What does the Truss Premiership mean for private equity investment in football?

Truss’ in-tray is bulging as she enters No.10, and although a World Cup win in Qatar would undoubtedly inject a much-needed boost of morale to the long, bleak winter ahead, football is unlikely to be at the top of her to-do list.

But love it or loathe it, no one can deny the Premier League’s role as a significant source of UK soft power and, increasingly, world football’s dominant financial power. The 2022 summer transfer window is a prime example; Premier League clubs spent around £1.9 billion, pulverizing the previous record of £1.4 billion set in 2017. Put another way, England’s top twenty clubs spent more than all clubs in Spain’s LaLiga, Italy’s Serie A and Germany’s Bundesliga combined. The UK government plays a major role in creating a favourable political and regulatory environment for football’s finances to thrive, and under successive Conservative governments, that’s exactly what’s happened. Truss, as former Trade Secretary, will be acutely aware of the league’s status as one of the UK’s most successful exports.

Nevertheless, football has found itself increasingly in the political and public spotlight in recent years, most notably with the unprecedented wave of backlash to the now aborted plans for six Premier League clubs to break away and form a European Super League. Arguably one of the biggest own goals in recent football history, JP Morgan Chase & Co had allegedly intended to back the project. In 2022, the government found itself under mounting pressure to sanction then Chelsea owner, Roman Abramovich, possibly the most well-known Russian oligarch in the UK. Whilst Abramovich was not initially included on the sanctions list in response to Russia’s invasion of Ukraine, the sale of the club for over £4 billion to a consortium led by American Todd Boehly and private equity firm Clearlake Capital, was not without controversy.

Politicians have also made notable comments about footballers in the press. In the early days of the Covid-19 pandemic, then Health Secretary, Matt Hancock, said “I think the first thing that Premier League footballers can do is make a contribution, take a pay cut, and play their part.” The decision of footballers to take the knee in support of the Black Lives Matter movement and anti-racism in the sport also received mixed political response. Truss herself, then Equalities Minister, criticized the practice, saying it was “not the right thing to do” and a form of “identity politics focused on symbols and gestures.”

This has culminated in a remarkable appetite for change, primarily driven by fans, to address the culture, governance and financial flow in the existing football system. In his overly-enthusiastic opposition to the European Super League (despite hosting the former Executive Vice-Chairman of Manchester United just days earlier and declaring it – according to a government source – “a great idea”), Boris Johnson commissioned Tracey Crouch to chair the Fan-Led Review of Football Governance. The report is not a perfect roadmap (it says very little about women’s football or the sport’s toxic relationship with the gambling industry), but its diagnoses are damning: the underlying disconnect between fans and owners, inadequate regulation, and the cavernous financial inequality between the biggest and smallest clubs. To shake this up, the review proposes the establishment of an independent regulator which would oversee financial regulation in the sport, an increased role for fans in club decision making, and a 10% transfer levy on Premier League clubs to be distributed to the grassroots game.

Although Truss previously indicated that she would back the review’s 47 recommendations, recent rumours suggest that she will now backtrack on this due to waning support amongst influential players in her own team. Johnson recognised the popular appeal of football and was fully prepared to harness it ahead of the next general election. Truss will have bigger challenges and priorities to grapple with and is likely to lack the political appetite to drive forward a complete structural overhaul of the sport.

Football’s growing fanbase

Private equity has gradually been gaining a foothold in the world’s most popular sport and will be a keen spectator to Truss’ next move. Taking a lead from the billionaire soccer fans, Middle East petrodollars, and the spate of Chinese purchases which have dominated football investment over the past two decades, private equity, credit vehicles and hedge funds now represent the latest wave of investors. The industry was once considered too risky due to eye-watering levels of debt, inflated player salaries and the unpredictability of politics and febrile fans. The threat of relegation if teams don’t perform well means that returns are never guaranteed. However, investors are finding creative ways to address this volatility. Some have loaned money to keep Europe’s high-profile clubs afloat. Others have purchased media rights, bought a stable of smaller teams, or snapped up stakes in clubs as assets in peril. In 2019, US private equity firm Silver Lake paid $500 million for a 10% stake in City Football Group, which counts Manchester City, Yokohama F. Marinos in Japan, Girona FC in Spain, and New York City football team in its collection. Some are even pursuing the Holy Grail of investing in an entire league, like UK-based private equity firm CVC Capital Partners’ venture with Spain’s LaLiga.

European football has always been cash hungry, but that has grown more acute since the pandemic kept crowds away from stadiums and left some of the continent’s biggest and most successful clubs with soaring debt. Indeed, it was the catalyst behind the failed breakaway Super League. This had left many Premier League clubs reeling at the suggestions included in the Fan-Led Review, and arguing that proposed changes would reduce the competitiveness of the league and therefore its value to the UK. Private equity investors are concerned that cascading finances down the system will impact their returns. However, in an attempt to address some of the issues highlighted by the review, many clubs are taking remedial action (such as introducing supporter ‘shadow boards’) in an attempt to stave off full frontal regulatory reform. By addressing concerns around governance and financial fluidity downstream in the system, the Premier League could alleviate some of the existing political pressures.

Whether Truss gives the recommendations a red card or not, you can’t help but sense that change is on the horizon for the Premier League. Nevertheless, there will always be a strong demand for English football and fans will continue to buy tickets. These two simple facts mean private equity is unlikely to be relegated from football any time soon.