Fenway Sports to Go Public via SPAC

Fenway Sports Group LLC, whose holdings include Boston Red Sox, 3rd ranked Baseball team by revenue in USA and Liverpool Football Club, the reigning English Premier League champions, are in discussions with RedBall Acquisition Corporation, a Special Purpose Acquisition Corporation (SPAC), regarding a deal to list the Sports Holding group publicly on the New York Stock Exchange.

 

A potential deal could see Fenway receive 1.5 billion USD for a stake rumoured to be 20-25%, valuing the group at around 8 billion USD including debt. Billionaire owner of Fenway, John Henry II, will likely recover all the capital he spent acquiring the Red Sox and Liverpool, with the baseball franchise valued at 600 million USD upon Henry’s purchase in 2002, and 476 Million USD spent acquiring Liverpool in 2010.

 

SPACS have seen a huge increase in popularity in 2020, with more money raised through this method this year alone than in the 10 years prior, as volatile markets have made the more traditional IPO a riskier method than usual, with bigger first week fluctuations than ever. The process of a SPAC merger is fairly straightforward – a ‘Blank Cheque’ firm is set up (in this case Redball), which then raise capital from investors. ‘Target’ firms are identified – large scale private businesses who are seeking to go public, and investors are presented with each target, before being given a chance to cast a vote on the suitability of the firm. If a target receives majority approval, the Acquisition Corporation agree a deal to purchase a stake in the private firm, before merging.

 

The Redball Acquisition Corporation is the first SPAC geared only toward investments in the sports industry. Its co-chairs are Billy Beane, an early adopter of analytics within sports, as portrayed by Brad Pitt in 2011 film Moneyball, and Gerard Cardinale, a former Goldman Sachs investment banker. Moreover, Richard Scudamore, an individual who many credit with transitioning the English Premier League into the Global Commercial powerhouse it is today, sits on their board. Redball is a fairly early stage firm, set up in August 2020 with an initial round of funding for 575 million USD, reportedly planning to raise a further 1 billion USD to purchase their stake in Fenway.

 

Football clubs’ revenues and therefore values are notoriously volatile, depending almost entirely on the clubs on-pitch performance. Qualification to the European Champions League can provide income of up to 100 million USD according to Deloitte’s estimates. This turbulent nature can cause investors to refrain from purchasing stakes in Football Clubs, making the increasingly risky IPO due to market turbulence even more unattractive. Manchester United FC have only returned approximately 1% per year to investors since their 2012 IPO. The SPAC merger allows John Henry to take advantage of Liverpool’s high stock (due to success on the field) at a guaranteed price and opens up significant possibility regarding future expansion of the club.

 

As seen with Manchester City’s Football Group’s expansion via the acquisition of other football clubs on a global scale, the purchasing of a variety of clubs can lead to not only increased revenue streams and access to more players through synergies of scouting networks, but also to the amplification of their marketability. Instead of a firm entering a sponsorship agreement with one club as is the current norm, they can sponsor an ownership group and all their subsequent clubs – as seen with Manchester City and Puma – allowing for a strong and wide-reaching brand image and distinctiveness across a number of continents, making the clubs a lucrative proposition for global firms. Currently, the only English Club to take advantage of this is Manchester City. A fierce rival of Liverpool on the pitch, it seems reasonable that Fenway is determined to prevent City Football Group from accelerating away from their rivals off the pitch. The SPAC could provide the initial capital to finance a global expansion, as Manchester City’s owner, Sheikh Mansour, did in 2008.

 

The SPAC could also allow Liverpool to renovate its stadium, Anfield. Whilst a historic venue, a number of Liverpool and therefore Fenway’s rivals have renovated or moved to stadiums that allow for much greater revenue generation, through the inclusion of more corporate seats and packages, as well as attractions within the stadium. Tottenham Hotspurs’ new stadium, for example, was finished in 2019, boasting 8000 corporate seats and tourist opportunities such as a Skywalk around the stadium. With COVID-19 deeply impacting clubs matchday revenues, Fenway will be keen to ensure that it can capitalise on the heritage and attraction of Anfield to the greatest extent possible when fans do return, and the SPAC merger represents a sustainable way to finance improvements.

 

All in all, whilst the deal is still in an early stage and no agreements have been made, the SPAC merger presents Fenway Sports Group with a fantastic opportunity to capitalize on the strong performance of Liverpool FC in recent years. Redball Acquisition Corporation will gain access to an ever increasingly lucrative market of European Football, whilst also taking advantage of the strong popularity of baseball amongst its core fans in America. The deal would allow for Liverpool FC to further develop its off-pitch standings globally, catching up with Barcelona, Real Madrid and Manchester United (whilst retaining a strong following in Merseyside). It would do so with the guidance of legendary sports figures Billy Beane and Rupert Murdoch, potentially entering the newly touted European Premier League. Liverpool’s on pitch triumphs could serve as the foundations for a modern off-pitch approach, as Billy Beane pioneered in baseball almost 20 years ago.

 

By Daniel Regan

Sector Head: Venkat Rajasingham

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