CVC Capital Partners and LaLiga have reportedly agreed in principle on a 50-year deal that would give the private equity firm a 10.95% stake in a new holding company (Boost LaLiga) that would control the league’s commercial ventures (think: JVs, LaLiga Tech, sponsorships) for $3.2 billion (LaLiga was valued at €24.25 billion). The transaction is pending majority approval by the 42 first- and second-division clubs.
Spanish league clubs are facing financial troubles and in need of a capital infusion. So one can understand why LaLiga’s executive committee (Comisión Delegada) would be open to the idea of a private-equity tie-up. It is less clear why CVC would invest in the league at a time when some suggest the air is leaking out of a European media rights bubble. Albachiara SAGL founder Roger Mitchell suggested it is unlikely CVC’s investment thesis is about “re-rating media valuations.” He said it is more likely based on “opportunistic special situation investing, marketing innovation and decision making.” CVC did not respond to our request for comment.
Our Take: LaLiga clubs are desperately in need of cash after a year and a half without fans in attendance. In addition to the current economics falling short, “the two biggest clubs, Real Madrid and F.C. Barcelona, are massively leveraged,” Mitchell said. “Really, the whole league is.” As of January, Barcelona alone had around $1.5 billion in debt, and just yesterday, the club announced it had to part ways with its superstar Lionel Messi. Financial troubles help to explain why Real Madrid and Barcelona continue to support the Super League project.
Neither Spanish league giant is represented on the executive committee. And neither has publicly stated how it feels about LaLiga’s deal with CVC (though Cadena SER has reported Barcelona believes it is irresponsible to tie up broadcast rights for a half century at today’s valuation, and El Independiente is reporting that Real Madrid plans to sue the league and CVC). But it is safe to assume the private equity firm isn’t going to buy into the NewCo without their support and a long-term commitment to LaLiga. “No serious financial investor is going to pour money into that league unless they have an ironclad guarantee that those two clubs are going to be a part of it. [LaLiga’s commercial rights] would lose 50%, 60%, 70% of their value without them,” Mitchell said.
Mitchell—a Europe-based corporate financier and consultant—indicated the private equity firm may not be concerned with the domestic media rights trajectory, because the opportunity is too good to pass up. “When an industry is bleeding cash, a smart investor can negotiate a favorable deal that maybe they could not have gotten two years ago and that they won’t get two years from now,” he said.
That appears to be the case. Last season, the league generated around $2.1 billion dollars in media rights revenues. If one assumes an approximate 15% cost margin on delivering those revenues (which would be high), and CVC keeps about 11% of the net, they would have been entitled to around $200 million. Even if rights fees were to remain flat over the next 30 years, the PE firm would take in more than the $3.3 billion it put up on a discounted cash flow basis (remember, it’s a 50-year deal and that figure doesn’t account for their interest in the holding company). It is worth noting that while CVC is entitled to a percentage of media rights revenues, the company will not own an actual stake in the league’s media rights, which will not be under the Boost LaLiga umbrella.
If one looks at CVC’s investment in Pro14 rugby and the Roc Nation-led rebrand it has undergone, it would be reasonable to assume the PE firm also believes it can use marketing as a means of growing LaLiga’s value. “Private equity people believe sport is stuck in the mud with its thinking, that [leagues] are not approaching modern audiences the right way, and if they are given some support they could move the business forward significantly,” Mitchell said. He pointed to Formula One’s turnaround under Liberty Media as an example of how a new approach could change a sport’s fortunes and help to grow the pie.
The third reason CVC may be willing to overlook the current media rights trend is because of confidence it can eliminate the discount to valuation that exists—due to suboptimal decision-making and internal politics—simply by running the business more efficiently. As Mitchell explained, the vast difference in resources among clubs means LaLiga is “always working to a compromise; to find something that is more or less acceptable to Real Madrid and Getafe. And that means the league is not really doing the best it can.”
It is also possible CVC is simply more bullish on LaLiga’s domestic media rights future than the bears, as JL Sports Investment CEO Jochen Losch is. “Football is the number one [piece of] content in Europe, by far,” Losch said. “It’s lightyears ahead of everything else. [The European leagues] are going through a small period now, where rights fees have flattened as a result of the transformation in the media market from linear TV to streaming. But in the medium- and long-term, the fees will always go up, as they have always gone up in the past.” It’s worth mentioning CVC previously tried to buy interest in a company that would have controlled Serie A’s media rights.
While the deal looks to be opportunistic from CVC’s point of view, one prominent sports banker suggested it might make more sense financially for LaLiga to borrow the money. Mitchell didn’t disagree. But he said the league may see CVC as the “glue to keep the whole thing together. You don’t get that with debt.”
While true, taking the equity route has its own potential pitfalls. Remember, PE is buying in for the purpose of generating a large return over a relatively short period. Their motivations may not align with the league’s long-term best interests. For what it’s worth, LaLiga reportedly will have total control over rights negotiations and the terms of their commercial deals.
