Chester Perry wrote: ↑Tue Aug 17, 2021 11:54 am
La Liga President Javier Tebas has been making some strong claims about the benefits of the CVC finance deal, he believes La Liga will be stronger/bigger than Premier League globally in 7 to 9 years (that is within the next three tv cycles
https://translate.google.com/translate? ... 0e1f.shtml
Those claims about the benefits of the CVC/La Liga deal from Javier Tebas are not as big as the benefits to CVC who stand to make their money back in 9 years and then have 41 years of pure profit - this is why I use the
Vultures are at the door trailer for Private Equity posts - I believe OfftthePitch.com have put this in front of their paywall - which allows you to see the charts
https://offthepitch.com/a/cvcs-laliga-p ... unravelled
I will place the text here for when/if that changes
Special Report: CVC’s LaLiga proposal unravelled
23 August 2021 2:59 PM
- Off The Pitch has had access to high level documents detailing and scrutinised the CVC deal in detail.
- Our modelling shows that the US private equity group would see a return on its 50 year deal by the end of this decade.
- Experience in growing F1 revenues advanced as an argument to clubs for taking the deal, but team official alleges CVC “raped” the sport after making a 450 per cent ROI in the space of a decade.
- The CVC-deal gives LaLiga an opportunity to break free from a business model that has been “run to the benefit” of the Madrid clubs and Barcelona “for too long.”
JAMES CORBETT
corbett@offthepitch.com
On 14 July, the La Liga president, Javier Tebas, met club officials from Barcelona for dinner, including its new club president, Joan Laporta.
The meeting was just three months after Barcelona’s involvement in the attempted Super League plot and in the midst of a stand off over the club’s salary cap that would culminate in the departure of its star player Lionel Messi.
But while relations between the Catalan giants and the league supremo have traditionally been testy, they have not been martial – as is the case with Real Madrid, the club Tebas, ironically, supports.
In any case, Tebas had a proposition for Laporta, something he had been working on with his executive committee and other LaLiga clubs – though not, it must be noted, Real Madrid.
“Am I going to talk to Real Madrid when they set up the Super League in April?” Tebas later reflected. “That is why I didn’t talk to Madrid. I am not going to tell these things to people who want to destroy LaLiga.”
The proposition was an enticing one indeed. Tebas had agreed a private equity deal with CVC that would see €2.7 billion ploughed into LaLiga. The ears of the Barca executives, desperate for cash after years of bad recruitment and hammered by the Covid-19 crisis, pricked up. Documents explaining the deal were handed over.
“There was enthusiasm in abundance,” claimed Tebas.
Scrutiny
This initial enthusiasm from Barcelona soon dissipated. When LaLiga clubs met on 13 August to ratify the deal, Barca, along with Real Madrid, Athletic Bilbao and Oviedo, were just four of 42 clubs to reject the deal.
Between them they also negotiated an opt out clause and won’t take any cash at all, whilst retaining the 10.95 per cent of broadcast rights value they would otherwise have surrendered for the next 50 years. The revised deal will see a total of €2.1 billion drawn down, valuing LaLiga at €24.25 billion.
“Obviously I’d like them to be part of it, but they’re not and I’m not going to cry about it,” said Tebas. “LaLiga will continue to grow. We’ve grown LaLiga in the last few years without their active collaboration.”
Laporta, however, dismissed the idea that the CVC deal was a strategic investment that would grow LaLiga and that he believed that it undervalued the league.
“It is not structured as direct income, it is a loan,” he said. “We also consider that CVC value on LaLiga is too low.”
Real Madrid are very firm in their denial of the CVC-deal. Pictured is their stadium Santiago Bernabéu.
Photo: Alamy Real Madrid are very firm in their denial of the CVC-deal. Pictured is their stadium Santiago Bernabéu.
But where lies the truth?
Is LaLiga priced fairly? Is the CVC proposal an example of vulture capitalism or will it provide LaLiga with the liquidity to improve its strategic goals, take advantage of new technology, and challenge other leagues in the market for broadcast dominance?
Off The Pitch has enjoyed exclusive access to documents provided to LaLiga member clubs that give an unprecedented insight into the deal. They include the valuation provided by bankers Rothschild, which suggests that CVC overvalued LaLiga, and a breakdown of LaLiga’s composite parts.
Anatomy of a deal
Rothschild provided a Support Valuation Report based on commonly used market valuation methodologies including Discounted Cash Flow methodology (“DCF”), precedent transactions, trading comparable and peer set groupings.
It utilised a combination of publicly available and confidential information provided by LaLiga and its advisors, including 15 years of financial modelling and its “Integrated Club Development Plan”.
