Why Multi-Club Ownership doesn’t (normally) work

To mark the 5 year anniversary on MRKT Insights we will be launching a series of articles and podcasts revisiting some of our favourite topics.

Multi-Club Ownership (MCO) is when a single owner owns multiple football clubs in different countries.

5 years ago there were a small number of ownership groups including Red Bull and City Group. Now there are certainly over 70 groups that qualify. In France alone, 12 of the 18 Ligue 1 clubs could be said to be part of a MCO group.

We have noticed the increasingly popularity of MCO, having worked closely with several groups and advised others on strategy and footballing due diligence. People are often surprised that, as people who believe the model can work, we are also negative on most deals. The truth is most club deals are really bad value, you are buying something that loses significant money every year, the club normally needs rebuilding from top to bottom, and there is normally no expertise in place to make that happen. 

Who is interested in MCO?

There are probably two distinct groups of MCO investors. Those looking to support the ambitions of a main club, and those financial investors who want to create a MCO worth more than the sum of its parts.  

In the Premier League at least 10 are in a formal MCO group, and another 5-8 have shareholders who own multiple clubs or have publicly stated they are pursuing a MCO model.

So if MCO is so popular it must be working really well? Particularly in England.

Let’s examine the typical aims of an English Premier League club led MCO and look for evidence of success in the existing groups.

• Create player pathways, acquiring talent earlier and playing in a similar system before moving into the higher level club.
• Acquire players who would not qualify for a work permit in the UK, moving to the UK once qualified.
• Loan players from the Premier League club to the MCO partner to ensure control over their development.
• Build a group wide style of play, with a shared playing and coaching philosophy.
• Enable economies of scale through shared services across the clubs.

Create player pathways, acquiring talent earlier and playing in a similar system before moving into the higher level club.

Before Brexit clubs in England were able to sign any EU qualified passport holder. Players younger than 18 years of age could move into UK clubs, it was common for the best teenage players from France, Spain, and Germany to move into Premier League club academies.

This is no longer possible, players are now restricted by FIFA cross-border rules and now cannot join EPL teams before the age of 18.

Clubs have tried to counter this by buying a club in the EU to enable them to still compete for these players.

There is a major problem though. Players will happily leave major European club academies to play in the youth team of Manchester City, Chelsea, or Arsenal. They won’t leave Barcelona to play at Lommel or Strasbourg, even if it is under the same ownership.

The theory is sound but the true elite players have a choice, the likes of Juve U23 offers a more obvious pathway – training at the same facility with matchdays in Serie C – into the Juventus first team than being signed to a club hundreds of kilometers from the parent club.

It is also true that these player pathways are just theoretical at most clubs. Until clubs can offer evidence that players signed at the MCO partner clubs can progress into the EPL team then I think we are right to be cynical.

A Premier League academy player will be in a £100m training facility and be known to the first team coaches. The same player in a MCO partner club will be playing in a £5m training facility and barely known to anyone at the parent club. It isn’t the same pull for talented players. Brighton have had some success with USG (a partner club rather than a formal MCO) with loans but the players have signed for Brighton and been loaned to USG rather than being signed by the partner club.

The MCO partner club has to be playing at a high level and play a similar style of football to the parent club for the loan to work well.

Which leads us onto the MAJOR PROBLEM #1

There are probably about 100 players in the world in each position good enough to play on a Premier League team starting XI.

The average signing costs about £20m and is paid about £100k a week. 

Premier League starting quality players usually are signed from the top divisions of France, Germany, Italy, Spain, Portugal, Netherlands, Brazil and Belgium. For the smaller leagues it is usually only Champions League quality teams (Benfica, Club Brugge, Ajax) who sell directly to the Premier League.

This is a classic Goldilocks problem, if the level of football you can offer is too low the player won’t be ready for a transfer to the EPL. However if they need to be playing European football to be good enough to move then that is too high a level.

The problem is that you cannot own a club playing in the same European competition as you. This has major consequences. Brighton and USG, who we previously showed as an example of good loans have now effectively been banned from working together.

Aston Villa (Vitoria Guimaraes) and AC Milan (Toulouse) have also had a to separate ownership and back office operations from their partners due to the ownership rules.

If you buy a club in France, and make them good enough to supply Premier League players, then you also make it likely you will be forced to divest due to that success.

MAJOR PROBLEM #2 is that in order to attract EPL quality players you will need to pay significantly higher wages than is sustainable at the club. One of the biggest problems with MCO is that most clubs lose money, a lot of money, each year before player trading. We  can be talking £5-10m of underlying losses with their current budgets. Increasing the budgets at clubs could see that annual loss increase into the £10m-£30m range. Different leagues have different financial controls and licensing laws but even if you are allowed to spend that much extra money it makes it very difficult to cover the losses. MCO is not cheap, you will likely run a loss at every club you own.

