London plays host to Major League Baseball (MLB) for the first time this weekend, and sports industry commentators see this as a notable milestone in both the continuing globalisation of the sport sector, as well as its changing investment landscape.
The London MLB mini-series features the Boston Red Sox and the New York Yankees – a rivalry equivalent to Real Madrid vs Barcelona in soccer – and is the latest example of top tier US sport actively seeking opportunities to expand into overseas territories.
American Football (NFL) and Basketball (NBA) already stage regular fixtures in the UK – with the NFL recently striking a further deal to hold games at the new Tottenham Hotspur stadium over the next ten years – and there are persistent rumours of a permanent London-based NFL franchise opening in the near term too.
Further expanding these sports beyond their home markets in the USA increases brand awareness and attracts a wider pool of athletic talent, and the franchise model prevalent in North America is well suited to geographic flexibility.
But key to the move is also a desire to boost revenues, with many US sport experts believing that audiences and revenues for the flagship US sports have reached maturity in the US, and therefore require overseas flight in order to grow. Europe has been its most obvious landing point.
This international focus has been coupled with a strong flow of US capital into the European sport sector, with investors attracted both by the economic opportunities inherent in a fast-growing market segment and a flexible ownership model, which is less focussed on the traditional ‘long term generational investor’ and is more welcoming to fund and consortium ownership.
A series of English and mainland European soccer clubs have already benefitted from an injection of US capital, and the amount of new inbound funding is increasing year on year. US investors have also been drawn to the greater level of control one can typically exercise over a European sports club since there is no requirement to fold into a league-wide revenue sharing programme and the fluid system of athlete transfers also allows for greater control over playing rosters.
As broadcasting revenues continue to rise and, importantly, establish more stable cash flows, it is the professional investor (both US and European), for whom for many years sport represented a risky investment too far, that is showing an increased level of interest in European soccer clubs in particular.
Increases in broadcasting revenues have led to remarkable levels of growth being posted by the English Premier League clubs over the past decade, and average levels of growth have comfortably outperformed the NASDAQ and other relevant benchmarks meaning that increased professional investment is likely to continue.
Recent discussions with clubs and other market participants have made it clear that management teams within European football clubs are coming under increased pressure to concentrate on maximising investor returns. Owners are more focussed on the traditional yardsticks used to measure business performance, and whilst the desire to have the best team will always be there it is becoming equally important that this is coupled with impressive economic returns.
Many professional investors now appoint their own business management teams to run sports franchises and they, as would be typical in other sectors, seek to instil mainstream business efficiencies and disciplines. Increasingly, such management teams are seeking to explore more sophisticated financing solutions befitting of a higher and more stable level of cash flow in order to enhance economic returns.
Whilst investing in sports is still by no means risk free, the nature and frequency of those risks have materially declined over recent years as a direct correlation to the economic health of top tier English soccer in particular. Europe is an attractive destination for both investors seeking to exploit the fast growing European sports sector and for clubs, leagues and franchises seeking to enhance revenues by tapping into the avid fan base in London and beyond.
The Yankees and the Red Sox will both seek to benefit from that trend as a result of the London mini-series, and we expect the flow of overseas investment into European sport to continue apace.