Spree of buying clubs threatens football integrity

Financial weakness exacerbated by the game’s inequalities and the global pandemic has accelerated the trend of clubs being bought out, often by investors, whose multi-club ownership (MCO) networks have thousands of football players tied up.

UEFA’s latest benchmarking report found 180 clubs worldwide with around 6,500 players under contract in 2022, but Play the Game’s more recent research identified 256 clubs with shareholders or owners with significant stakes or influence in other clubs.

Using the same metric as UEFA, the number of clubs identified by Play the Game suggests more than 9,000 players are under contract at clubs in MCOs. Some of these clubs will also have relationships with academies that tie in players, so that figure is probably substantially larger.

“We always talk a lot about the City Football Group and Red Bull, but I am sure there are plenty of others out there that we don’t know about that are transferring players between each other,” says Roy Vermeer, the director of legal affairs at world football players union FIFPRO.

“It’s much more than the integrity of the Champions League and teams playing each other. Behind the scenes there is so much more like moving players around and non-sporting motives.”

Since Play the Game last analysed the situation in 2021, there has been a 63% increase in the number of clubs in MCOs.

Fan concerns

Acquisitions by MCO groups have prompted swathes of recent demonstrations by fans at clubs across Europe from Brøndby in Denmark to Braga in Portugal and Lorient in France. Supporters at Dutch club Breda even managed to deter overtures from the Abu Dhabi-owned MCO colossus City Football Group.

“There are some good owners who respect the heritage of clubs, but there’s an awful lot where we don’t know what motivates them,” says Niamh O’Mahony, chief operating officer and head of governance at Football Supporters Europe.

“The [MCO] model seems to be to run a club on the cheap, bring in players on the cheap and get them capped and then sell them on. Then replicate this multiple times in other countries.”

Global spread

Play the Game’s research found clubs in 56 different countries around the world in MCO groups, including 30 different European nations. The country with the largest number of clubs in MCOs is Spain with 26 clubs ahead of England with 24 clubs and Italy and France both on 19. Play the Game’s research also found 20 clubs in the U.S.

These stakes are held by 93 different groups but 59 of these MCOs are only comprised of two clubs. Europe is the focus with 86 of the 93 MCO groups holding a stake in one or more European clubs.

Table 1: Size of MCO groups

Takeover frenzy

UEFA’s research shows 35 clubs in 21 countries were bought out in 2022 – up from 30 clubs in the previous year – with 16 of these takeovers by foreign groups. More deals are in the pipeline often driven by the MCO ethos.

The UK’s richest man Jim Ratcliffe is bidding to add Manchester United to his portfolio. Chelsea’s owners are linked with a bid for French side Strasbourg, while Irish club Dundalk has attracted interest from the Turkish owners of English Championship side Hull City.

UEFA’s intelligence centre says that 27 of the MCO groups originate in the U.S. Those investors include

• the investment platform 777 Partners, which has stakes in seven clubs
• John Textor, who has interests in four clubs including Crystal Palace in England and Olympique Lyonnais in France
• Common Group, which controls Vitesse Arnhem in the Netherlands, English fourth-tier side Leyton Orient and Belgian amateur outfit Patro Maasmechelen.

“Largely leveraged clubs have found themselves unprepared and are exposed to a new phenomenon that follows a twelve-year period of historically low [interest] rates,” wrote Andrea Traverso, UEFA director of financial sustainability and research in the benchmarking report’s foreword.

“It is no surprise then, that investment funds and private equity investors have become very active in the football industry, confirming the current financial distress suffered by a sector that analysts consider highly undervalued.”

New money is constantly emerging. Former Goldman Sachs banker Peter Grieve’s previous football experience was in Zimbabwe and Gibraltar, but he recently launched a $1 billion fund named Football Co and has been linked with an attempt to buy Brazilian giants Atletico-MG.

Not all this money originates in the U.S.

Australian private equity group Athlon CIF’s strategy is to ‘target undervalued and/or underperforming mid to lower-tier organisations with axiomatic scope for growth on a variety of fronts’. This has led to investment in French fourth-tier side Canet Roussillon.

Investment in cash-strapped lower leagues clubs is inevitably cheaper and Play the Game’s research shows that 46% of clubs in MCOs play outside their domestic top division.

Table 2: Division of MCO clubs

Sporting integrity

Regulation on MCO in Europe dates back to the ENIC case in the late 1990s. In the 1997/98 UEFA Cup Winners Cup, three clubs owned by ENIC – AEK Athens, Slavia Prague and Vicenza – all qualified for the quarter-finals.

The clubs were not drawn together but subsequently, UEFA introduced rules that no club with the same owner could play each other in European competition.

These rules were upheld by the Court of Arbitration for Sport (CAS) and the European Union but were challenged in 2017 when two Red Bull subsidiaries, Salzburg of Austria and German club Leipzig, qualified for the UEFA Champions League.

Article 5.01(c)(iv) stated that no individual or legal entity could have ‘decisive influence’ in two or more clubs in UEFA club competitions. Red Bull subsequently made corporate changes and the two clubs played each other in the group stage.

