We’ve heard a fair amount from Chelsea co-owner Todd Boehly over the past few months, but more recently, it was fellow co-owner Behdad Eghbali’s turn to speak at a business conference, appearing at SporticoLive’s “Invest in Sports” Summit back in mid-October, as part of the “Expanding International Portfolios” panel.
Video of the full conversation was published about a month later, and now, thankfully, Football.London have transcribed all of Eghbali’s words, so we don’t have to sit through the public-speaking of a person not very good at public speaking. Clearly that’s not what he gets paid for.
Most of what he says we’ve heard before, at least in broad terms. Basically, they (i.e. Boehly and Clearlake) saw an unexpected opportunity — boy, those sanctions sure worked good! — with an underdeveloped asset in an underutilized market, and are looking to take advantage of a massive untapped market by taking lessons from what’s worked in other leagues (NFL, MLB) and combining that with the current hotness in football (i.e. the multi-club model).
“For us, it was about looking at the macro. You look at the NFL, the NBA, NFL, $20 or so billion revenue, 150-200 million fanbase, media rights, all rights, all IP is shared within the league whereas [in the] English Premier League [you have a] massive global audience, you share broadcast revenue but big disparity otherwise in terms of your IP, your assets.
“We thought Chelsea [was] frankly an asset, a business that was not terribly well managed on the football side, sporting side or promotional side, so meaningful opportunity at the club and we’ll get to it for us, who needed the beachhead to then look at multi clubs. [We] looked at it and we think European sports is probably 20 years behind US sports in terms of sophistication on the commercial side, and sophistication on the data side. [...] These are global assets, global audiences which we think we can certainly help grow.”
“[The] value of NFL teams probably $150-155 billion, the Premier League, La Liga, France, Italy I think you’re probably $30 billion, fanbases of maybe 3-4 billion globally compared to 200 million and that’s being generous to the NFL. A league and a sport that is optimised, clearly not everything is created equal, but a 4 billion fanbase on a cumulative market gap of $30 billion maybe and cumulative media revenue of $5 or $6 billion against $20 for the NFL on 20 times the fanbase globally.”
As Shania said, ka-ching!
But what is all this multi-club talk then? Eghbali mentions Portugal, France, Africa, and South America, but is it just an obvious loophole around work-permit regulations? Is it the sporting equivalent of vertical integration, if not a straight up monopoly? Is it just a profit generator? Is it all of the above?
The answer is always all of the above.
“We think there’s a path to controlling labour costs and still producing a winning product using data, using the multi club. We think the multi club is an interesting tool for player trading [and] if you have a cost structure that can sustain and you invigorate the fanbase we think you can have a business that makes money that are natural monopolies in their markets without the regulation, without the salary caps.
“[If] done well you can make money on each specific enterprise. [If] done right, if you use data, if you’re thoughtful about this global market for talent and access of talent that is not effectively done through a draft or an extensive college or baseball farm system [then] you can capture, acquire, retain, sign talent and monetise talent. There’s a talent arbitrage opportunity that exists.
“[And] it’s the perfect pathway of developing talent whereby you don’t have to spend crazy money on payroll. [We] hired a coach from Brighton and we think they’re one of the best-run teams in the Premier League. The owner is from a sport gaming, data background. Spends 10% of the payroll, wins almost as much and is a very stable mid-market, mid-table, very profitable club. I think if you apply some of that IP into developing talent but keeping your talent.”
And as before, Eghbali assures that all of these business interests are couched in and enabled by developing (or maintaining) a winning culture at the club (the asset). None of this works if the team’s not successful.
Same goes for investing in the club itself in terms of facilities, infrastructure, etc.
“Ultimately, if you’re investing capital into a training facility, an academy, a stadium, if you’re improving the team you’re going to have a lot of public support. [We] think winning and a good product on the pitch and commercial success go hand in hand. You have to have a good product to generate sponsors for the content to work. [...] You’ve got to win. Winning on the pitch, you can do it efficiently as opposed to not, but you have to do that to have commercial success.”
Additionally, while Clearlake may be a private equity firm focused on generating short-term gains for their clients, they’re looking at Chelsea as a long-term, perhaps even a “permanent” investment vehicle that their clients then can also choose to put some of their money into ... or some such. Sort of like picking mutual funds in your 401k, but with sports?
“[At] Clearlake, we’ve done five continuation vehicles, that we call icon vehicles. These are permanent vehicles where LPs (Limited Partner) can choose to sell or stay in. [...] Sports have multiple folks, institutions, and individuals who are interested. [We] think there’s a market for it and we think there’s a market to afford LPs the ability to exit and others to step in and to have a long-duration vehicle to keep these assets. We’ve done it with other assets. There are certainly businesses you want to own for a long time and private equity has to evolve from the formation ‘Hey, I raised a fund, I’ve got to sell’.”
-Behdad Eghbali; source: SporticoLive via Football.London
The only thing we have to keep in mind is that none of this will happen overnight. The plan will take time, will take patience, dedication, and, ideally, flawless execution.
In summary, we’ve got the brawn, they’ve got the brains, let’s make lots of money. (And win some things?)