Why super wealthy want a stake in Liverpool

 

Much interest has been generated by a group of wealthy investors wanting to take a stake in Liverpool FC.   Why would they want such a stake and would the club benefit?

Bhatia, a former co-owner of Championship side Queens Park Rangers, is joined by Amazon founder Jeff Bezos and co-founder of Facebook Eduardo Saverin as part of the group interested in purchasing a stake in the English Premier League side.

Bezos, 62, is one of the richest people in the world, best known as being the founder of the largest e-commerce company, Amazon.   Bezos launched Amazon from his own garage in 1994 after he had left his role at New York Investment Bank D.E. Shaw, where he had risen to senior vice-president. It was initially an online merchant of books before growing into the global technology company it has become today.

He stepped down as the company’s chief executive officer in 2021. Bezos is also the owner of the Washington Post and founder of space technology company Blue Origin.

Saverin is best known for co-founding social network site Facebook alongside Mark Zuckerberg, whom he met when attending Harvard. Born in Brazil, his family emigrated to the United States in 1993.

Bringing all of these resources together is British-Indian millionaire Bhatia. The 46-year-old is a former investment banker who worked for Morgan Stanley, before becoming an entrepreneur. He is chairman of British construction firm Breedon Group, managing director of AyBe Capital Advisors and a founding partner of property investment firm Summix Capital.

He married Vanisha Mittal Bhatia, the daughter of Indian steel magnate Lakshmi Mittal, in 2004. Lakshmi Mittal once ranked as high as third in Forbes’ global ranking of billionaires, but most recently sat 73rd with an estimated worth of $31.1bn.

It might seem a poor investment, but ...

On the face of it, spending big money on a football club, even one in England, might seem silly. Scarcely any clubs pay dividends; most lose a relative fortune, year after year. Liverpool are an outlier in the latter due in large part to FSG’s savvy financial management, but roughly breaking even hardly sets investor pulses racing.

Yet focusing on the microeconomics of individual club finances when trying to understand the thinking of ultra-high-net-worth individuals (UHNWIs) like those now seeking to buy into Liverpool might rather miss the point.

Arjun Nagarkatti, head of private bank, U.S. and Europe international at Deutsche Bank, highlights unique attributes that are attracting UHNWIs to sports teams.

Sport is, Nagarkatti told the New York Times is, “one of the few asset classes that has a moat against AI (artificial intelligence). For pretty much everything else (UHNWIs) invest in, they are going to have to think about how AI is going to completely disrupt the sector. AI will have its place in football, particularly in data and analysis, but “in the end, you need people to get onto the field”.

Beyond that, football clubs, and particularly those playing in the high-profile competitions Liverpool compete in, appeal because live sport is one of the only remaining media offerings whereby “people will tune in at a particular time to watch a particular event”. In a world of on-demand television and film, the ability to court so many eyeballs at once is extremely valuable.

Why FSG's time might be nearing its end

FSG has shown in recent years it will welcome outside investment either in the parent company or Liverpool. In March 2021, RedBird Capital Partners invested around $735m to acquire an 11.5 per cent stake in FSG, helping stabilise finances after the Covid pandemic.

Even if the potential percentage stake is significantly higher and close to the 30 per cent that has been reported, it would still leave FSG in control, but it would now have more people to potentially carry the burden of continuing to grow the business.

There is the point, too, that every investment has its own lifespan.  Deutsche Bank’s Nagarkatti, while not speaking about the specifics of this deal or on what FSG’s overriding motive in selling a stake might be, highlights that any investor has to choose when is “a good time to monetise their asset”. It is a consideration which spans all asset classes including, given its continually increasing wealth, football.

In this case, FSG has been at Anfield for a decade and a half, overseen significant on-field success and huge value appreciation off it. Selling a large minority stake now will generate a huge return for the group.

Having a consortium full of very wealthy people investing in the club should, in theory, strengthen Liverpool’s financial position further.  It could open up new sponsorship avenues which would further enhance the significant revenues the club is generating season upon season. Last summer they showed a willingness to invest heavily in the playing squad, and under the new squad cost ratio rules that are replacing profit and sustainability rules, it could enhance their power in the transfer market.