City Football Group –The Future of Football?

City Football Group (CFG), a group formed originally to serve as owners of Manchester City FC, are in ‘late-stage negotiations’ with French team ESTAC Troyes FC in a deal worth ‘single digit millions.’ The group, who would hold an ownership stake in 10 clubs should the deal be completed, was created in 2008 by Sheikh Mansour Bin Zayed al-Nahyan, a member of the Abu Dhabi royal family. Originally purchasing Manchester City for 210 million GBP from former Thai Prime Minister, Thaksin Shinawarta, Mansour has overseen the acquisition of clubs across the world in CFG’s quest to build the ‘first truly global football organisation.’ CFG’s strategy to acquire top-tier footballers and recruiting new players with growth potential has led to a diversification in its football ownership portfolio. However, this decision came at significant costs – a loss in the identity of football clubs and potential regulation breaches.

Mansour’s alternative strategy resulted in substantial initial losses. In the 10 years following his takeover of Manchester City in 2008, Sheikh Mansour has invested 1.3 billion GBP into the club, initially focusing on purchasing players and funding the salaries of staff members. In 2010-2011 Manchester City announced record losses of 197 million GBP, with player purchases totalling 156 million GBP and player wages of 174 million GBP.  Whilst such huge losses are unsustainable in the long run, most football clubs, regardless of size, are not profitable. Wage inflation in the sport – a 1500% increase in the wages of top footballers over the last 20 years, and uncertainties around the resale value of players, has resulted in Premier League clubs experiencing operating profits of only 4% of revenues on average. In Deloitte’s Annual Review of Football Finance, only half the clubs in the Premier League made an operating profit in the football season of 2012-2013.

Football clubs have typically been owned by wealthy individuals with income streams from other sources, using their status as owners of the elite clubs to further their personal brands for a range of reasons. Some have been fans of clubs they takeover from a young age, such as Simon Jordan – a lifelong Crystal Palace fan who invested and subsequently lost around 75 million GBP on the purchase of Crystal Palace Football Club, stating that ‘ambition was irresistible’ when explaining his investment. Football clubs are also believed to be increasingly used as geopolitical tools and as a symbol of affluence, especially within the Gulf States, a reason behind the Qatari Royal Family’s large investment into Paris Saint-German FC.

Mansour’s huge investment into Manchester City has led to on-pitch success relatively quickly, with the football club winning a domestic title 3 years after the takeover in 2011/12, a first in 44 years. The title win indicated the start of a Manchester City football club ownership portfolio, with the creation of New York City Football Club (NYCFC) in May 2013. CFG currently owns an 80% stake, with Yankee Global Enterprises, owners of New York Yankees baseball team, holding the other 20% stake of the NYCFC. NYCFC was the 7th most valuable major league soccer team in 2019, according to Forbes, with a recent valuation at 385 million USD, despite experiencing negative operating profits of 16 million USD.

In the 7 years following news of CFG’s involvement in NYCFC, the umbrella group has developed the following subsidiaries: Melbourne City FC, Montevideo City, Lommel S.K in Belguim, Girona FC in Spain, Yokohama F. Marinos in Japan, Sichuan Jiniu FC in China and Mumbai FC in India. Mansour’s ambitions for the CFG project is evidently more complex than first presumed, and less so the impulsive approach that most football club owners perceived his spending to be. The assumptions were made due to the large sums spent on Manchester City’s recruitment of A-List players, such as the 32 million GBP spent to recruit Robinho, a Brazilian professional footballer, soon after the takeover.

Football clubs have spent large sums to train and recruit new players with growth potential. The discovery of young talent has proved to be a very profitable source of revenue for football clubs as the recruitment of players with the potential to increase in value can lead to large investment returns. Ever-increasing transfer fees, especially for younger players, as highlighted by the Spanish football club Atletico Madrid’s 130 million EUR outlay on 21-year-old Joao Felix, has demonstrated the importance of scouting networks. With the increased globalisation of football, scouting is now used to identify young players worldwide with potential to improve, and therefore increase in value.

CFG’s network of clubs use the same scouting system – the Scout7 system, meaning instead of having access to the playing assets of just one club, they can now view nine times the number of players. The sale of Australian Aaron Mooy from Melbourne City FC to Huddersfield FC for 10 million GBP immediately returned fivefold the 2 million GBP paid by Melbourne to initially acquire Mooy. This highlights the significant opportunity for increased revenue that comes with having access to a large database of youth and first team players. CFG’s access to the scouting system has allowed for greater identification of playing assets, as players have moved between clubs depending on the teams’ needs.

Nevertheless, there has been vocal opposition to CFG and its multi-club strategy due to a number of factors. The first argument has been that of a purist point of view, arguing that the uniformity of CFG’s portfolio of football clubs takes away the individuality of each team. This reduces the strength of the bond among fans, who are ultimately the consumer of the football club. Melbourne Heart FC’s kit was changed from red to Manchester City’s sky blue, with its badge re-designed and name changed. Fans questioned whether the new, improved 15 million AUS training facility and success that followed the loss of the Melbourne Heart FC’s identity was a worthwhile trade-off.

A more concerning argument against CFG however, is linked to Financial Fair Play (FFP) regulations introduced into football by Union of European Football Association (UEFA) in 2011. CFG is sponsored by a number of firms linked to the Emirati royal family, who Sheikh Mansour, owner of Manchester City, is a member of. Manchester City’s stadium in the UK is known as The Etihad Stadium, with Etihad Airways sponsoring the shirts of a number of the CFG teams. Mansour’s unique position as the owner of Manchester City and involvement in the brands sponsoring the club has allegedly allowed for inflated sponsorship numbers (which are counted as revenues in FFP, separate to ownership equity). This allows for Manchester City to overspend under the guise of large sponsorship deals. The allegations and subsequent investigation resulted in a ban from playing in the ever-lucrative European Champions League competition for 2 years. City has successfully appealed since, and the decision has been overturned, as offences were made early on in CFG’s ownership, and not within UEFA’s 5-year period during which regulation breaches can be penalised.

Regardless of arguments against CFG’s morality and how the group may impact the future of football ownership, firms are allowed to own two or more football clubs – as seen with Red Bull’s ownership of three football clubs. A large number of teams allow for a much stronger brand engagement; as opposed to being able to go on one pre-season tour to attract new fans, the CFG can instead go on 9. Economies of scale will allow for greater sponsorship deals- firms may take on  the opportunity to sponsor a worldwide conglomerate of clubs with a range of fans, as opposed to one club in one city in England. Football has become increasingly inter-connected across the globe in the last 15 years, especially with the rising prominence of social media, and CFG is a frontrunner in the new generation of football ownership structures.

 

By Daniel Regan

Senior Editor: Jo Yean Kok

 

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