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How not to buy a football club – The Athletic

Derby County fans may or may not believe this, but the original hook for this piece was a press release issued by Walsall on Monday morning. After 12 months of talks, it said, the League Two side have been bought by a new group of American sports investors called Trivela.

No maverick tycoon doing keepy-uppies on the pitch, no Twitter spaces to tell the world we’re all going to make it, no bait thrown to the papers, no auctions, no last-minute haggling or late swoops: just a note to tell us it had happened.

Derby and Walsall are about an hour apart by car but have spent most of their 130-plus-year histories on different planes. Derby are two-time English champions, FA Cup winners and former European Cup semi-finalists; Walsall’s best post-war finish is 14th in the second tier, 60 years ago. But they are just one division apart now and the only gulf between them is the result of their attempts to find new owners. It is the difference between a success and a shambles.

So we thought it might be useful to talk to experts from football’s fast-growing mergers and acquisitions industry about the most common mistakes made when buyers meet sellers. We came up with seven and then tried very hard to equate them to the deadly sins, but the only wrath we could come up with was the frustration we felt trying to work out which mistake was down to greed, gluttony or lust, and which failing we could pin on sloth.

What follows, then, is not an instruction manual for life or a guarantee of virtue. It is a polite warning for would-be saviours, some friendly advice for the well-intentioned and a handy bingo card for spotting bullshitters.


Bad motives, unrealistic expectations

“The first question I ask new clients is, ‘What is it you want to achieve and how are you going to do it?’,” says Trevor Watkins, head of sports at multinational law firm Pinsent Masons.

“The ‘and how’ is very important. Anyone can say they want to win the Champions League, but what’s your plan, can you afford it and what’s really important to you? It could be winning trophies or it could be making money, but we need to have that conversation at the start: what and how.”

Terry Pritchard is a director of Charter HCP, a London-based firm that helps potential owners find loans or investors to complete club takeovers.

“Do not buy a club if it was your childhood dream or you are a frustrated manager,” says Pritchard. “That’s a fast way to lose a lot of money.”

The Athletic has spoken to several other bankers, brokers and lawyers, some of whom wished to remain in the shadows, and they all had different versions of the same filtering process.

One British-based middleman said he does not deal with anyone who has “ridiculous expectations” of instant promotion, open-top parades and large, annual returns.

“What makes you think you’re so clever when only a handful of teams win anything and nearly every club needs a top-up from their owners every year?” he explains.

While Steve Horowitz, a partner with New York-based merchant bank Inner Circle Sports, gives all potential clients what he calls his “grumpy Steve” speech.

“We counsel high-net-worth individuals on how hard owning a football club actually is, how much it will really cost — at closing, a year later and five years later — and give them a list of all the things that can go wrong from relegation to a player getting injured,” says Horowitz. “And if they are still interested in purchasing a club, then we are happy to advise them.

“Our typical client has been amazingly successful in another industry and is looking to get involved in football. We make sure they understand that the business of football is hard and if they are only focused on making money from a club, there are easier and safer ways to get a return on capital.”


Eyes bigger than their bellies

Let us go back to the second half of Watkins’ opening gambit to prospective owners: what and how. Can you really afford this? No, really, can you afford this?

You might think this is a relatively easy question for an honest person to answer. They would, you assume, know the asking price and how much it costs to run the club, and then be able to work out if they have that much money lying around or if they can borrow it and afford the interest payments. This is, after all, how most of us buy our homes — but buying a football club is never this simple.

This is why every self-respecting takeover saga features dreamers, opportunists and self-publicists; a list of characters — some old, some new — who are all trying to buy the best house on the street without a job, inheritance or anything to sell.

In recent years, the football authorities have tried to weed out these time-wasters and speculators, and it is now standard practice for leagues to ask prospective owners to prove they can fund the club for two seasons. However, there is still a world of difference between having x amount of dollars, euros or pounds in your bank account one day and actually wanting, or being able, to spend it.

“Do not think you can make cuts and trade your way out of trouble,” says Christian Nourry, managing partner at Retexo Intelligence, an analytics company that helps investors find clubs and then not lose their shirts on them.

“Only buy if you really have investment to put in and don’t buy if you only think you can.”

And even if you do get the initial deal over the line, the purchase will almost always cost you more than you thought.

“We always advise people to over-equitise the acquisition,” says Horowitz. “If you start off underfunded, you will likely end up feeling pain as your ownership evolves.”


Who’s the boss?

Of course, one increasingly common way around the problem of either not having enough money of your own, or just wanting to spread the risk, is to form a syndicate.

The recent Chelsea takeover contest came down to a three-horse race between groups of investors, while Liverpool have been very successfully owned by a syndicate, Fenway Sports Group, since 2010.

John Henry Liverpool

John W Henry’s Fenway Sports Group has owned Liverpool for nearly 12 years (Photo: Harold Cunningham – UEFA/UEFA via Getty Images)

But if this is an approach you want to take, it is much, much better if you have all the pieces in place before you start negotiations and everyone knows who is in charge. At least one of the Chelsea bidders was still building its roster after the process started and another did not even make the start line after its main players failed to get their ducks in a row.

“Do not approach the club saying you are a consortium without being able to provide the names locked in on first approach,” advises Nourry.

“And if you are part of a consortium, have just one leading party and then limited or silent partners. Too many cooks will result in the existing owners worrying about the safety and credibility of your bid.”


Too much information

If there is one thing that every person whom The Athletic consulted for this piece agreed on, it is: don’t talk to journalists.