In doing so it reached a valuation of €24.250 billion for LaLiga, which incorporated its broadcast rights, joint ventures and technology division. According to its proposal it would pay €2.688 billion in exchange for €10.95 per cent (this amount has been revised down to around €2.1 billion after the opt out of four clubs).
It points to similar deals it has conducted in F1 and Motorcycle racing as evidence of its track record. After buying into F1 in 2006, revenues increased 80 per cent to $1.8 billion over 11 years, with team payments rising more than 300 per cent to $980 million
Once the deal is executed, LaLiga propose reorganising its structure, so that LaLigaTech (incorporating its OTT, Content Technological Protection and Media Coach business), its international subsidiaries (in Mexico, Dubai, Singapore and Southern Africa) and joint ventures (in China and USA), as well as the traditional (sponsors and licences business) be transferred to a subsidiary (“LaLigaHoldCo”) with LaLiga owning a controlling stake in it.
In tandem it would run the centralized marketing of broadcast rights together “with all required resources relating to the organization and management of the competition”.
On completion of this restructuring CVC would invest €100 million in the new holding company “to fund both the development of the international and technological development of the platform as well as LaLiga’s traditional business in exchange of 10.95 per cent of the economic rights and 9.9 per cent of the legal rights.
Unspecified annual fee
”There would be separate partnership agreements worth €51 million apiece with the Spanish FA (RFEF) and Spain’s High Council for Sports (CSD), the government agency responsible for sports developments. In addition €5 million would be paid for Female Football.
The balance – around €2 billion in the revised deal (originally €2.460 billion) – would be transferred to clubs in the form of “participating loans” in four tranches. In exchange, for the next 50 years 10.95 per cent of cashflows distributable to clubs (i.e. Broadcasting revenue less LaLiga’s commercial and operating costs) would be paid to LaLiga (this rate could go up to as high as 11.4 per cent or as low as 10.5 per cent based on the success or failure of the plans).
In addition there would be a further – unspecified – “annual fee” paid to CVC. The loan would mature in 40-50 years at a 0 per cent interest rate.
The valuation carried out by Rothschilds concludes that CVC has been generous with its valuation of €24.25 billion. Rothschilds gave La Liga a summary valuation of €22 billion with a valuation range of €20-27 billion depending on analysis type.
It gave value to parts of LaLiga’s business that have never generated a cent: Its OTT business, for example, is given a €29 million enterprise valuation and La Liga Tech is valued at €395 million, despite having no trading record.
Track record
CVC argue that their role transcends pure cash. It is claimed in the valuation documents that it would provide “Support to develop and maximize the potential of LaLiga, with the clear objective of becoming the world reference in sports entertainment.”
It says that it is a “Trustworthy partner with extensive experience and a proven track record in the sports world to provide digital and commercial development capabilities.”
The result, it says, would be a “Resilient league with stronger clubs with a more solid balance sheet: more valuable, with a greater ability to retain fans and increase income.”
All their actions have been taken to extract as much money from the sport as possible and put as little in as possible
It points to similar deals it has conducted in F1 and Motorcycle racing as evidence of its track record. After buying into F1 in 2006, revenues increased 80 per cent to $1.8 billion over 11 years, with team payments rising more than 300 per cent to $980 million.
Earlier, in 1996, it bought Dorna, which organises MotorGP, and increased its broadcast contracts from 13 to 33 and sponsors from 15 to 36. A separate deal with Sky and Sky Bet saw new investments in technology and an increase in net profitability.
What is notable about these previous deals is that CVC has always sold its stake after just over a decade: 10 years with Dorna, 12 years in F1, 14 years with Sky.
Although the term of the proposed La Liga deal is for 50 years, does anyone seriously think they would still be present in 2071? CVC’s offer earlier this year for a similar deal with Serie A was for ten years and the company’s funds don’t normally last beyond a decade.
There does not appear to be any provision for LaLiga to “buy back” its equity after a certain period, so the long period remains a mystery.
Raping the sport
Moreover, the revenue projections – provided until 2035 – suggest that CVC would recoup their investment by the end of this decade. They show that total forecast revenues will rise from €1.954 billion for last season to €3.281 billion for 2034/35.
Modelling carried out by Off The Pitch which shows a 15 per cent operating cost margin cut out, demonstrates that CVC’s originally proposed €2.425 billion investment would be repaid in full by 2029/30, possibly sooner depending on the size of the unspecified “service fee”.
The F1 deal, which is presented as evidence of CVC’s aptitude in sport, is worth scrutiny. In 2006 CVC paid a highly leveraged $2 billion for its 70 per cent stake. Within a year CVC recouped most of its investment by raising debt to pay itself and its partners a dividend.
