US investors’ buy of Chelsea FC from Roman Abramovich puzzles Wall Street

A coterie of US investors took control of the British soccer team Chelsea FC last month — and some Wall Street insiders are still struggling to understand why.

Todd Boehly — a co-owner of the Los Angeles Dodgers whose free-spending strategy over the past decade has been credited for reviving the MLB team — promised a similar tack for Chelsea when he announced May 30 that he and a consortium of investors had purchased the team for £2.5 billion, or more than $3.1 billion.

Boehly, however, has also sought to draw a line between his cash-intensive approach and that of Russian oligarch Roman Abramovich, who reportedly lost £900,000 a day during his 19-year ownership stint, shelling out more than £2 billion on team payroll and redefining a new era of lavish spending in soccer.

Specifically, sources close to the situation say Boehly and his main co-investing partner Clearlake Capital, a buyout fund based in Santa Monica, Calif., are looking to Liverpool — which happens to be owned by another US-based investor, billionaire John Henry’s Fenway Sports Group — as an example they’d like to follow.

Liverpool generates £200 million in Ebitda — or earnings before interest, taxes, depreciation and amortization, a closely watched financial metric — compared to Chelsea’s £50 million, according to source briefed on the teams’ finances. If Chelsea can match Liverpool’s Ebitda, the acquisition will look like a relative bargain, according to sources familiar with Boehly and Clearlake’s thinking.

In the 2021-2022 season, Chelsea had the Premier League’s second-highest payroll at £355 million. Liverpool came in fourth at £314 million, according to soccer site Marca. Meanwhile, sources close to Chelsea’s new owners note that Boehly’s Dodgers have 30 people hired to study “data analytics” — a practice commonly used to seek strong players at good prices, as portrayed in the movie “Moneyball” — while Chelsea presently has four.

Abramovich’s profligate spending produced results, with Chelsea winning five Premier League titles and two Champions League trophies as the best club team in Europe.

Evidence of a more flinty-eyed, numbers-driven approach emerged last week, when it was leaked to the press that Boehly was happy to let Romelu Lukaku, a Belgian soccer star Chelsea had signed last summer for £97.5 million, return to the Italian soccer club Inter Milan.

Nevertheless, insiders say it isn’t clear that such tweaking will be enough to achieve the outsize returns to which Clearlake and its investors have grown accustomed. The firm’s 2012 and 2015 buyout funds produced net internal rates of return of 41 percent and 33 percent per year, respectively as of June 30, 2021.

That made the funds among the best performers for those raised in that time even when compared to veteran buyout heavyweights like the Blackstone Group or Carlyle Group, according to public records.

Clearlake and Boehly, who each have put down more than $1 billion in equity in the deal, share governance control over budgets including payroll. Sources close to Clearlake insist that the firm is less focused on slashing costs than on focused on growing revenue, which they said was recently less than £500 million, versus Manchester United’s estimated £700 million in revenue. The plan is to seize opportunities for naming rights and sponsorships, the sources said.

Nevertheless, bankers close to the deal note that profits face at least one massive obstacle — a pledge to rebuild Chelsea’s 117-year-old Stamford Bridge stadium in London at an estimated cost of more than £1 billion to increase its seating capacity. Fans worry that the upshot will be more luxury suites and higher ticket prices for fans — with Boehly scrambling to tamp down concerns about the latter in recent weeks.

“You need to put £1 billion into a new building and they lose money,” a sports banker said. “I’m not a big fan of this deal.”

Chelsea lost £146 million ( $178 million) for the year ending June 30, 2021 when stadiums were emptied out amid the pandemic. It made a £39.5 million ($48 million) profit the prior year, according to Football.london.

Whatever happens, the co-founders of Clearlake, Behdad Eghbali and José Feliciano, will make money from the Chelsea deal. That’s because Clearlake charges its investors a 1.7% annual management fee on investments, and the Clearlake partners put down money at most equal to 2% of its fund, according to a November presentation by Clearlake to the Connecticut treasury. These kinds of fees are typical in the private equity industry, and part of the reason US sports leagues do not allow private equity firms to own controlling stakes in teams.  

Over five years, the Clearlake partners will make 8.5% of the money the firm’s fund invested in Chelsea in fees while only risking 2% of their own money in the fund that actually buys the team. Clearlake also gets a 20 percent cut of fund profits so will make more if Chelsea is a good investment.

“Clearlake’s assets under management and transaction volume have both continued to grow at a substantial pace, which raises concerns of potential adverse impacts on Clearlake’s investment discipline and the team’s ability to effectively deploy increasingly larger pools of capital,” Connecticut pension adviser Hamilton Lane said in a report, according to state records.

Lane ended up recommending that the state invest in Clearlake. But some Chelsea fans are less excited.

“Generally, Americans don’t get ‘soccer’ and my fear is that if there is no passion or desire for the club within the ownership then we are no longer a football club and we become purely a business,” said Martin Pearce, a Chelsea season ticket holder for more than 30 years

“Roman Abaramovich was very popular, all politics aside, and was clearly passionate about the team and the success he brought us,” Pearce added. “Rumours are that the real fans will have to make way for ‘corporate fans’. As soon as this happens the atmosphere and passion disappear.”