston Villa is viewed broadly positively because he's put a

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Speaker 1: lot of money into the club. Fans love that if

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Speaker 1: you as long as you know their ideal owner is

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Speaker 1: someone who will just spend money hand over fist, not

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Speaker 1: necessarily be interested in taking your profit. At the moment,

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Speaker 1: he's not been taking any profit out really um but

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Speaker 1: has been checking a lot of money into the squad.

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Speaker 1: Manchester United very different story because as I said, they've

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Speaker 1: taken a lot of money out the team. The bigger

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Speaker 1: concern if you remember about it, you know, not too

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Speaker 1: long ago, there was talking about the Super League, and

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Speaker 1: that is the concern that actually the US ownership groups

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Speaker 1: and as you say, more than half of the teams

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Speaker 1: in the Premiership heavily some co ownership from the US

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Speaker 1: are going to try to de risk their investments. And

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Speaker 1: de risk their investments means somehow get rid of relegation,

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Speaker 1: and of course, in her implicitly promotion, that's what the

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Speaker 1: Super League did. It meant you could have you know,

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Speaker 1: you're basically creating a US Star League where you have

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Speaker 1: the same number of teams, you have a salary cap,

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Speaker 1: all those things we talked about in terms of visibility

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Speaker 1: on earnings, visibility on expenditures. That is the concern that

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Speaker 1: at some stage there will be an effort to recreate

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Speaker 1: that kind of system. The problem is that one of

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Speaker 1: the reasons the Premier League is so popular is because

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Speaker 1: the fan base is so passionate. And one of the

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Speaker 1: reasons the fan base is so passionate it's because the

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Speaker 1: stakes are high. If you have a bad season, you

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Speaker 1: get relegated. If you get relegated, you're going to be

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Speaker 1: in the dolg rooms for a while. That's why the

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Speaker 1: fans care so much. Like the US owners often say,

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Speaker 1: the fan bases in European sport, European football akin to

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Speaker 1: fan bases in college sports in the US. It is

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Speaker 1: incredibly passionate and a lot of that is to do

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Speaker 1: with relegation and promotion. Doar that, Detroit Lions, we don't

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Speaker 1: want to get relegated out of the NFL. I'm sorry,

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Speaker 1: I'm a I'm a I'm a Detroit Lions fan, but

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Speaker 1: you you have laid a lot of knowledge on us.

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Speaker 1: Bloomberg Quick Take correspondent Alex Webb, you're so kind to

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Speaker 1: talk with us. Thank you, sir for joining us on

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Speaker 1: the Bloomberg Business of Sports. There, my absoute pleasure. Thanks

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Speaker 1: for having me. This has been the Bloomberg Business of

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Speaker 1: Sports podcast, and we're here each and every week at

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Speaker 1: the same time, plus on online whenever you get your podcast.

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Speaker 1: You catch those Mondays, Wednesdays and Thursdays. And I'm Michael

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Speaker 1: bar on Twitter at Big Bar Sports. I'm Scarlet Ful

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Speaker 1: catch me on Twitter at Scarlet Foo and I'm gaming

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Speaker 1: in scars our catching on Twitter at d Sasur. You

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Speaker 1: are listening to Bloomberg Business of Sports and Bloomberg Radio

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Speaker 1: around the world. By the way, I don't forget. You

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Speaker 1: can download these podcasts wherever you get your favorite podcasts

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Speaker 1: like this one.