By Demi Akinjide, Alicia Slater and Ujwal Gurung (University of Bristol), Mariona Planella Boix, Ismael Fathy Martínez, Pau Rodríguez Coll, Yair Trachtenberg (ESADE)
Photo: Tim Roosjen (Unsplash)
Overview of the deal
Acquirer: CVC Capital Partners
Target: La Liga
Implied Equity Value: €24.3B
Total Transaction Size: €2.1B
Closed date: TBC, with the risk of the transaction falling through
After 10 months of negotiations, Spain’s La Liga has agreed terms for a deal with CVC Partners after 38 of 42 clubs across the first and second Spanish football divisions voted in favour of the deal. The completion of the transaction would be the first deal pursued by a private equity group in Europe’s top flight football leagues.
According to Javier Tebas, La Liga president, CVC is looking to invest a total of €2.1bn with La Liga having an implied valuation of roughly €24bn. As a result, CVC will receive a minority stake in a new company that will be formed, whose revenues will be generated through La Liga’s broadcasting and sponsorship rights. More specifically, CVC will be entitled to 11% of media rights revenues for the next half-century. The buyout group will pursue the deal to increase the global audience for Spanish domestic games, which took a hit during the Covid-19 pandemic, in order to inflate the value of their rights.
In terms of La Liga, the league will look to use 30% of the funds to spend on players and pay down debts, and use the remainder to spend on stadiums and infrastructure.
“Without this agreement, without this investment, without this partner, we are going to have difficulties to keep growing our TV rights [in a] difficult market” - José Guerra Álvarez, Corporate Managing Director (La Liga)
Company Details: (Acquirer - CVC Capital Partners)
CVC is a world leader in private equity and credit with $115bn of assets under management, $163bn of funds committed and a global network of 24 local offices. CVC is majority-owned by its employees and led by its Managing Partners.
Founded in 1981, headquartered in Luxembourg
CEO: John Clark
Number of employees: 400
Market Cap: N/A (privately held)
Assets Under Management (AUM): $115B
Company Details: (Target - La Liga)
La Liga is a private law Sports Association that is solely and obligatorily comprised of all the Sports Corporations and Clubs that take part in the top two divisions of Spanish football. The entity is legally responsible for organizing such competitions in conjunction with the Royal Spanish Football Federation.
Founded in 1984, headquartered in Madrid, Spain
President: Javier Tebas
Market Cap: N/A (sports association)
LTM Revenue: €5.04B
Projections and Assumptions
Short-term consequences
Most Spanish premier and second division football clubs have embraced the partnership between CVC and La Liga. COVID-19 caused substantial unavoidable losses to football clubs due to match cancellations and the absence of sponsorship over the past 18 months. Although the bulk of the investment from CVC will recoup the long-term damage, we should also notice a short-term rebound.
Javier Tebas, President of La Liga said 15% of the funds will be allocated to increasing players’ wages as well as to transfer players’ fees. A further 15% will be used to pay off debts incurred throughout the pandemic. This should amplify Spanish clubs’ competitiveness over other European rivals, attracting wider international audiences and additional fans to Spanish domestic matches. Since CVC is an active investor in sports like rugby, the deal should be an invaluable growth opportunity for La Liga. LaLiga will nevertheless still retain its dominance over forthcoming matches alongside the management and organisation of audiovisual rights sales. Promoted and third division clubs will also acquire funds, enhancing their economic viability within this industry.
However, there is a serious dispute surrounding this deal. 4 clubs, such as Real Madrid, repelled against the deal, as its executives were excluded from pre-deal discussions, lessening the value of the deal. Clubs that opt out of the deal will not encounter the 11% cut in future revenues nor receive upfront cash from CVC.
Long-term Upsides
After joint losses of 733 million euros in the 2020-2021 fiscal year, the long-term deal by La Liga and CVC will help football clubs boost their pandemic recovery. This capital will be used to pay down debt and rebuild reserves, allowing Spanish clubs to sign more new players and recover financially. Simultaneously, CVC wants to maximize capital gains by adding value to La Liga.
The partnership will help finance long-term growth and is the first of its kind by a major European league, valuing La Liga at 24.2 billion euros. Moreover, this long-term investment is said to increase La Liga’s popularity and improve events and football matches, which will open up additional chances in the future.
Despite CVC's large investment, the operation will be carried out through the creation of a new business by La Liga and in which CVC will hold minority participation of 10%. Thus, La Liga will maintain majority control of its assets. However, some critical voices affirm that it entails an excessive long term commitment and indebtedness, in addition to giving up their audiovisual rights.
It is worth mentioning that CVC plans to list La Liga with a value of 36,000 million in a decade, although it is not official yet.
Furthermore, with this agreement, La Liga and CVC plan to launch a new streaming platform in 2023-2024 to broadcast Spanish football matches. This new platform will become more affordable given that it will allow fans to purchase only their team’s matches, instead of buying the entire competition, as it happens now. According to Vodafone, 35% of users would pay for the football subscription if it was cheaper, while 50% would think about it. The objective of this new initiative is to enlarge the customer base, especially among young people, and obtain more revenues from the television rights in the long term.
Risks and Uncertainties
The COVID-19 pandemic has taken a huge hit on sports globally, with La Liga being no exception. Although we have seen fans back into stadiums, the threat of further virus strains remains at large. Revenue shortfalls caused by stadium closure and rebates to broadcasters during the pandemic have disrupted the finances of La Liga clubs dragging revenue down 8% to 3.1 billion euros in the 2019/2020 season, according to Deloitte’s latest annual review of the sport, with lockdowns having extended in the previous campaign. This has had a big impact on clubs like FC Barcelona and Real Madrid, which have seen superstar players such as Messi leave for other leagues. With talent leaving and marquee signings being conspicuous by their absence in the current transfer window there is uncertainty with regards to attracting future viewership given that CVC stands to gain an 11% share of revenues for the next 50 years.
Despite La Liga’s confidence, Real Madrid and Barcelona have made clear they intend to do what they can to derail the tie-up. With Barcelona warning that the deal is “inappropriate” and Real Madrid claiming that the deal is illegal and launched legal action. Notably, the stagnating value of TV rights means that CVC faces uncertainty concerning the value of future bids from broadcasters for TV rights. Media analyst, Claire Enders, claimed that the ‘peak’ of the market passed in 2018 which has seen the value of global sports rights drop by 15%.
The reality is the rights market has plateaued across Europe, given that the leagues across Europe are dealing with broadcasters who are effectively monopolies. An indication of the continental fall in media rights comes from Germany, where last June, domestic TV rights for the Bundesliga, were sold for £3.8bn over 4 years from 2021 - 5% less than the previous deal. And that was seen as a success.
“Part of the decline is, of course, Covid related … but the overall trend has well established” - Claire Enders (Media Analyst)