Now, clearly, they don’t really mean that (we think) — after all, they talked to us. But they were all pretty adamant that talking to the media on the record — or fans, via social media — before you have closed the deal is a very bad idea.

Some thought it was perhaps OK to give an interview or two if you had already started negotiations with the current owners, while one said “only tell good journos what you’re doing”, but all agreed that the best type of takeover is the Walsall variety — the one you read about for the first time on the day it is done and dusted.


Shut up and listen

Sure, there are some examples of mavericks who swashbuckled their way into a club, quickly took the temperature, cut through the crap and made the existing shareholders offers that they could not refuse/had been hanging on for. But those examples — and yes, we are thinking of you, Mike Ashley — have not tended to go well.

“Do not buy a club if you don’t have total knowledge of the club’s staff and sit with everyone you can to understand the culture,” says Pritchard. “Learn what is gossip and what is reality.

“This is never taken seriously but you cannot change them overnight, so they need to be committed to your vision. And you must also make sure your knowledge of the fanbase is up to date.”

NUFC, Newcastle

Ashley completed his Newcastle takeover rapidly (Photo: Getty Images)

Nourry agrees.

“Don’t talk too much in meetings about how great you are,” he says. “Owners want to see and hear that you are credible but you only get further by listening. They will only sell to you if they feel you get them as people.”

Another source agrees with Nourry… but only up to a point.

“You have to understand the seller’s motivation,” says the broker, who has helped several foreign investors buy into European clubs in recent years.

“Some sellers actually care about who the next owner is, and it’s not just about the money for them. But other times it is purely about the money, and the seller won’t care at all if the new saviour is brilliant. It could make it worse.”

That last point might explain why so many deals these days have what one source described as “schmuck insurance”, or anti-embarrassment and non-disparagement clauses, built in. It is often not just good manners that stop the new owner from slagging off their predecessor — that politeness is contractual.


Speak the lingo

This follows the last point quite neatly, as we are talking about respect.

“Don’t tell the existing ownership that they’ve done everything wrong and how you are going to revolutionise everything,” says Nourry. “You might think that but don’t say it.”

But the need for tact and diplomacy goes further than that.

“If the club is abroad, make sure you are aware of any cultural sensitivities,” he adds. “And if you’re going to make no attempt to speak their language, bring a translator. Do not assume everyone speaks English.”

But even if everyone does speak English, do not assume you are all on the same page.

“We always stress that owning a European club is different than owning an American sports franchise,” says Horowitz, whose firm has helped find buyers for Liverpool, Portsmouth, Dagenham & Redbridge, Wrexham and many others.

“In Europe, you are only a custodian of a club for the supporters for a period, and you will ideally pass it on to the next person in a better place than when you arrived. The fans are the real owners and anyone who loses sight of this can find themselves in trouble.”

It is not hard to think of examples of how even the smartest American owners have sometimes tripped over this transatlantic fault line, be it a failure to properly consult on ticket-price rises, furloughing staff during the pandemic or dalliances with US-style, closed super leagues.

But even British investors get British fans wrong sometimes, just as French investors get French fans wrong and Italian investors get Italian fans wrong.

“Just make sure you understand your fanbase and the community,” says Watkins, who helped save his club Bournemouth from bankruptcy with a consortium of fans 25 years ago. “Some investors don’t care what fans think, but they do so at their peril.”


Please seek professional advice

You feel this should go without saying, but the evidence of countless collapsed or unhappy deals suggests investors are still failing to conduct thorough due diligence checks.

“In an age when the authorities in Belgium, Portugal and elsewhere are investigating money-laundering by agents and owners in football, picking a club because it looks nice is naive and can result in years of litigation post-acquisition,” says Nourry.

“You can’t hire your standard bank or law firm to do football due diligence. You need people who know what they are looking for: agent-dependency, fictitious scouting contracts, evidence of third-party ownership et cetera.”

Now, you could argue that someone in the business of providing specialist advice on takeovers would say that, but there is a reason the same banks and law firms tend to get the best gigs in what has become a very specialised sector.

“You must spend the money to find out what the real figures are,” says Pritchard. “For example, you need to make sure you have every outgoing director on the hook for undisclosed debts.”

But once you have got a good handle on the numbers, sometimes you just have to close your eyes and jump.

“There is no perfect formula for valuing clubs,” says Watkins. “It is more art than science. Yes, you can get close, but how can there be firm rules when Chelsea go for £2.5 billion, West Ham £650 million, Newcastle £300 million, Southampton more than £200 million?

“The valuations are so uncertain that sometimes you just need to go with your heart. I’ve seen too many deals fall apart because of a dispute over a £1 million here or £1 million there. People get stubborn. But if it feels like a good deal, and it’s a good club, don’t get hung up on details.”

Boehly, Chelsea

Boehly’s consortium completed the most expensive takeover of a football club (Photo: Dania Maxwell/Bloomberg via Getty Images)

Horowitz is a bit more of a “details” man than Watkins, but even he agrees “that things never go as you plan them”.

So, maybe the chaps from Trivela will not increase their stake in Walsall from 51 per cent to 76 per cent in two years, as planned. And maybe they will change their minds about buying the Poundland Bescot Stadium — that is its official name, we are not disparaging anyone — and reuniting club and ground under common ownership.

But by avoiding the big mistakes, not telling the likes of us about what they were up to, listening to the outgoing custodian and taking the plunge, they have made a much better job of buying a football club than countless others including the chaps trying to buy Derby. And that is a good start.

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