How record £4bn Chelsea FC sale is shrouded in mystery 

The relief at Stamford Bridge as new owner Todd Boehly greeted a depleted crowd at Chelsea was palpable.

The interregnum since the assets of former owner Roman Abramovich were frozen on March 22 has been nervy, confidence-sapping and destructive. Results on the field have suffered, key players such as Antonio Rudiger are being allowed to leave.

Supporters have been left puzzled as to how preventing the sale of £3 match programmes could possibly halt Vladimir Putin in his tracks.

Secretive: Billionaire new Chelsea FC owner Todd Boehly (pictured), owner of baseball side the Los Angeles Dodgers, is a private investor backed by private equity funding

Secretive: Billionaire new Chelsea FC owner Todd Boehly (pictured), owner of baseball side the Los Angeles Dodgers, is a private investor backed by private equity funding

Remarkably, the sales process makes Chelsea Football Club the most expensive sports franchise on the planet.

The £4.3billion sale price (it has dropped as the pound weakened in recent weeks) is more than twice the £1.9billion paid for the American football team the Carolina Panthers – until now the highest price achieved.

But private equity interest in sports and billionaire bidders are rapidly raising the bar. A takeover battle for the Denver Broncos American football franchise involving heirs to the Walmart fortune and a consortium involving basketball legend Magic Johnson already has reached $5billion (£4.3billion).

The only sporting enterprise which exceeds these valuations was the purchase by Liberty Media of Formula One motor racing in a deal with an enterprise value (including debt) of £6.9billion five years ago.

Under the ownership of Abramovich, Chelsea demonstrated that it could become a trophy-winning machine. The owners of other clubs such as Liverpool, with its historic records, and Manchester City must be salivating at the potential returns should they ever decide to cash in.

The big valuation difference for Chelsea is that the club sits on some of the most expensive real estate in west London, in one of the most expensive cities in the world.

The unusual structure of the club, where the Chelsea Pitch Owners have a say, does raise questions as to whether, in contrast to Arsenal at its old Highbury ground, Stamford Bridge is immunised against becoming a real estate opportunity.

As Chelsea is not a public company and Boehly, owner of baseball side the Los Angeles Dodgers, is a private investor backed by secretive private equity funding, much of the detail of the deal is shrouded in mystery.

Protected: In an unusual structure the Chelsea Pitch Owners group has a say on any proposals for Chelsea's Stamford Bridge ground (pictured)

Protected: In an unusual structure the Chelsea Pitch Owners group has a say on any proposals for Chelsea’s Stamford Bridge ground (pictured)

In transactions involving public shareholders there are a myriad of disclosure requirements, and documents can run to hundreds of pages.

Financing details are spelled out, along with the remuneration and shareholdings of the key executives, the tax status of those involved as well as the fees to advisers.

Documents such as these are red meat for financial journalism. The takeover of Chelsea is further complicated by the role of HM Treasury and its determination that not a penny finds its way back into oligarch Abramovich’s pocket.

The Treasury and Bank of England are experienced hands when it comes to seizing the financial assets of sovereign governments such as Iran, Libya or Russia.

However, when it comes to sports enterprises they are amateurs, as shown by the ban on new ticket sales and valuable shirts through the Stamford Bridge megastore. 

It would not have taken a financial genius to recognise that this income could have been ring-fenced and contributed to working capital during the sales process.

There is so much about the deal which is unknown. The investment bank which managed the sales process, The Raine Group, is a relative newcomer in the sports world and its website declares it to be a specialist in technology, media and telecoms. 

Boehly was represented by the much more visible entity of Goldman Sachs. As an investment bank, Goldman is rarely bettered when it comes to mergers and acquisitions.

Among still-unanswered questions is: what are the net proceeds from the sale going to be?

Staying put: The suggestion is that Marina Granovskaia (pictured) will remain as a director

Staying put: The suggestion is that Marina Granovskaia (pictured) will remain as a director

And how will the authorities, HM Treasury and the Premier League (not known for its penetrating scrutiny, as the Newcastle takeover by Saudi interests showed) ensure the money does find its way to Ukraine causes, as promised?

Moreover, there is little clarity about what happens to the £1.6billion loan to the club provided by Camberley Investments, which allegedly is controlled by interests connected to the former owner.

The suggestion is that the long-standing Chelsea chairman Bruce Buck will remain as the figurehead, while Marina Granovskaia will stay as a director. But, logically, might their long-term relationships with Abramovich disqualify them?

The structuring of the deal, with some 60 per cent of the financing coming from California private equity giant Clearlake Capital, means that Chelsea is swapping one relatively benign ‘indebted’ owner, Abramovich, for another.

Private equity owners rely on debt because of favourable tax treatment and the power of leverage (we all know this from home owning), which enables financial capability way beyond the capital put at risk.

The cash doesn’t come free. Private equity owners tend to have a short time span and offer their own investors superior returns.

The strong new interest of private equity in sports, from Six Nations Rugby to the Liverpool Football Club owners, suggests they see undervalued assets.

They have a keen interest in success on the field because that also means valuations, even ‘toppy’ one such those at Chelsea, can be enhanced.

Unlike sports-loving billionaires, such as Jim Ratcliffe of Ineos, interested in trophy assets, private equity is driven by returns.

That often means cutting costs and trimming perceived superfluous expenditures such as football academies.

Boehly, from his LA Dodgers experience, clearly understands the value of that most intangible of assets – the great pitcher or batter.

Whether the same applies to his Clearlake partners, who have ponied up the majority of the cash, will be a big test.

It is going to require a powerful, challenging, knowledgeable and City-savvy group of independent directors – not just a board with decorations – to keep the Californian financiers in check.

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source: dailymail.co.uk