It's football season!
Even as Manchester United manager Jose Mourinho dismisses claims of wanting to sign on Barcelona’s Neymar for £173 million, clubs are forking out record transfer fees to get the best players in.
But where’s this money coming from?
Enter the likes of Football Finance Note, a fund that invests the wealth of Asia’s millionares into domestic leagues of top-tier English and European football clubs.
Speaking to Citywire Asia, investment manager Anthony S Casey said that Asia’s high net worth individuals are increasingly looking to invest in the sport – be it in deals around player salaries, stadium renovation or training facilities.
‘With the Financial Fair Play rules of UEFA, a lot of clubs have turned from loss-making entities into profitable businesses and astute businessmen in Asia want to get in early on that curve and try to turn a club around -- like the fairy-tale victory of Leicester City, owned by a Thai investor, winning the League in England, last year.
‘There are a lot of investors looking to do that with a backstop in England of £100 million per year guaranteed minimum for TV broadcasting rights. So the trend is very exciting now,’ he said.
Of course, when you’re talking Asian money, you’re talking China. And when you’re talking China, all eyes are on president Xi Jinping, who has ramped up his interest in football since 2014, making it an important part of the ‘Chinese dream’.
‘President Xi Jinping started the “Chinese avalanche” in 2014. It’s been compounded by the Chinese Super League, which outbid the big European leagues by spending more on players this season -- over £1 billion. It has been signing up big stars to play for Shanghai, Beijing etc. -- the latest being Carlos Tevez,' said Casey, who is also executive director, wealth management at Swiss-Asia Financial Services.
Challenges of financing football
While Casey is rooting for interest from the Chinese to finance the business of football, he also sees them as a weighty competitor.
‘A number of Chinese lenders have tried to break into financing top-tier clubs, offering discounted funding, which has caused margins to drop. We had to turn down a number of deals because our margin "sweet spot" was not met.
'We have to stay within our margin to keep our investment returns healthy.'
China is not only making a mark in the transfer market. It’s buying stakes in well-known clubs like Manchester City and has even taken on sponsorship rights for the next World Cup.
Casey’s fund also ran into roadblocks when Britain voted for exiting the European Union, with clubs not knowing if their players would get work permits in two years’ time.
‘So the first year of our launch had a bit of a lull period, causing a cash drag on our portfolio but then activity picked up.’
The average investor in his $52 million fund has $10 million, and invests 5% of it in football as an alternative asset class.
The third challenge for Casey was to crack the European market.
‘The European football market has opened up, cleaned up financially and thrown up a number of deals from the major European football clubs that are in the Champions League, for example.
'We did our first deal with a club in the last 16 of the Champions League in December.'
The fund has two share classes – USD and EUR. The EUR class of the fund has returned an average of 7.3% over two years against a target of 6%.
Aside from expanding geographically, Casey also hopes to increase the pool of sports covered by the fund.
'We are currently in discussions with a number of them, such as tennis, rugby and Formula 1 -- any sport that has significant broadcasting rights and has interest in this part of the world.
‘We understand football is not for everyone. So my vision is to have a sports investment for everyone over the next five years.’
He is also considering joint ventures with crowdfunding companies to gain access to a larger number of accredited investors.