AC Milan - a model of successful investment management

[NRC]

Yesterday AC Milan was acquired by RedBird Capital Partners. The deal, which values the Club at €1.2bn, sees previous owners, Elliott Management Corporation retain a minor interest and a seat on the Board.

Elliott "ended up" with AC Milan four years ago after the previous owner, Li Yonghong, defaulted on 415m Euro of debt to Elliott owner Li Yonghong had acquired the club from Berlusconi. I'm not going to promote the moral praise of Singer, the Chairman of Elliott. His is an activist fund that specializes in financial turn-arounds, while at the same time being a significant GOP donor and promoter of America's 1% wealthy class. Gordon Brown called such vulture funds morally outrageous as they allegedly divert public funding into questionable forms of debt service that I think is an instrument not allowed in the UK. However, keeping the focus on the football, he has certainly done a job at AC Milan, whose financial situation deteriorated to the point that UEFA banned Milan from European competition over the financial chaos within the club. Elliott injected 50 million euros into the club to stabilize finances and then challenged the EUFA ruling in the Court of Arbitration for Sport, which reversed the ban.

Tons of high profile, high cost player signings didn't work - the vast majority of which are no longer at the club, so clearly this element of "squad-building" was not instrumental to the resurrection of the club, and Paolo Maldini was inserted to take charge of player recruitment.

Elliott identified that the best way to succeed was to become financially viable and increase value (they would eventually want to exit for profit) and get rid of the "bloated contracts" players that weren't good assets for them anymore as they weren't improving the club or having any success on the field.

In the transfer and recruitment they just got smart, using data science and analytics to back Paolo Maldini's growing department. The data analysts identified targets that were within reach of their budgetary constraints and would provide value to round out the squad. This included overlooked "gems" such as Macias, who used to deliver kitchen/laundry appliances, and played in the depths of Italian football, or Pierre Kalulu who was unwanted at Lyon, not featuring once for them (what is it about Lyon??). Knowing how the team was to play, and understanding that in terms of recruitment translated to a deep understanding of squad dynamics and what components are required. Still it wasn't working, and after the sacking of Marco Giampaolo, Stefano Pioli was appointed as the new coach on a temporary basis. Interestingly his contract is just now extended into next year from it's current end point of this month. Considered a managerial journeyman, he improved their standing each season and won it just now. Player recruitment was excellent - Simon Kjaer, Tomori, amongst other more recognizable names.

On the business side, Elliott understood it had to be a combined football and financial management project. The football had to be good, improving the sporting performance while reducing the cost of doing so - standard business basics then. Nothing new here, but developing the business was new (and this is where ALK have parallels). Milan hadn’t really developed their brand into a media-entertainment business like others had. They hired Ivan Gazidis from Arsenal, and then another number of highly-talented executives, not just from football, but the world of consumer goods and entertainment, and the final piece of the puzzle will be their new stadium - the fan experience.

All of this was while dealing with their UEFA ban and the impact of Covid.

In short (and I know it hasn't been)
1. Sporting performance through success on the field and the role of analytics of it
2. the right management - knowing how to run a branded business, understanding you're in the entertainment and media industry
3. Commercial management - aligning the right sponsorships, non-football, but brand-associated activities - monetizing the brand
4. the entertainment and fan/watcher experience - content!

each of these has to be a balance, though. And without the financing to "throw" at a squad, it's super-important to get the other 3.5 things right

[Chester Perry]

Elliot used their own hard cash
Elliot hired experienced (in top level football) high performance management
Elliot used their knowledge appropriately and judiciously
Elliot have never claimed to be “the leading US management firm specialising in investments, acquisitions and operations in sports and media.”

ALK/VSL have not used much of their own hard cash
ALK/VSL have not hired experienced (in top level football) high performance management
It remains to be be seen if ALK/VSL have used their knowledge appropriately and judiciously
ALK used to claim to be “the leading US management firm specialising in investments, acquisitions and operations in sports and media.” but they have stopped doing so now as it was plainly false to see - so they may be learning

[SMClaret]

Not to mention that AC Milan are a huge city club with a massive history that will still be a pull to players and their partners...

Burnley, not so much.

[Sheedyclaret]

Elliot used their own hard cash
Elliot hired experienced (in top level football) high performance management
Elliot used their knowledge appropriately and judiciously
Elliot have never claimed to be “the leading US management firm specialising in investments, acquisitions and operations in sports and media.”

ALK/VSL have not used much of their own hard cash
ALK/VSL have not hired experienced (in top level football) high performance management
It remains to be be seen if ALK/VSL have used their knowledge appropriately and judiciously
ALK used to claim to be “the leading US management firm specialising in investments, acquisitions and operations in sports and media.” but they have stopped doing so now as it was plainly false to see - so they may be learning

Not even worth the comparison..

[BurnleyFC]

AC Milan are one of the best and most renowned football clubs in the world.

