A clique of US investors took control of British football club Chelsea FC last month – and some Wall Street insiders are still struggling to understand why.
Todd Boehly — a Los Angeles Dodgers co-owner whose pro-spending strategy has been credited with reviving the legendary baseball team over the past decade — promised Chelsea a similar path when he announced on May 30 that he and a syndicate of investors were doing so bought the team for £2.5 billion, or more than $3.1 billion.
However, Boehly has also tried to draw a line between his cash-heavy approach and that of Russian oligarch Roman Abramovich, who reportedly lost £900,000 a day during his 19-year tenure as an owner and spent more than £2billion on the team’s payroll and to define a new era of lavish spending in football.
In particular, sources close to the situation say that Boehly and lead investment partner Clearlake Capital, a buyout fund based in Santa Monica, California, are looking to Liverpool – which happens to be owned by another US-based investor, the Fenway Sports Group of the Billionaire John Henry, as an example they would like to follow.
Liverpool are generating £200m in Ebitda – or earnings before interest, tax, depreciation and amortization, a closely watched financial metric – compared to Chelsea’s £50m, according to a source briefed on the teams’ finances. If Chelsea can match Liverpool’s Ebitda, the takeover will look like a relative bargain, according to sources familiar with Boehly and Clearlake’s thinking.
In the 2021/22 season, Chelsea had the second-highest wage bill in the Premier League at £355m. According to football site Marca, Liverpool finished fourth with £314m. Meanwhile, sources close to Chelsea’s new owners point out that Boehlys Dodgers have 30 staff dedicated to studying “data analysis” – a practice often used to find strong players at good prices, as in the Movie “Moneyball” presented – while Chelsea currently has four.
Abramovich’s lavish spending produced results, with Chelsea winning five Premier League domestic titles and two Champions League trophies against the best clubs from all of Europe’s top leagues.
Evidence of a more tongue-in-cheek, numbers-driven approach surfaced last week when it was revealed to the press that Boehly was happy to see Romelu Lukaku, a Belgian star who Chelsea signed for £97.5m last summer, back at the Italian club leave Inter Milan.
Still, insiders say it’s not clear if such optimizations will be enough to deliver the outsized returns that Clearlake and its investors have become accustomed to. The Company’s 2012 and 2015 buyout funds have generated net internal returns of 41% and 33% per year, respectively, as of June 30, 2021.
This made the funds the best performers among those launched at the time, even compared to veteran buyout heavyweights like Blackstone Group BX,
or Carlyle Group CG,
according to public records.
Clearlake and Boehly, who each contributed more than $1 billion in equity to the deal, share control of budgets, including payroll. Sources close to Clearlake insist the company is less focused on cutting costs and more focused on increasing revenue, which they say was recently less than £500m compared to Manchester United’s estimated £700m earnings Pound. The plan is to pursue naming rights and sponsorship opportunities, the sources said.
Still, bankers close to the deal note that the gains face at least one massive obstacle – a pledge to rebuild Chelsea’s 117-year-old Stamford Bridge stadium in London at an estimated cost of more than £1billion to meet the increase seating capacity. Fans fear the result will be more luxury suites and higher ticket prices for basic supporters – with Boehly having struggled to allay concerns about the latter in recent weeks.
“They have to put £1billion into a new building and they’re losing money,” said one sports banker. “I’m not a big fan of this deal.”
Chelsea lost 146 million pounds ($178 million) for the year ending 30 June 2021 as stadiums were emptied in the earlier phase of the pandemic. According to Football.london, the company made a profit of £39.5 million ($48 million) last year.
Whatever happens, Clearlake co-founders Behdad Eghbali and José Feliciano will make money off the Chelsea deal. That’s because Clearlake charges its investors a 1.7% annual management fee on investments, and Clearlake partners deposit a maximum of 2% of their fund, according to a November presentation by Clearlake to the Connecticut Department of Treasury. These types of fees are typical of the private equity industry and one of the reasons US sports leagues don’t allow private equity firms to own majority stakes in teams.
Over a five-year period, Clearlake partners will earn 8.5% of the money the company fund invests in Chelsea in fees, while investing just 2% of their own money in the fund that actually buys the team. Clearlake also gets a 20% cut in fund earnings, so will earn more if Chelsea is a good investment.
“Clearlake’s assets under management and transaction volume have continued to grow at a significant pace, raising concerns about a potential negative impact on Clearlake’s investment discipline and the team’s ability to effectively deploy ever-larger pools of capital,” Hamilton Lane, Connecticut’s pension advisor, said in a report , according to state records.
Lane eventually recommended that the state invest in Clearlake. But some Chelsea fans are less excited.
“Americans generally don’t understand ‘football’ and I fear that if there is no passion or desire for the club within the owner, we will cease to be a football club and become just a company,” said Martin Pearce. Chelsea season ticket holder for more than 30 years.
“Roman Abaramovich was very popular, politics aside, and was clearly passionate about the team and the success he brought us,” Pearce added. “Rumor has it that the real fans are giving way to ‘corporate fans’. As soon as that happens, atmosphere and passion disappear.”
A version of this report appears on NYPost.com.