City Football Group brings in Chinese partners for $400m

aguero-cameron-trimmed
Chinese Premier Xi Jinping, Sergio Aguero and British Prime Minister David Cameron

Chinese investors have agreed to pay $400m for a stake in City Football Group, the parent company of Premier League title challenger Manchester City Football Club. The funds come from a consortium led by private equity groups China Media Capital and CITIC Capital, both investment funds backed by the Chinese government. The deal will see the consortium take a 13 per cent share in City Football Group, valuing the company at approximately $3bn.

Over the past seven years City Football Group has knit together a global football media and operations conglomerate with an active presence on four continents. In addition to Manchester City FC, the group also owns Melbourne City (A-League), NYC FC (MLS), and holds a minority stake in the Yokohama F. Marinos (J-League).  The new Chinese investors contribute more than just capital, they bring access to the rapidly growing Asian media and consumer markets for City Football Group’s growing stable of brands. China Media Capital is an active investor in sports media, just recently investing $1.25bn to purchase the rights for the Chinese Super League and investing alongside Dalian Wanda in sports marketing firm Infront Sports & Media.

Chinese investors have been extremely active in the soccer market, with domestic teams like the Guangzhou Evergrande closely tied to corporate ownership and La Liga clubs Valencia and Atletico Madrid bringing on new owners. The City Football Group stake represents the first public investment in the English Premier League by Chinese investors, a move that holds particular significance for the league’s growth in the Asian region.

Khaldoon al-Mubarak, chairman of City Football Group, said it best: “Football is the most loved, played and watched sport in the world and in China, the exponential growth pathway for the game is both unique and hugely exciting.”

City Football Group brings in Chinese partners for $400m

ManCity chief business officer moves to NYC FC

Just a quick note about some changes in the City Football Group empire. Tom Glick, Manchester City’s most recent Chief Marketing Officer, is moving to a new role as the president of New York City FC.

Glick brings some deep sports business experience having spent serious time in both the UK and US markets. It looks like he will be tasked with the daily operations and growth of the fledgling club as Chief Business Officer Tim Pernetti, who joined in 2013, is leaving for another opportunity.

The move is more indication that City Football Group is lining up a lot of talent to make sure the New York club has a strong year and is ready to take on the metropolitan market.

Official Announcement | NYCFC.com

ManCity chief business officer moves to NYC FC

The 4 biggest events hitting the soccer business in 2015

In the spirit of the new year here is a look forward at four events that are sure to produce the biggest waves for the business of soccer in 2015.

THE Third Party Ownership FALLOUT

Last September, FIFA released a statement announcing its decision to ban third-party ownership, a practice in which entities other than clubs are able to control the registration of players. At the time it was just a warning with no time frame, but in December FIFA dropped a mini-bomb by setting a deadline of May 2015 for the practice. This came as a shock to . While all existing TPO agreements will be honored until expiration and new contracts formed between now and May are capped at a one year duration.

FIFA’s decision (a correct one in my opinion) has created a horizon whereby investors will be forced to sell in order to realize the value of their agreements before expiry. Previously the only timeframe was the end of a player’s career due to age or injury, as it was extremely unlikely a player would not renew the relationship with the investor.

The exit of investor money should have a significant impact on transfer prices, particularly for players from markets like South America and Portugal where TPO is more common. Whether that shock is seen as early as this summer’s window remains to be seen but there could be some interesting action in the windows ahead.

A NEW FUTURE FOR FIFA?

Sepp Blatter is coming up for re-election this year in what would be his fifth term as the President of FIFA. Blatter was re-elected in 2011 after his only opponent, Mohamed Bin Hammam, then President of the Asian Football Federation, withdrew due to bribery allegations.

The past four years have seen FIFA rocked by allegations of corruption in the World Cup bid process, vote buying in internal elections and the general misconduct of federation chiefs, including bribery and intimidation, in governing their respective territories. All have contributed to a growing public awareness of an institution holding unprecedented control over a multi-billion dollar sport and business with little accompanying accountability or transparency.

John Oliver summed it up best this past summer:


Clearly there are big questions over Blatter’s ability (or willingness) to bring change to FIFA. This doubt was most recently piqued by the resignation of independent ethics investigator Michael Garcia after an alleged attempt to misrepresent the results of his inquiry.