Since then, the nature of ‘decisive influence’ has not been explored by UEFA despite the opportunity. In the 2020/21 Europa League, AC Milan and Lille played each other when the French team’s owner Gerard Lopez was involved in a lengthy battle for control of the club with its main backer, fund manager Elliott Management, which controlled the Italian side. No impropriety is suggested and both clubs qualified from their group, but UEFA did not intervene.

Links between clubs across the globe have subsequently ballooned. In South America, City Football Group already owns a club in Uruguay (City Torque) and is also buying Bahia in Brazil, and these two clubs could potentially meet in continental club competition.

With FIFA intent on expanding its revamped Club World Cup to 32 teams, City Football Group subsidiaries could also meet here as the club also has stakes in top clubs in Australia (Melbourne City) and India (Mumbai City FC).

Table 3: Breakdown by confederation

The greatest likelihood of two clubs with the same owner meeting up is in Europe, where Play the Game’s research found 89 clubs in MCOs. These investors are not just buying clubs but also influence and access to the top of the European game via the European Clubs Association (ECA).

The acquisition of Olympique Lyonnais brought ECA membership to John Textor. Both Red Bull’s Salzburg and Leipzig are full ECA members, while U.S. investors Redbird have stakes in two ECA members: Atalanta of Italy and indirectly through a stake in Fenway, the American owner of English giants Liverpool.

U.S. investor David Blitzer is involved in eight clubs and gained a full ECA vote after the buyout of Danish Super League club Brøndby, while 777 Partners has interests in two full ECA members: Belgium’s Standard Liège and Spanish side Sevilla.

The ECA has 245 members – although not all have voting rights – and recently announced an expansion with the involvement of a further 200 clubs in a new ECA Network. This is likely to involve more clubs involved in MCO groups.

The ECA is – at present – the sole club body recognised by UEFA and unlikely to support any further continental regulation of MCOs. Play the Game asked the ECA if it would support further regulation of MCO but has yet to receive a reply.

The new Union of European Clubs is seeking to represent the hundreds of clubs across Europe that are not in the ECA but are increasingly targeted by MCO investors. UEC general secretary and sports law academic Katarina Pijetlovic says: “If there are shortcomings in the system, it’s UEFA’s task to fill those shortcomings with regulation and not ECA, who would not want to fix those holes."

Time for some regulation?

There are restrictions on ownership or control of more than one club in 36 top divisions in Europe and last year another seven UEFA members introduced new rules on the phenomenon. This takes the total number of countries with rules up to 23 according to UEFA, which says ‘a number of other countries are planning to introduce such rules as early as next year’.

Rules are typically aimed at preserving the integrity of sport, which UEFA acknowledged in its latest benchmarking, writing: “The rise of multi-club investment has the potential to pose a material threat to the integrity of European club competitions, with a growing risk of seeing two clubs with the same owner or investor facing each other on the pitch.”

Existing rules in Europe range from a total ban to capping the size of stakes, so – for example – the owners of a majority shareholding in one club could only buy a limited holding in a second club. UEFA says another 11 member countries have broader rules restricting or limiting private investment in clubs.

Fan protests

Existing rules focus predominantly on sporting integrity rather than the impact on smaller clubs in these chains, who ‘lose’ players to dominant partners in the same MCO group and are relegated to the position of feeder club, where the function is to develop players at the top of the organisation.

This poses dangers to European football’s delicate ecosystem, which UEFA also acknowledges.

“The growth in multi-club investment has the potential to distort transfer activity, with an increasing percentage of transfers being executed within multi-club investment groups at prices that suit investors, rather than at fair values, to the detriment of trainer clubs (which receive less compensation in the form of solidarity payments),” wrote UEFA.

“Most movement of players within multi-club investment groups is via ‘free transfers’ or loans, meaning that no fees are paid.”

South America relaxing

Regulations on acquiring clubs in Brazil were relaxed in 2021 to allow the creation of Sociedade Anônima do Futebol, or football corporations, which clubs can be transferred into and then acquired.

These changes were in response to Brazilian football’s dire financial situation. Total debts at the 23 leading Brazilian clubs had surged 19% to R$10.3bn in 2020 according to a study by EY, while revenue sank 14%.

With regulations loosened and clubs in financial trouble, this created the perfect opportunity for corporate raiders to buy into clubs in a country, which had 1,219 players playing professionally in 85 countries around the world according to CIES and has won four World Cups.

There has since been a flood of interest in acquiring clubs and at least eight Brazilian clubs were part of MCOs at the end of February 2023 according to Play the Game’s research.

Takeovers include Bahia (City Football Group), Botafogo (John Textor) and Vasco de Gama (777 Partners), and takeover speculation surrounds others including Atletico-MG. This has prompted calls for greater regulations at a higher level.

Eduardo Coutinho, a sports lawyer at the Confederação Brasileira de Futebol (CBF), says: “The ideal is FIFA to regulate it since it has global reach. On the other hand, I do not see any problem in regional and national entities to regulate in its jurisdiction. CONMEBOL, for instance, could regulate the participation of Bahia and City Torque in the same competition.”

