Will the Public Investment Fund of Saudi Arabia buy out Śląsk Wrocław?
From time to time, press reports appear in the media regarding a foreign entity interested in investing in a Polish football club. This subject invariably raises emotions and sparks the imagination of fans. It has recently been reported that the Saudi Arabian Public Investment Fund is interested in taking over Śląsk Wrocław. Whether Śląsk Wrocław will actually change ownership will probably become clear soon, but the recent experience of Polish fans in relation to a foreign investor who is to change the face of the Polish club is not interesting, not to say tragicomic.
More than 3 years ago the whole Poland watched with amazement the story of the takeover of Wisła Kraków by Vann Lee, who after signing the documents “vanished into thin air”. In this article, we decided to take a look at the topic of investment in football clubs and assess whether Polish clubs can expect any interest from serious investors.
Russian, Chinese, Middle Eastern investors and sportswashing
Investments in football clubs, particularly in Poland, are associated with the whims of millionaires, football fans, who treat involvement in a football club not as a commercial investment but as the fulfilment of a whim. Football clubs operate in a highly competitive environment and potential income is used to raise the team’s sporting level and fight for sporting goals. In other words, every club spends all revenues on improving the quality of the team, which obviously leads to an increase in the cost of operations. The actual return on investment can occur when it is sold.
Another group of investors interested in football are Russian oligarchs, Chinese and Middle Eastern entities. It is widely accepted that the aim of these investors is not purely economic but an attempt to improve the image and expand the influence of the institution or country the investor comes from. The links between the PFA and the royal family of Saudi Arabia are a well-known fact. This phenomenon is known in English as ‘sportswashing’. The investment in Newcastle by a Saudi fund, the same one that is supposed to be interested in investing in Śląsk Wrocław, is widely regarded as a typical example of ‘sportwashing’. The new away jersey in which the Newcastle players are to play, i.e. in white and green (Saudi Arabia) instead of the traditional black and white Newcastle colours, may be a symbol of such action[1] [2].
However, warming up the image in the western public opinion by taking over a football club usually concerns clubs with an established position on the European market or from the best European leagues, e.g. Newcastle, Chelsea, Monaco. Polish clubs, due to their lack of regular play in European cups, play a marginal role in the world of club football. An investment in a Polish club could therefore only have a local, national effect in terms of image. So why would Saudi sheikhs invest in Śląsk Wrocław?
Western funds invest in football clubs
According to Bloomberg, there is also a new wave of investment from US private equity, credit and hedge funds[3]: Elliot Management Corp. in AC Milan, a fund managed by Ares Management Corporation in Atletico Madrid, 777 Partners in Genoa and Orlik Capital in Club Brugge. Investments take different forms, i.e. from loans, purchase of media rights, merchandising rights to the purchase of the club’s shares. In recent days an electrifying piece of information has appeared for fans of FC Barcelona. The president of the famous Barca was to ask his socios for permission to take out loans and obtain financing in exchange for, among others, the sale of media and merchandising rights.[4]
Another interesting example of investment was the deal between La Liga (the Spanish league) and CVC Capital Partners’s for media rights to the entire competition. Real and Barcelona were initially not to enter into this agreement, but Barcelona’s difficult situation may force it to do so.
Equally interesting is the deal involving Inter Milan. The current owner has secured €275 million in financing for the club from Oaktree Capital Group, the world’s largest distressed debt fund. If Inter’s owner is unable to repay the loan, the American fund could take over Inter Milan.
According to experts, the aim of increasing the chances of returning the money spent on clubs is to invest in several clubs of different sizes, in different leagues. On the one hand, this is a form of risk diversification, on the other hand, it allows to move players between clubs depending on their current sporting level and development. According to a report compiled by McKinsey&Company[5] experts, the increase in value of football clubs is generated on the pitch, in particular through the development of alumni and contract players and a positive balance of transfer policy. It is therefore crucial to create optimal conditions for players with potential to develop.
The most popular example of this is of course the Red Bull teams, which currently has RB Leipzig, Red Bull Salzburg, Red Bull New York and Red Bull Bragantino in its “stable”. However, this is not the only case. City Football Group owns current Premier League champion Manchester City, but also Yokohama F. Marinos, Girona FC, and New York City. The aforementioned 777 Partners fund owns shares in clubs such as Genoa, Sevilla, Standard Liege and Vasco de Gama.[6]
An interesting move was also made by Brighton and Hove Albion owner Tony Bloom, who in 2018 bought out a second division Belgian club with pre-war traditions Union Saint Gilloise. A club that won the Belgian championship this season and became a temporary haven for Kacper Kozlowski (former Pogoń Szczecin player). The owner, and at the same time President of the English club, has created a satellite entity in which he can play players who are not ready to play in the Premier League for sporting and formal reasons following Britain’s withdrawal from the EU.
Foreign investors in Poland?
Currently, the actual interest and presence of foreign investors in Polish clubs is in the form of isolated cases.