Which leads to MAJOR PROBLEM #3 or perhaps MAJOR OPPORTUNITY #1 depending on how you look at it. If you develop a really good player in your smaller MCO club then he has a market value, perhaps £10m. If you believe your player is potentially worth £20m in the future and could contribute to the first team at the bigger club you can move him there (if he wants, players have free choice). But for what fee? Too low and your losses at the feeder club will very high and potentially cause financial issues. Too high and the same problem will be true for the buying club.  

This ability to shift profits and losses across a group of clubs, or to acquire players at below English market rates from a related club represent a big challenge to financial regulators. English clubs are currently locked into a work permit system that has shrunk their ability to be clever, they are forced into paying high prices for proven players. It is no surprise that they are looking for ways to access cheaper sources of players. 

With financial restrictions likely to lead to a cap on wages/fees linked with turnover what better way to increase your spending headroom than by being able to transfer fees and wages of players you would like in your squad to a separate entity?

Acquire players who would not qualify for a work permit in the UK, moving to the UK once qualified.

This is definitely an advantage, a very significant one, but it comes with a lot of caveats. Players playing regularly in a GBE Band 1 (France 1, Germany 1, Spain 1, Italy 1) or Band 2 (Netherlands 1, Portugal 1, Belgium 1, Turkey 1) will likely give players sufficient points to qualify for a UK work permit. 

Outside of those leagues it will still be difficult to get GBE status, but ESC should be possible for countries is Bands 3-5. Confusing isn’t it? But you need to have planned a full pathway for players and have expert knowledge of visa regulations in all markets before even thinking of buying a MCO club. 

We also can’t rely on rules staying the same. A regulatory tweak could diminish the entire business case for an investment. The biggest lesson is that club investments need to be able to stand alone as solid purchases.

Loan players from the Premier League club to the MCO partner to ensure control over their development.

Another theoretical advantage is to be able to offer pathways for your surplus Premier League talent. 

Again I say theoretical, there really isn’t much evidence of this happening. Future EPL starters are generally retained at EPL level or loaned to other EPL or Championship clubs. Intra MCO loans tend to be where e.g. Chelsea sign a player and loan him to Strasbourg. That isn’t really any different from Strasbourg signing a player. The only difference is the Chelsea name and financing has allowed Strasbourg to sign a player they otherwise wouldn’t have been able to sign and Chelsea having some control over the player.

But MAJOR ISSUE #4 how much control do you really have over the player’s development?

Everybody in football is motivated by their own career and reputation. Coaches and players want to win games, let alone the local fanbase. Bringing in some theorterically “better” players from the wider group sounds like a great idea but it also introduces problems. Are the players what are needed to help the team win more? Do they have the motivation to work hard for a mid-table team in Belgium when they have been starters in Brazil and are already signed to a 5 year EPL contract?

Then MAJOR ISSUE #5

Will the player you have signed to your MCO partner actually be the best option for your first 

team when you have a need for a new signing?

Imagine you could rate players on a 0-100 scale accurately. To get into the Champions League level EPL team you need to be ready to play at a level of 87 

There are 10 externally sourced players rated 87 or higher that the club can buy. For the MCO partner player to be selected they must also be an 87, not potentially in the future, but at that exact moment in time.

If they aren’t ready then a player rated 87 will be signed and occupy that first team position. If your player is 87 rated in 18 months time they still won’t be able to get into the parent club. There won’t be space in the team.

In our graph below 4 of our XI players reach the 87 score, a right back, left back, central midfielder and left winger. Great. But if out team needs are for a Striker, 10, and right winger it is not useful apart from for raising revenue by selling them.

Having a pipeline of talent is a good thing, it can help clubs generate revenue through player trading. But you don’t need to own a separate club to do that. You can access those benefits through scouting and a youth system. Indeed there are far more youth players in first teams of the big multi-club teams than there are MCO partner players who have progressed through their systems.

The separate club has to offer a benefit beyond potential future first team players because:

• Predicting future ability is hard
• However good your in-network players are there will always be a worldwide market of potentially better players
• Timing is everything, the right player has to be ready in the exact transfer window when he is needed for the top team in the network.

Build a group wide style of play, with a shared playing and coaching philosophy.

Some MCO have tried to change that by creating group playing philosophies and coaching pathways, Red Bull have done this very successfully, and City Group are developing excellent coaches. However the track record of most MCO groups is poor. 

It should not be underestimated how difficult it is to have a shared playing and coaching philosophy within one club, let alone multiple clubs in multiple countries with different languages and playing cultures.

Who can actually do this? Very few people have the skills or personalties to do this well.

Firstly all clubs have their own cultures and are very reluctant to change them. A club with a 100 year history and strong local fanbase won’t suddenly be happy to change their playing style, replace all their coaches, and be seen as the junior partner to a club from a different country. Most likely they will fight back and actively work against your project succeeding. Some potential owners have been shocked when I’ve mentioned that fans of small clubs in Europe actively don’t want outsiders coming in with money and changing their club, they don’t see being the feeder team of another club as a desirable outcome.

