Counter Press Acquisition (CPA), the SPAC formed by Hollywood financier Paul Conway and former Tampa Bay Rays executive Michael Kalt (Rays owner Randy Frankel, Los Angeles Dodgers president of baseball operations Andrew Friedman and Angel City Football Club co-founder Julie Uhrman are also part of the management group), has set out on its mission to buy a material minority stake in a European football club. While no sector within the sports ecosystem has been hit harder by the pandemic than European sports teams, “These are [still] big international brands, that have been around for over 100 years and have the classic value moat around them,” Conway said.
Buying into a European club makes perfect sense as a private investment, particularly if the stake is at a discount because of a special situation like COVID. But not every sports financier is convinced these teams should be SPAC targets. The public markets have rotated away from growth stocks towards companies with EBITDA and EPS, and few European soccer teams make real money or post steady, recurring revenues.
JWS’ Take: This is not a knock on Counter Press. Conway and his group are experienced operators, having invested in seven European football clubs over the last five and a half years (six control deals, one LP investment), several of which have been successful turnaround stories.
CPA views a potential SPAC merger with a European club as “an interesting sidecar vehicle to what we’re already doing day-in and day-out, where we back a well-run football club” and help with analytics and commercialization to drive revenues and profits, Conway said.
When the Pacific Media Group co-chair talks about the club being well-run, he means on the pitch. These teams are typically “not entertainment organizations. They’re [often] not maximizing the stadium. They’re [usually] focused on 20 to 25 home games, not 100 events throughout the year including conferences, concerts and other sporting events,” he said.
But Conway and and his partners’ previous deals have taught them how to maximize profitability, and they have the platform infrastructure in place to realize those opportunities. “We’re already doing multi-country sponsorship contracts, so to add another country or club on is kind of a win-win for everybody,” Conway said.
The pandemic forced clubs across Europe to pile up debt. In some cases, as high as 10% or more. “There are inefficient capital markets for debt in Europe [across] many industries, especially in sports,” Conway explained. As a result, Counter Press sees the chance to buy assets “that would not otherwise be for sale and/or to acquire these businesses at opportunistic prices” (you can read more from the prospectus).
While fans in the U.S. began packing sporting venues to capacity last spring, some countries in Europe still have major restrictions in place (see: Germany). The longer those limitations stay in effect, the more interesting the investment opportunities in those locales should become. Conway expects that business will be “back to normal” in every country, within the next 12 months.
Counter Press is convinced it will be able to find an acquisition target with relative ease. Teams across the landscape are hurting, and the group is “well known and vetted” within soccer. “Last summer we signed 45 players from 42 different clubs. So we’re always in dialogue with different clubs all around Europe on players,” Conway said.
Once they identify that target, Conway is “pretty confident [they] will get something done.” In addition to the capital and synergies the SPAC brings, “we’re not asking for control. [That] combination is interesting to most of these [clubs],” he said.
While the opportunity to align with CPA may be interesting to a debt-laden club, it is not clear the public market would embrace the tie-up. SPAC investors have punted on companies with better stories and cash flow (just look at the performance of the broader SPAC market).
Counter Press is not the only SPAC taking aim at a pro-sports franchise. There are at least four others with the same stated goal. Conway says the difference with CPA is it’s “the only SPAC focused on this type of size [acquisition]” and the only one with an established presence in European soccer. CPA closed on $86 million and is targeting clubs within Europe’s top five leagues with an enterprise value between $250-$500 million. “From a growth-rate perspective, middle market type of clubs have much more upside,” he argued.
The SPAC CEO says there are three levers to trigger the upside. The leagues “are growing nicely in media [rights] and commercial revenue in most of these countries. We believe we can bring additional revenue through our platform and data analytics [which can help to generate trading profits]. But then thirdly, we think there is going to be a conversion in revenue multiples…. To invest in U.S. sports [can be] seven, eight, nine, 10, 12 times revenue. To invest in European football, we have invested at one times and for a bigger club it’s typically two to three times.”
Counter Press believes the difference in multiples will shrink as more and more foreign investors buy into the European leagues. “When we got into Belgium 21 months ago, there were three multiple club investors. Now there are 12. So, in less than two years, half the league has been consolidated. You’re going to see more and more of that, which will then obviously restrict supply and further grow multiples,” Conway reasoned.
While that thesis may prove true, historically speaking, European soccer teams have underwhelmed as publicly traded companies (they tend to trade based on recent on-field performance more than traditional metrics). Conway did not dispute that observation, but he pointed out that “most of the clubs that are public [today], are public on just one local exchange.” He explained, “That is inefficient because these are really global franchises and a big part of their growth is international.”
Conway insists that the best way to highlight the growth of an international soccer club is to list it on a U.S. exchange, “because that is where a lot of their growth is coming from.” He noted that Manchester United, which trades on the NYSE, currently has an EV 3.3x ‘22 revenue (the multiple has historically been 4-5x before a recent selloff). Counter Press Acquisition Corp. Unit is currently listed on the NASDAQ exchange under the symbol CPACU.
MANU commands a higher EV multiple than other publicly traded European clubs. But the stock hasn’t done particularly well, and MANU is one of the most recognized clubs in the world. The initial IPO (Aug. 10, 2012) priced shares at $14. The share price was $13.25 at yesterday’s close.
CPA undoubtedly believes it can maximize efficiencies to drive revenues and profits and satiate public market investor demands. But making money, which is the goal of a public company, tends to run counter to the ethos of pro sports. The fans are not going to be pleased if the club passes on a player to pay out a larger quarterly dividend to shareholders. In fact, they could revolt. And remember, Counter Press is not going to be making the final decisions here. They are going to be LPs controlling just one or two board seats.
It’s not clear how existing shareholders will feel about the increased regulatory scrutiny CPA’s presence will bring, either. But Conway does not believe it will be an issue. Many of the teams are “already semi-public,” he said, “because they are reporting to a regulator quarterly or bi-annually.”