Since 2014, Lechia Gdańsk has been owned by subsidiaries of Franz Josef Wernze, the head of ETL. First, the club’s shares belonged to Swiss fund W&C Vermögensverwaltung AG, and then they went to German Advancesport AG. However, this may soon change. There have been media reports that Lechia has been put up for sale and Pacific Media Group, a fund currently involved in Barnsley F.C., has expressed interest in buying the club: Barns-ley F.C., FC Kaiserslautern, FC Thun, FC Den Bosch, KV Oostende, AS Nancy and Esbjerg FB.[7]
Legia Warszawa’s financial statements, in turn, show that its activities are partly financed by a Luxembourg fund. In this case, the data and nature of the involvement of the foreign entity are shrouded in secrecy and it is difficult to say whether it is an entity linked to Dariusz Mioduski (the owner of Legia Warszawa) or an external entity.
Can we expect foreign investment in Polish clubs?
Without a doubt, the lack of serious interest in investing in Polish clubs can be attributed to the position of Polish clubs in Europe, specifically the lack of regular appearances of Polish clubs in European competition. The value of clubs is built on the pitch, and the best window for presenting their players are European competitions and national team matches. So what could induce a foreign investor to buy a club in Poland? Certainly, the biggest asset is the significant increase in value of Polish players on the transfer market. The transfer records coming out of the Polish league over the last 10 years have remained at around €5m, i.e. Robert Lewandowski in 2011 from Lech Poznań to Borussia Dortmund for around €4.5m, Adrian Mierzejewski in 2012 was sold from Polonia Warszawa to Trabzonsor for around €5.25m and Jan Bednarek in 2018 from Lech Poznań to Southamption for €6m.
In the last three years these values have doubled and there have been 3 transfers in succession for over €10m: Moder from Lech Poznań to Brighton and Hove Albion, Kozlowski from Pogoń Szczecin to Brighton and Hove Albion and Jakub Kaminski from Lech Poznań to Wolfsburg. Transfers of around 5 million are no longer records, but a common occurrence on the Polish transfer market, i.e. Radosław Majecki left for Monaco for €7m, Michał Karbowiak to Brighton and Hove Albion for €5.5m, Sebastian Szymański to Dynamo Moscow for €5.5m, Kamil Piątkowski to RB Salzburg for €5m, Bartosz Białek to Wolfsburg for €5m, Szymon Zurkowski to Fiorentina for €4.5m and Krzysztof Piątek to Genoa for €4.5m[8]. These are not dizzying values by European standards, but bearing in mind the costs of running clubs in Poland, they contribute significantly to improving the financial situation of clubs and increasing their value.
Foreign investment in Polish clubs
Not without significance is also the fact that the Polish competition is very balanced, there is no club or clubs that permanently dominate the league. For example, 3 teams fought almost to the very end for the championship in the current season and the fact that current champion Lech Poznań finished last season in 11th place and last year’s champion Legia Warszawa also finished in 10th place this season. The task of breaking through to the top of the league fighting for European cups doesn’t seem so difficult. The Polish league is also beginning to appear as a place where foreign players can promote themselves, e.g. the Swede Jesper Karlström from Lech Poznań or the Finn Robert Ivanov from Warta Poznań, who thanks to their good performances in the Polish league have earned the right to play for their national teams.
The value of Polish and foreign players playing for Polish clubs is therefore constantly increasing.
Satellite club and the change in FIFA loan regulations
If the media reports concerning the interest in the Public Investment Fund’s prove to be true, it can be expected that Śląsk Wrocław would become a satellite club of the bigger clubs owned by the Saudis. A club in which players who are not ready to play in, say, Newcastle, would be trained. Considering the financial potential of the PFA, Śląsk Wrocław could quickly jump to the top of the league.
However, changes to the regulations introduced by FIFA regarding the loan of players may prove to be a certain problem. As of July 1, 2022, each team will be allowed to have eight loan players on their roster and the same number of their own players will be allowed to go out on loan to third clubs. In subsequent seasons, this number will drop to 6 outgoing and 6 incoming loans from the 2024/25 season onwards. What’s more, a maximum of 3 players can be loaned out from one club and vice versa.
FIFA wants to limit the richest clubs buying up the most talented players and then loaning them out to satellite clubs. The regulations are not intended to apply to players under the age of 21 and alumni.
A side effect of the changes may therefore be an increase in the transfer market for youth players. In our opinion, the aforementioned rule changes will certainly change the landscape of the transfer market and limit the number of loans between clubs, e.g. clubs with a single owner. However, it would be very naïve to claim that the proposed changes will stop the phenomenon we see in the football market, i.e. the buying of clubs by Western and Asian investors.
[1] https://talksport.com/football/1111513/newcastle-shirt-saudi-arabia-simon-jordan/
[2] https://thesport.pl/feeds/na-milosc-boska-dlaczego-ciesza-nas-arabskie-pieniadze/
[3] https://www.bloomberg.com/news/articles/2021-09-28/football-is-the-next-big-thing-for-hedge-funds-and-private-equity
[4] https://www.fcbarca.com/105101-el-confidencial-laporta-finalizuje-porozumienia-z-cvc-goldman-sachs-i-all-sports-finance.html
[5] The value pitch: The importance of team value management | McKinsey
[6] https://frontofficesports.com/777-partners-buys-controlling-stake-in-belgian-soccer-clu/
[7] https://sport.trojmiasto.pl/Lechia-Gdansk-wystawiona-na-sprzedaz-Kto-byl-a-kto-bedzie-wlascicielem-n166398.html#tri
[8] Wartości podane za https://www.transfermarkt.pl/pko-ekstraklasa/transferrekorde/wettbewerb/PL1