“The CBF, in its turn, could limit the national loan of players of the Red Bull clubs (Red Bull Brazil and Bragatino). As an example, the Football Federation of São Paulo State does not allow the two Red Bull clubs to participate in the same division of the São Paulo State championship. In this matter, FIFA, at least usually, does not have a problem with local entities with stricter regulations than their own, for example.”

Owners against regulation

The impact of MCO on movement of players and the transfer system are increasing concerns, but this is hard to regulate.

Fernando Roitman, the founder of Swiss-based CIES Sports Intelligence, says:

“Considering that player recruitment and player development activities are at the core of MCO, new loan regulations or rules on solidarity payments would certainly have an impact.”

The recent rapid rise in MCO has been driven by investors, who tend to be deterred by greater regulation.

“If you compare with an international company, they will have transfer values between their different units and would set the prices as they see fit,” says Ahmet Schaefer, the founder of Core Sports, which owns French side Clermont and has minority stakes in Austria Lustenau and Swiss side Biel Bienne.

Schaefer stresses that clubs in MCOs need to “respect their local roots” and that the issue of transfer values can be beneficial for all clubs. He explains: “If someone offers Austria Lustenau say €1m for a player, then the board, of which we are a minority shareholder, can take a view of whether to take that money or transfer them to Clermont in the hope they will explode and be worth say €7m in a year or two and then we split that valuation.”

Jordan Gardner, a minority investor in Welsh club Swansea City, who also had a successful three-and-a-half-year spell as chairman of Danish club Helsingør, says: “I think any serious regulation on MCOs is highly unlikely.

“Even if there was, player loans, training compensation and solidarity don't really apply in an MCO model ... most of the movement of players within an MCO model are players whose contracts would be transferred to a different club, hence no loan.”

“Training compensation [and] solidarity only would get paid – if applied at all – between two clubs of the same owner so that would not be a factor either. I don't see any of this being a deterrent to investors.”

Buying on weakness is an old stock market adage and there is no sign of the recent massive wave of interest subsiding. UEFA anticipates more deals and US investment groups are keener than ever on the opportunities presented by financially weak European clubs. Jamie Dinan, founder of hedge fund York Capital, which helped finance Textor’s acquisition of Lyonnais, recently told the Financial Times: “There’s a lot more low-hanging fruit in European football.”

Where does the buck stop?

Investors may not want more regulation, but problems are emerging. Play the Game has seen a complaint sent to UEFA about corruption within one European-based MCO. Another club owner has previously been censured for not reporting match-fixing and one MCO group claims to control clubs that do not appear to exist.

More European national associations may be developing rules on cross-ownership, but the global nature of the MCO phenomenon means producing effective wider regulation is hard from a national perspective.

FIFPRO’s Roy Vermeer adds:

“The competence on loan regulations, solidarity contribution and training compensation normally fall within the scope of FIFA, as per the regulations on the status and transfer of players (RSTP). So UEFA does not have a set of their own on this, but of course they could motivate FIFA to introduce such rules, and nothing stops them from making UEFA-specific rules.”

At a UEFA conference in November, regulation of MCO was reportedly “intensively discussed” according to the Financial Times “with the aim to strengthen the protection of integrity and competitiveness of domestic and European club competitions.”

The problem needs tackling at a global higher level but introducing these may impact individual confederations.

Olivier Jarosz, a board member at consultants LTT Sports and a former programme director at the ECA, says: “Loans, solidarity and training compensation are not UEFA matters, they are all within FIFA's remit in the RSTP, so I guess Financial Fair Play – or whatever it is now – would be impacted but regulations only on a confederation level would be rather incomplete, in my opinion.”

As part of new loan regulations introduced in 2022, FIFA did introduce a first limitation on the number of loans allowed per season between the same clubs. The impact of these changes on the burgeoning MCO market remains to be seen.

Fernando Roitman of CIES believes that regulations on solidarity payments may help fix some of the distortions caused by MCO on the transfers market but this would require drastic changes from the current principle. This is because payments only apply to transfers involving a fee that represents the starting point for calculating payments. On other potential changes, he adds:

“On one hand, limiting the possibility to loan players between clubs could make multi-club ownership less attractive. Conversely, it may also mean that MCO, and intra-group transfers more specifically, could increasingly be used as a way to get around the new rules.”

“In principle, regulations limiting the transfer activity between two clubs have the potential to generate a bigger impact on the future of MCO itself. Intervening on solidarity payments would serve a more specific objective, though a very important one, aimed at safeguarding one of the key principles of the transfer market.”

“In my opinion, it would take a major overhaul of those rules to really achieve a significant impact on MCO and I am not sure how feasible that would be,” Roitman argues.

Play the Game asked both UEFA and FIFA if they planned to introduce further regulations on MCO and has yet to receive a response. Given that FIFA is increasingly tied up with Middle Eastern powers that are buying into leading European clubs, any regulation – however much some stakeholders believe it is needed – seems unlikely.