January 29th is the deadline for FIFA members to declare their candidacy; currently the only rumored challenger is Prince Ali bin al-Hussein of Jordan. May 29th is the election date, it’s worth marking down to see what direction FIFA chooses to head in.

FULL FORCE Financial Fair Play

UEFA’s Financial Fair Play regulations will have been in force for 3 years at the end of the 2014-15 season. Although 2011-12 was the first year of FFP regulations, 2014-15 marks the first three year period in which the rules have been fully in effect without exception and at the lowest level of permitted deficit.

Image courtesy of  FinancialFairPlay.co.uk http://www.financialfairplay.co.uk/financial-fair-play-explained.php

Image courtesy of FinancialFairPlay.co.uk

The 2014-15 season then becomes an extremely important gauge for FFP as it should reflect an overall lower level of spending as clubs acclimate to the new regulations.

The coming year will also be a test of FFP’s enforcement mechanisms and whether they represent credible threats to the clubs. Last year UEFA handed out sanctions for failing the break-even rule, most notably to Manchester City and Paris St-Germain. The punishments came in the form of caps on wage increases, transfer spending and squad limits for European competition but fell short of the stringent competition bans desired by some.

Whether these penalties are a true deterrent or merely a luxury tax on clubs with luxury to spare remains to be seen.

HELLO, IT’S INTERNET.

Our final issue takes a step away from governance, regulation and transfer issues and squarely into the business of soccer, specifically the broadcast world. ESPN has just announced a streaming service available for a monthly fee and independent of any cable relationship. Although long anticipated, the launch marks the beginning of streaming as a widespread viable stand-alone alternative to traditional broadcast and cable distribution.

Up till now soccer streaming services have been unimpressive suffering from either limited content (“Oh boy, the Polish Ekstraklasa…”), poor technical performance, little freedom from traditional contracts or just be plainly illegal. The supporter with a computer or mobile had few options to choose from.

While this doesn’t spell the end of traditional distribution channels it is the beginning of a shift for established soccer markets and a drastically new way to reach fans in developing ones.

Do you agree? Did I miss something important? Did I get things totally right? Totally wrong? Tweet at @thesoccerceo

The 4 biggest events hitting the soccer business in 2015

Capitalizing for Financial Fair Play

I thought I would take this blog to answer one of the questions I receive most often. How is it possible for Premier League clubs to spend exorbitant amounts on new players and still remain compliant with the Financial Fair Play rules now in effect? Don’t the millions they spend violate the rules on maintaining breakeven incomes? There are a number of reasons the clubs expect to remain FFP compliant, but the most vital one is based on a core accounting principle.

Accounting 101

Source: Wikipedia

When a club incurs a cost it is treated one of two ways depending on the source. If the cost is related to a benefit that is only applicable to the current year (ex. buying medical tape for the squad) it is treated as an expense . If the cost is incurred for a benefit that is realized over multiple years (ex. improving the stadium) it is capitalized. A cost incurred for a benefit never realized is called a ‘Bebe‘. I kid because I love.

A capitalized cost is then divided over the usable lifetime of the asset. In the case of a player the usable lifetime is the length of his contract. For example, Chelsea have signed André Schürrle to a 5 year contract for £18m. The cash cost is likely to be £18m paid out immediately to Bayer Leverkusen, however the cost of the transfer for accounting/FFP purposes is £3.6m per year.

What about multiple players?

A fan of capitalization (Source: Manchester Evening News)

That puts big transfer price tags in the perspective of a FFP-conscious club. The annual cost does increase as you stack up more transfer in a single year but it makes it more plausible that a club that has spent millions over the past 5 years could actually be compliant. Let’s take a look at Manchester City (shockingly one of the clubs most often linked to this question in my mail).

Below is a schedule that lays out the amortized costs of ManCity’s transfer spending over the last 5 years.

ManCity Amortization Schedule

At the peak in 2012-13, the annual cost of the spending spree totals €94m. The actual number is less important than seeing how the headline grabbing sums are actually spread out for FFP matters.

Capitalizing for Financial Fair Play