According to Bloomberg, another $2 billion in debt-backed dividends followed in later years. It also sold off shares to investors including BlackRock and Waddell & Reed. When it sold its remaining 35 per cent stake to Liberty Media in 2016, it was estimated that it had made a 450 per cent return on its initial investment.
Mexican driver Sergio Perez from Red Bull Racing), won the F1 Grand Prix of Azerbaijan at Baku City Circuit on June 6, 2021 in Baku, Azerbaijan.
Photo: Alamy Mexican driver Sergio Perez from Red Bull Racing), won the F1 Grand Prix of Azerbaijan at Baku City Circuit on June 6, 2021 in Baku, Azerbaijan.
Bob Fernley, the then deputy team principal of one of F1’s teams, Force India, accused CVC during that time of “raping the sport”.
Sponsors, broadcasters and fans were squeezed at every opportunity, not least with the fixation with Pay TV to the exclusion of all other broadcasters. F1 was taken to anywhere that would pay the rapidly increasing host fees – Baku, Abu Dhabi, Bahrain, Sochi – irrespective of their relationship with the sports’ culture or heritage, or for that matter democratic or human rights values.
“All their actions have been taken to extract as much money from the sport as possible and put as little in as possible,” said Fernley.
Trailing in EPL’s wake
Moreover, is this growth actually worth La Liga partnering CVC. Javier Tebas is insistent that CVC are not “bailing out” LaLiga and that it is largely structural investment, with only 15 per cent allowable for player acquisitions and 15 per cent allowed for debt repayments.
But are the gains promised that great or obtainable? CVC and La Liga say that they will grow revenues 60 per cent over 15 years to €3.281 billion. But much of this growth is predicated on increases in TV rights, which, as we have seen in recent deals, have plateaued.
Some would argue that the proposed gains will be highly challenging to obtain unless domestic Pay TV viewers in Spain pay significant increases in their subscriptions.
Tebas has made it repeatedly clear over the years that he aims to overtake the Premier League.
“The Premier League broadcast rights sell for the biggest value and the Premier League doesn't have the best players nor the best clubs. The market for broadcasting rights does not work like this,” he has said – but the projections don’t even come close to what the Premier League earns now, never mind in 2035.
Even in 2019, the last year before Covid, the Premier League dwarfed La Liga’s projected figure for 2035 by around €600 million. This was also achieved without a private equity fund taking its pound of flesh.
"Look, you're desperate"
The author and journalist Simon Kuper, who this month published Barca: The Inside Story of the World’s Greatest Football Club – an insider’s account of the decline and near implosion of Barca – says that the club were right to reject the deal.
He says it offers the worst of both worlds – a long term obligation to a private equity firm without the short term fillip of using some of that money towards a headline grabbing deal, such as trying to keep Lionel Messi.
“I think CVC were engaging in vulture capitalism, which they also tried in Italy, where they saw almost all football clubs were desperate after the pandemic,” he says.
There is a real opportunity for some structural change that can benefit the whole league here. If that happens, in the long term, the big clubs will also benefit too
The approach, Kuper believes, was simple: “They say to these guys, ‘Look, you're desperate. We're going to give you a bit of cash to get you out of your hole right now. And then for the next 40 or 50 years, we earn a large chunk of your rights.’”
“I think it would have been an insane thing to do for Barcelona, Real Madrid and probably other clubs to agree to it. And Barca might have been tempted if they could have used some of that money towards signing Messi and buying one or two other players, but the structure of the deal didn't seem to allow that. They weren't even given the full temptation of Christ on that.”
Can benefit the whole league here
However, Dr Rob Wilson, Head of Department for Finance, Accounting & Business at Sheffield Business School says that the private equity proposal gives LaLiga an opportunity to break free from a business model that he says has been “run to the benefit” of the Madrid clubs and Barcelona “for too long.”
“What we need to remember is that any private equity is geared for a return so in many ways it’s not a surprise to see a good return – that’s what the business plan, and investment is about. What PE brings is extra value (theoretically) and that benefits everyone,” he says.
“La Liga has been run for the benefit of Real Madrid, Barca and, to an extent, Atletico for too long. There is a real opportunity for some structural change that can benefit the whole league here. If that happens, in the long term, the big clubs will also benefit too.
“The methods of valuation are fair in my view and provide a genuine platform for acquisition. There will always be alternatives, but CVC along with a couple of other big private equity firms like Red Bird have this space dialled in so it’s hard to disagree.”
With additional reporting by Alberto Medici