The nearly year-long pursuit of investment in Liverpool concluded in September.

Following speculations of a Qatari buyout, a takeover by India’s richest man, and an investment play by the former CEO of Microsoft, an investment deal worth approximately £150 million was reached between New York-based Dynasty Equity and the Reds. The agreement was considerably more discreet in nature.

Fenway Sports Group, the owners of the Reds, has historically guided its business decisions by leveraging reputable connections and reducing risk. In their pursuit of a partnership with Dynasty, they adopted a similar strategy, with one of their partners, David Ginsberg, a former director of Liverpool, serving as a senior adviser to the firm. Dynasty was established earlier this year by Don Cornwell and Jonathan Nelson, both of whom have extensive experience in the US investment industry.

The agreement furnished FSG with the necessary funds to reduce the bank debt that had been accumulated as a result of infrastructure initiatives like the redevelopment of Anfield Road End, the AXA Training Centre at Kirkby, and the reacquisition of Melwood for the women’s team. The club enhanced its cash flow position and balance sheet by eliminating that debt; the enhanced cash flow could, in theory, be redirected toward paying for transfers or compensation, among other financial obligations.

Benefits for FSG have been delineated, and in an agreement with Dynasty, the club relinquished only a negligible amount while fulfilling a genuine necessity. However, what is in it for Dynasty, and will what initially appears to be a modest investment—in contrast to the kind that had been suggested at various periods in the previous year—become a venture that produces substantial returns?

The answer is virtually certain to be affirmative. Presently, sport is regarded as its own asset class by private equity firms in the United States, and it is widely believed that European football is undervalued. An examination of the European football landscape reveals the existence of American investment firms, including 777 Partners, Clearlake Capital, RedBird Capital Partners, Arctos Sports Partners, Ares Management, and Silver Lake, which hold majority or minority stakes in a variety of clubs spanning multiple countries.

Liverpool is the primary and initial investment of Dynasty. The firm’s entry into the market and portfolio construction were intended to be distinctive, and by establishing a presence in Liverpool, they have achieved precisely that.

Cornwell stated at Sportico Invest in Sports 2023 in New York, where the ECHO was present: “When we founded Dynasty, we wanted the firm to be perceived globally. Therefore, early on when we were searching for potential first deals, it was crucial that they would help establish our brand, but the deal itself had to be financially viable.

“What is the definition of a good deal?” A world-class asset and management group. The most essential aspect for us was establishing strong relationships based on trust. Because we are acquiring a minority stake, we are placing a great deal of faith in the custodians of that capital. Regarding Liverpool, our partners have been acquainted with the club’s personnel for more than four decades, and I have known individuals there for over twenty years; thus, there was considerable confidence.

“Throughout the summer, as we worked to finalize the agreement, you could sense that trust. As a first investment, we did not want to find ourselves in a position where we had to place our faith in the possibility that nothing would go awry after deploying capital. We are extremely optimistic that everything is proceeding in the desired course of action.”

Private equity has made a significant impact on the sports industry in recent years. While US investors are less permitted to deploy capital via private equity in certain North American leagues due to restrictions in place by some major leagues, they are concentrating their efforts on the European football market. This market presents fewer obstacles for US investors to surmount and offers a promising rate of return in the coming years.

A global capital analysis firm, PitchBook, has published a report examining the emergence of private capital in the football industry, focusing on the increasingly prevalent multi-club strategy.

Nicolas Moura, EMEA private capital analyst for PitchBook, stated to the ECHO: “Private equity has been influencing many facets of football, including sponsorship and stadium rights, ownership through majority and minority stakes, and broadcasting, as evidenced by the involvement of CVC (Capital Partners) in Spain. The stadium renovations of Real Madrid were financed by private equity, whereas Barcelona divested sponsorship and commercial rights to private equity.

“The majority of clubs have some level of contact with private capital markets, and private equity in particular.” In the past, it was more of an ego thing for the wealthy to purchase their childhood club despite knowing they were going to lose a lot of money. However, as the valuations of major clubs have increased, such as Chelsea and AC Milan, the wealthy have realized that perhaps they could be able to fetch a higher price.

“When considering the industry as a whole, private equity has expanded significantly over the past decade or so.” There is an increased allocation to private markets, particularly private equity, and traditional fund managers are now all focused on these sectors. Private equity managers are inundated with capital seeking investment opportunities, and football is among the most recent and most exciting developments for PE fund houses. The Premier League and France’s Ligue 1 have also begun to accept private equity investments, whereas the Bundesliga and La Liga have been somewhat more reticent.

“Private equity does not impose a maximum price.” As was the case with Chelsea, I believe consortiums will acquire other clubs in the near future. Todd Boehly and Jim Ratcliffe both lacked the financial resources to acquire Chelsea and Manchester United, respectively, which demonstrates the occurrence of partnerships. Although the Saudis did acquire Newcastle, the transaction also involved the participation of two other private equity firms, namely Reuben Brothers and PCP Capital Partners. Private equity will provide the capital in the form of debt or equity and will form partnerships with these high-net-worth individuals or other PE firms; thus, there will be multiple proprietors. While one individual will perpetually represent the interests of the supporters, there will be multiple entities contributing to its financing.”

The ECHO has reviewed an investment proposal for Liverpool pertaining to the presently concluded search for a minority partner. This proposal projected the Reds’ value at £11 billion by 2030, accompanied by annual revenues of £1 billion. Achievements that were once considered exceedingly ambitious are now appearing quite achievable.

Moura stated, “That is the reason why they (private equity firms) are in the game.” “They are entering the market now because they believe valuations will continue to rise.”

“Double-digit valuations may seem a bit distant at this time, but why not wait a few more years? It is my estimation that Manchester City’s revenue will reach £1 billion within the next two to three years. Commercial revenues will be crucial to achieving this objective.

“The only aspect of Dynasty’s investment in Liverpool that caught my attention was that they failed to disclose the proportion of shares that they were purchasing; consequently, we were not provided with an overall valuation. That made me a little suspicious, as I got the impression that they were unwilling to disclose Dynasty’s valuation, which suggested that it was less than they were attempting to convey. “From the perspective of Dynasty, they must be extremely pleased with their investment.”