AC Milan probe could threaten club's recovery

AC Milan’s record-breaking sale by Elliott Management in 2022 was proof the football club had completed a remarkable turnaround under the US hedge fund’s stewardship. The Italian team was sold to private equity group RedBird Capital Partners for €1.2bn, the highest price paid for a club outside the English Premier League. It was once again winning Serie A titles and competing in the lucrative European Champions League.

Last year, it made its first profits in more than two decades. But police raids earlier this month have dragged AC Milan back into a messy battle of wills pitting Elliott, the notoriously combative $65bn fund manager, against Blue Skye, a investment firm run by two longtime former partners of the hedge fund and which owned a small stake in the club before the sale.

The two Italian financiers behind Blue Skye have claimed the hedge fund violated their minority shareholder rights by signing the RedBird deal, and have raised questions over whether Elliott still controls the club. Elliott is a creditor to AC Milan but has rejected suggestions of operational involvement. It sees the fight as a brazen attempt by a disgruntled shareholder to get a bigger payout from the sale.

Blue Skye has pursued the asset manager through courts in Italy and Luxembourg, although some of its claims have been dismissed. For Elliott, which waged and won a 15-year campaign against the Argentine state over unpaid debts, the row is not just about money — the sums in dispute are in the tens of millions of euros, according to people familiar with the matter. At stake is also the reputation of the US hedge fund founded by Paul Singer, whose son Gordon has spearheaded the AC Milan investment.

The dispute took a dramatic turn on March 12 when Italian police searched the AC Milan’s offices. During the raids, which also took place at the home of the club’s chief executive Giorgio Furlani, Italy’s financial police looked for documents to substantiate claims that somehow RedBird did not truly buy the club. “The suspicion is that Elliott currently maintains effective control of the company”, the search warrant said.

The probe, expected to last at least a year, risks frustrating RedBird’s efforts to consolidate AC Milan’s recovery. It comes as the New York firm founded by former Goldman Sachs banker Gerry Cardinale faces pushback over plans to move the club to a new stadium south of Milan. Local authorities hope to convince AC Milan to redevelop the ageing San Siro Stadium it shares with rival Inter Milan.

The Milan probe also threatens to spiral out of Italy: the search warrant includes claims that Elliott “appears to have a dominating influence” over French club Lille. Prosecutors say this would be in breach of rules set by Europe’s football oversight body Uefa. Elliott is also a lender to Merlyn Partners, which controls the French team. AC Milan and Lille competed in the Champions League in the 2021/22 season.

Uefa bars one entity from exerting “control or influence” at two clubs competing in the same European tournament. A breach would prevent the lower-ranked club from joining the competition. But Uefa does not address the case of creditors and has been lenient on creative shareholder arrangements. Owning more than one club is increasingly common in European football and has faced little regulatory pushback. According to a Uefa report, 28 Italian clubs are part of a broader ownership structure.

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The Political Economy of Football V2

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