FSG partner who could be ‘future owner’ of Liverpool reveals bold transfer strategy
When RedBird Capital Partners took an 11 per cent stake in Fenway Sports Group back in March it was a deal that added a stake in a second European football club to their investment portfolio.
Through becoming a partner in FSG as a result of the $750m investment, RedBird took a stake in the interests of FSG’s entire empire, one that has Liverpool and the Boston Red Sox as its crown jewels.
It was a deal that manifested from the decision by RedBird founder Gerry Cardinale and his business associate, the baseball analytics guru and pioneer of ‘moneyball’ Billy Beane, and FSG chiefs to not press ahead with a 20-25 per cent stake purchase by Cardinale and Beane’s special purpose acquisition company RedBall. That was a deal that broke off at the turn of the year, one that could have seen FSG go public on the New York Stock Exchange.
Private investment was deemed to be the way to go and soon a deal was struck with RedBird, who had acquired a controlling 85 per cent stake in French second division side Toulouse in the summer of 2020.
The investment was never designed to supplement transfer activity for Liverpool or the Red Sox’s spending power on players, it was allocated to allow for infrastructure projects in Liverpool and Boston to continue despite the impact of the pandemic, such as the Anfield Road redevelopment.
It also allowed for the acquisition of a new sporting team to the FSG empire, with the purchase of the Pittsburgh Penguins NHL team recently.
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Cardinale and RedBird have also taken a small stake in Spanish team Malaga and are continuing to look for other avenues in European football to explore.
In October Cardinale, when speaking at the Financial Times’ Business of Sport Summit in New York, was quizzed on whether he could see himself being Liverpool owner in the future.
Cardinale was clear that it wasn’t the reason for the investment or something that is on the agenda, but didn’t totally rule out the future possibility of it, stating it would be a ‘privilege’.
RedBird and Cardinale’s own vision for how to approach European football is one that chimes with what FSG already have in place at Liverpool, a model where the success of the business and success on the field go hand in hand thanks to implementing strategy and capital in the right places.
RedBird are now in year two of their Toulouse ownership, and having missed out on promotion narrowly last season they sit at the summit of Ligue 2 at present, the hot favourites to win promotion to French football’s top tier.
Speaking on the Are You Not Entertained podcast, Cardinale said: “We have an entire investment business globally, and so when I look at our involvement in European football, and we do it in many different ways, our investment into Toulouse is a hugely successful investment, and that is a huge testament to Damien Comolli and Olivier Jaubert and the winning culture that the team on the ground there has built with the fans and the community. Toulouse is a phenomenal city with a phenomenal sporting culture.
“We made that investment with a data analytics premise in partnership with Billy Beane and Luke Bornn. We have a proprietary analytics business with a company called Zelus, which really is as advanced, if not more so, than most of the top clubs in the world.
“Since taking control of the club we’ve generated a very meaningful net transfer surplus, but for us we’re looking to build a platform company. Toulouse has been a great investment and it has been a great partnership and we’re definitely going to get them promoted.
“I don’t see it as a grind. A lot of guys may invest in second and third tier football teams in Europe, but I know for us this is part of the kaleidoscope of touch points that we will make investments in globally in sports. It’s not a grind, it is part of what we do and we can bring a lot to the football clubs that we do it with.”
Cardinale has been vocal in the past on how simply “turning up and writing cheques” isn’t a sure fire way to achieve success.
With years of experience in investing from sport, to fintech, to media, Cardinale has arrived into team ownership with a clear strategy, both on and off the field.
Unlike in US sports, where sport operates a franchise system where promotion and relegation don’t exist, nor does the enormously lucrative qualification for other competitions, European football lives in a different eco-system, where to miss out on the Champions League or promotion can incur enormous financial headaches for those who banked on that success as being part of a successful business.
Newcastle United’s new controversial ownership by the Saudi Arabian Public Investment Fund worth in excess of £350bn, had generated much interest, particularly on how such new found wealth could enable the Magpies to spend lavishly to bring themselves into the conversation among the Premier League’s very biggest sides.
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And while financial fair play rules will curb that plan somewhat, the notion that only those with the deepest pockets can win is something that Cardinale does not subscribe to. It certainly hasn’t been the case for Liverpool, who while delivering a Champions League and Premier League since 2019 have been one of only two teams, the other being Burnley, to have returned an economic profit, the method used to gage the true financial performance of a business by taking the net operating profit figure and subtracting all of the capital invested into the business. Until a business turns a profit greater than the cost of its capital then it is a business that runs at a loss.
And sacrificing cash flow to achieve success is not a necessity, according to Cardinale.
“The penalties for losing are extreme and I think that may be why you have this evolution of the kind of capital that comes into that market,” he said.
“The assumption is that you need very deep pockets and a tremendous amount of money to spend in order to win, so that you don’t get penalised.
“We came together with Billy Beane several years ago. Billy is a huge European football fan and has been around it for close to two decades.
“We did a very deep dive before we made the investments we did in European football. We spent three years looking at the market, meeting with lots of different teams and owners and trying to understand it better.
“The thing that Billy convinced me of is that you don’t have to spend a tonne of money to win, you can be smarter about it. You can win and not necessarily sacrifice the cash flow of the team, and that is basically Moneyball, and I believe in that.
“You definitely have an arms race in European football, particularly with the big boys, and that needs to moderate itself.
“People should not assume that people have infinite amounts of money and people are going to keep spending it and spending it, at some point there has to be a normalisation and a value proposition to that.”