[Paul Waine]

Yesterday AC Milan was acquired by RedBird Capital Partners. The deal, which values the Club at €1.2bn, sees previous owners, Elliott Management Corporation retain a minor interest and a seat on the Board.

Elliott "ended up" with AC Milan four years ago after the previous owner, Li Yonghong, defaulted on 415m Euro of debt to Elliott owner Li Yonghong had acquired the club from Berlusconi. I'm not going to promote the moral praise of Singer, the Chairman of Elliott. His is an activist fund that specializes in financial turn-arounds, while at the same time being a significant GOP donor and promoter of America's 1% wealthy class. Gordon Brown called such vulture funds morally outrageous as they allegedly divert public funding into questionable forms of debt service that I think is an instrument not allowed in the UK. However, keeping the focus on the football, he has certainly done a job at AC Milan, whose financial situation deteriorated to the point that UEFA banned Milan from European competition over the financial chaos within the club. Elliott injected 50 million euros into the club to stabilize finances and then challenged the EUFA ruling in the Court of Arbitration for Sport, which reversed the ban.

Tons of high profile, high cost player signings didn't work - the vast majority of which are no longer at the club, so clearly this element of "squad-building" was not instrumental to the resurrection of the club, and Paolo Maldini was inserted to take charge of player recruitment.

Elliott identified that the best way to succeed was to become financially viable and increase value (they would eventually want to exit for profit) and get rid of the "bloated contracts" players that weren't good assets for them anymore as they weren't improving the club or having any success on the field.

In the transfer and recruitment they just got smart, using data science and analytics to back Paolo Maldini's growing department. The data analysts identified targets that were within reach of their budgetary constraints and would provide value to round out the squad. This included overlooked "gems" such as Macias, who used to deliver kitchen/laundry appliances, and played in the depths of Italian football, or Pierre Kalulu who was unwanted at Lyon, not featuring once for them (what is it about Lyon??). Knowing how the team was to play, and understanding that in terms of recruitment translated to a deep understanding of squad dynamics and what components are required. Still it wasn't working, and after the sacking of Marco Giampaolo, Stefano Pioli was appointed as the new coach on a temporary basis. Interestingly his contract is just now extended into next year from it's current end point of this month. Considered a managerial journeyman, he improved their standing each season and won it just now. Player recruitment was excellent - Simon Kjaer, Tomori, amongst other more recognizable names.

On the business side, Elliott understood it had to be a combined football and financial management project. The football had to be good, improving the sporting performance while reducing the cost of doing so - standard business basics then. Nothing new here, but developing the business was new (and this is where ALK have parallels). Milan hadn’t really developed their brand into a media-entertainment business like others had. They hired Ivan Gazidis from Arsenal, and then another number of highly-talented executives, not just from football, but the world of consumer goods and entertainment, and the final piece of the puzzle will be their new stadium - the fan experience.

All of this was while dealing with their UEFA ban and the impact of Covid.

In short (and I know it hasn't been)
1. Sporting performance through success on the field and the role of analytics of it
2. the right management - knowing how to run a branded business, understanding you're in the entertainment and media industry
3. Commercial management - aligning the right sponsorships, non-football, but brand-associated activities - monetizing the brand
4. the entertainment and fan/watcher experience - content!

each of these has to be a balance, though. And without the financing to "throw" at a squad, it's super-important to get the other 3.5 things right

Interesting post, NRC.

There's more detail reported in the FT on Tuesday. Elliott Management is a well known activist firm with $52 billion funds under management. However, activist firms are not usually thought of the same as "vulture funds." Elliott is a turnaround firm - making their money from "rescuing," turning round, building and selling on. "Vulture funds" make their money by picking "on the bones" of failed businesses, selling on the bits that have value and letting the rest go.

The FT also reports that RedBird took at 10% stake in Fenway Sports Group last year - the owners of Liverpool.

[spt_claret]

On the business side, Elliott understood it had to be a combined football and financial management project. The football had to be good, improving the sporting performance while reducing the cost of doing so - standard business basics then. Nothing new here, but developing the business was new (and this is where ALK have parallels). Milan hadn’t really developed their brand into a media-entertainment business like others had.

Just want to pick on this as while the turnaround of Milan is impressive and their use of analytics commendable this is inaccurate. Milan was a giant of a club until around 2012 when they began to hit problems. Back when I was at university, I used to pal around with a lot of the Middle Eastern international students, the most popular club amongst them was Milan followed by Barcelona, then Real Madrid. Milan have always had enormous brand recognition and media profile, and teams littered with multinational superstars. It's only the 2010s that saw them fall from grace and briefly become a sleeping giant.

[Oshkoshclaret]

So the moral of this story is that we should default on the debt to Dell and end up being owned by someone that actually has money.

[NRC]

So the moral of this story is that we should default on the debt to Dell and end up being owned by someone that actually has money.

no, because, as has been pointed out, we haven't got brand value of palpable measure to be worth rescuing.