It is no surprise that the most successful multi-club group expansion team (RB Leipzig) was effectively a “start up” club without a substantial fanbase and where the processes could be built in from the start.

Enable economies of scale through shared services across the clubs.

This should be possible but the likely savings are fairly insignificant. Take scouting and recruitment, generally the departments aren’t that big to begin with and aren’t a hugely significant cost centre. 

Your main costs by far, are player wages and infrastructure maintenance, and you won’t save money on either of these. In fact wages will generally increase as EPL potential players are signed to the MCO partner club, and facilities will tend to be upgraded by the ownership group. 

There may be, although it hasn’t really come to fruition in my experience, the ability to perhaps increase income by sharing commercial or club management expertise across the group but again this is theoretical, where is the evidence that the links with the parent club helps the partner increase revenue. It may actual do the opposite as local sponsors don’t want to be tied to a club owned by a huge multinational sports organisation.

Now we’ve established what doesn’t work why don’t we look at what does work in an MCO group.

The most important rule:

The club must work as a standalone investment.

Would you buy this club if it wasn’t part of an MCO deal?

The fundamentals of finances, location, potential, player development success all need to work independently of the MCO structure. 

When you are buying a club as a MCO group you are buying an organisation that somebody else has been running. The decisions they have already made, and the contracts they have already signed, will have consequences that you will benefit or suffer from.

You need expert advice on whether the decisions are good or bad.  A prime postiive example is Toulouse FC, purchased by RedBird for around £18m. Within the youth system were about £40m of emerging talents ready to be sold in the next three years. A history of player development and thriving youth system can be worth tens of millions and take years to replicate.

This is unusual, more often club buyers are given very optimistic player valuations. Recently a club was marketed with “playing assets valued at over £60m” but our independent valuation came in closer to £15m when we took into account the player’s current wages which were far higher than their current market value.

Is it worth it?

There is a fairly simple formula you can apply to seeing if the club is worth it.

Purchase price + annual loss before player trading for next 5 years = Total Cost

Club value in 5 years + annual player trading profit  =  Total Income

People are massively prone to positive forecasts. You will almost certainly underestimate losses and overestimate the club value and annual player trading profits.

Again independent advice is useful at this stage. We constantly have investment and sales decks from football clubs, very few have any potential for the investor to do anything but lose a lot of money. 

On the other hand once in a while there is a deal available that makes sense. It is worth being patient. 

Does the club offer a competitive advantage in player recruitment through visa rules or strategic location?

The club must allow you to purchase or develop players you could not otherwise recruit.

It needs to offer a strategic advantage; perhaps allowing you to sign non-EU players, or is located in an area with excellent demographics.

If it doesn’t then it is hard to see where the additional value can come from, you may as well just scout. 

Does the target club want to be part of an MCO?

Ownership groups underestimate how much resistance there can be from fans groups to be part of a MCO group. Fans want their club to be the number one focus of their owners. They want to be set up to win. Any indication that their club is being held back in any way from success and they will let you know about it. 

The worst possible targets for MCO are clubs with large, passionate fan bases. They won’t be grateful for investment. 

It should also not be underestimated how hard it is to staff these clubs properly. For every person who embraces the opportunity there will be many who treat it at best with suspicion and at worst will actively work against it succeeding. 

The transformational work of taking a club that has been self contained and expecting them to collaborate with  “colleagues” from a foreign club who may not speak their language or share their views is a huge challenge.

Who will manage the project?

You have two options; central control with all decisions made at group level, or local control with freedom for them to reach group set targets.

Central control makes a lot of sense, most businesses would run like that. 

But football is not most businesses. 

It is a people business and there are very few staff who are used to working off a central script. Professional freedom and intuition about what the group need in that moment is expected. 

Too much freedom and the project loses focus though. If the investment has been made for player trading then you want your assets gaining value, not sat on the bench.

Finding people who understand the project, and have the ability to successful execute the strategy is extremely difficult. Language and cultural barriers are huge and in our time working across the world is has been eye opening to see how different attitudes and openness to ideas can be even within countries let alone between.

How do you align incentives? Both personal and reputational.

Which moves us onto incentives. People want to win in football. No club will be happy losing games. 

You can’t demand centrally a focus on playing young players if the cost is worse results. The Head Coach will not sacrifice their one shot at being in charge of a first team so that some loanee from the parent club gets more game time.

This is why the bigger club networks have created their own internal coaching systems, training on the group-style, and making sure external recruits always fit.

So few people actually get what the purpose of a MCO project is. It is generally poorly communicated and there is little experience in football of what a well functioning MCO should look like.  

You need to find people who buy into the vision and back them to succeed.

And finally….

What does a good MCO strategy look like?

This is the bit we can’t give away for free. 

We believe we have the expertise to advise groups on;

Whether MCO is right for them. What are the motivations for building it?

Where to buy clubs.

What good deals look like.

The best shared systems.

How to staff the projects.

How to actually generate profit from the investment.

If MCO is part of your vision please get in touch.