Are Sovereign Wealth Funds About to Take Over European Soccer?

欧洲的粉丝,尤其是英语,足球have become used to a particular type of face in the crowd over the last decade — the face of the foreign billionaire club owner. A sheepish, slightly dismayed grin plastered permanently on his face, Roman Abramovich, the former owner of Russian oil company Sibneft (now Gazprom Neft), looks down on every home game at London’s Chelsea Football Club, which he acquired in 2003; further north, at the City of Manchester Stadium, the beatific, sharp-suited Sheikh Mansour, member of the ruling family of Abu Dhabi, follows the progress of Manchester City, the once-struggling but vastly popular club he bought in 2008; over in Paris, proceedings at the Parc des Princes are dominated by the helmet hair of Nasser Al-Khelaifi, who has been chairman of Paris Saint-Germain since 2011.

In media accounts,sovereign wealth fundsare often presented as the source of much of this foreign capital that has flowed into big European clubs over the past 15 years. That’s inaccurate: Sheikh Mansour sits on the board of the $90 billion Abu Dhabi Investment Council, but he acquired Manchester City with his own money (no difficult feat when your family fortune rises close to $1 trillion, as his does). And Paris Saint-Germain was acquired not by the Qatari Investment Authority, as is often reported, but by Qatar Sports Investments, a special fund set up by the Qatari royal family in 2005 to help with the country’s (ultimately successful) bid for the 2022 World Cup.

Sovereign wealth fundshave stayed on the margins of big-time investment in Europe’s elite soccer clubs — but late last month saw the first sign that this might be about to change, with the announcement by Abu Dhabi’s International Petroleum Investment Co. (IPIC), which has $68 billion in assets under management, that it has inked a funding agreement with Real Madrid, the world’s biggest sport club by revenue. This represents the first time a sovereign wealth fund — as opposed to the individuals associated with a fund — has become actively involved in a football club. Many have been left scratching their heads: What’s in it for a fund like IPIC to get into bed with Real Madrid?

Real Madrid is fan-owned, so IPIC, which is chaired by Sheikh Mansour, has not taken a direct equity stake in the club. Instead, the agreement — the length and commercial terms of which have not been made public — is all about helping the club with the long-term expansion of its stadium, museum and global network of football academies. The arrangement is not entirely unusual for the Abu Dhabi–based fund. IPIC has some experience helping private companies raise money: In 2012, for instance, it underwrote a $1.75 billion ten-year bond issue for 1MDB, the Malaysian state development fund. With Real Madrid reportedly getting ready for an initial public offering on the New York Stock Exchange, which could reasonably be expected to value the club at more than $3.5 billion (Manchester United, by contrast, which went public on NYSE in 2012, has a market capitalization of $2.6 billion), IPIC may be exhibiting masterly timing by getting involved with the club at this stage.

But then, making commercial sense is never really the primary objective when it comes to these types of investments. Set against the assets wielded by the bigsovereign wealth funds, football clubs, even the largest of them, are small to the point of irrelevance. Real Madrid, the biggest outfit in world sport, reported operating income of $684 million for the year ended June 30, with a pre-tax profit of $60 million. Europe’s football clubs are large by fanbase and cultural imprint, but in commercial terms they’re chump change.

For individuals like Abramovich and Sheikh Mansour, club ownership is basically a vanity project, an exercise in boyish wish fulfillment (what could be more fun than to play God with a football club?). It also grants them access to the great and good of the local political and business elite; it makes them prominent figures in European capitalism, which can be useful in their other business dealings. In sum, owning a football club can provide a useful networking opportunity.

IPIC’s involvement with Real Madrid, while less personalized and perhaps more commercially oriented, should still be seen within the same broad frame as the investments of the Abramovich types: It’s a way to build relationships and get to know the local business climate. Stefan Szymanski, a sports economist at the University of Michigan, makes the additional point that the Gulf states — and, by extension, the funds located there — are extremely rich but very exposed geopolitically. “They’re in a dangerous part of the world,” he says. Becoming presences in the world of European soccer “raises their profile and gets them mindshare among the elites.” By tying itself to Real Madrid, in other words, IPIC may be buying a measure of cultural affection — and perhaps, eventually, protection — for the Gulf.

Aresovereign wealth fundsabout to take over European soccer? To answer the question, you have to consider why they’re interested in the sport in the first place. The type of networking and relationship-building opportunities that make involvement in club soccer attractive to these funds really only exist at the highest level of football. The biggest funds don’t want to be associated with second best; look around and there’s really only a handful of clubs in the elite leagues of England, Spain, Italy and Germany with the history and prestige to appeal to the big hitters of the sovereign wealth fund world. Several of those clubs — Bayern Munich, Arsenal, Barcelona — are fiercely independent and have ownership structures that, like Real Madrid, would prevent sovereign wealth funds from taking direct ownership stakes (or at the very least make it very difficult for them to do so).

A wholesale invasion of European soccer’s ownership structures by sovereign wealth funds is unlikely. But at the same time, it seems fair to assume that in years to come, we should expect to see more agreements of the type reached between IPIC and Real Madrid, where funds help elite clubs raise capital to meet their long-term development plans. In other words: less grinning from the stands, more hushed networking in the private boxes.

Follow Aaron Timms on Twitter at@aarontimms.