Depreciating Pound Unlikely to Contribute to Americanization of English Football
The strength of the U.S. dollar relative to the British pound seemingly presents a historic arbitrage opportunity for American investors interested in purchasing U.K. sports assets. Todd Boehly paid $3.15 billion for Chelsea FC in May; at the current exchange rate, the English football club would have sold for $2.68 billion.
But it seems unlikely that the depreciating pound will be a catalyst for more Americans to take an ownership role in English soccer. “Obviously there are savings [to be had] and some of those dollars are real,” one American who owns an international club said. “But in the sports M&A space, it’s just less consequential.”
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In most cases, discounts on U.K.-based teams are “going to be a rounding error” and not worthy of pursuit for a U.S. investor, at least not unless the person was already keen on club ownership.
JWS’ Take: Tens of millions in discounts is certainly nothing to sneeze at, but there are several issues with assuming a relatively weak pound sterling will result in a flood of new Americans in English football.
For starters, owners typically don’t sell amid depreciating currency, so teams aren’t expected to hit the market en masse. Existing English football owners in a position of power are likely to wait for a more advantageous time to exit or insist the sale transaction is negotiated in dollars to eliminate the current volatility in the pound from the equation. Their argument for pegging the deal to dollars will be that the EPL is an outlier relative to the remainder of the British economy and that a meaningful portion of league revenues are already being generated in the currency.
Buyers of international soccer teams tend to avoid leaning too heavily into currency arbitrage. They recognize that exchange rates can and do shift and want to prevent a scenario where overpayment occurs because of a swing in the opposite direction prior to the deal’s close. To minimize foreign exchange risk during the acquisition process, parties to a transaction will use foreign currency forward exchange contracts to lock in rates.
A low double-digit currency swing is also unlikely to be enough to drive Americans previously sitting on the sidelines to buy English football teams. Most EPL and championship-level club values are just not high enough for the potential savings to move the needle. (Sportico’s 2021 EPL valuations have just six clubs valued north of $525 million. Four, including Chelsea, are already owned by Americans.)
“If somebody wanted to buy a middle-of-the-table club for $200 million three months ago, and they pay $200 million for it now, they’re going to save $10 or $20 million. But they were going to do the deal anyway,” the club owner said.
That is the case with Maciek Kaminski, who reportedly went through the EPL’s owners’ and directors’ test back in June. Should his Kaminski Group eventually get a deal done for Everton (current owner Farhad Moshiri continues to insist the club is not for sale), it may end up saving tens of millions of dollars by happenstance.
U.S. investors also understand that the bulk of revenues in pounds brought in by English football clubs—many of which operate on slim margins—will eventually be converted back into dollars. So, while the currency arbitrage may save them some money on the purchase transaction, it will negatively influence profitability moving forward.
However, the utility of a rate exchange swing grows in proportion to the deal size. The bigger the acquisition target is, the more impactful the currency fluctuation—and savings—will be. Had timing worked in Boehly’s favor, he might have saved close to a half-billion dollars.
However, the club owner said those kinds of savings are only applicable to a handful of the EPL’s teams; Chelsea is one, Manchester United, Manchester City, Liverpool, Arsenal and Tottenham are others.
Tottenham is not currently owned by U.S. investors, and soccer insiders believe it could draw new investors. Manchester City, which is controlled by City Football Group owner Sheikh Mansour, is unlikely to be sold.
The depreciating pound could push existing U.S. investors to re-invest in their team’s infrastructure. “If [a club is] building a new stadium on the back of dollars [it is] making in the U.S. and [it is paying out contractors in] pounds, then that could be really positive for them financially,” the owner said.
While it is cheaper to finance the project using U.S. dollars now, Brexit and inflation have driven labor and construction costs up in the U.K. over the last two years, offsetting some of the devaluation in currency.
There is another headwind that could suppress U.S. owners’ appetite for new construction too. “One would expect that a round of large capital projects that are financed or are in part co-financed with the public sector will wait until the Bank of England restores price stability and longer term rates have peaked and are on their way down,” said Joe Brusuelas (principal and chief economist, USM US). “The economic and financial environment in the U.K. right now is simply not conducive to the type of risky investments associated with large capital investments that involve sports teams.”
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