Trophy asset
The takeover of a prized sports asset was complicated by sanctions on its Russian owner, an extremely tight deadline and intense scrutiny from the UK government, media and fans. For making it through these unique circumstances, the acquisition of Chelsea Football Club is IFR’s inaugural M&A Deal of the Year.
Chelsea FC’s sale was unprecedented due to sanctions imposed after the invasion of Ukraine on the club’s owner Roman Abramovich that meant the Russian billionaire could not receive any of the proceeds. And the club could not spend money, outside specific licences – even on sandwiches at meetings.
The sanctions also meant the deal, which was overseen by the UK government, had to be done by May 31 when operating licences ran out. There was intense media interest and tens of thousands of passionate fans all had opinions, sparking social media abuse and even occasional security risks.
More than 40 serious expressions of interest came in but the battle was won by a consortium led by US billionaire Todd Boehly and private equity firm Clearlake Capital, which paid £4.25bn in all, a record for a sports club. It might have been quick but it was far from a firesale.
Boehly is part-owner of the LA Dodgers baseball and LA Lakers basketball teams. The consortium also included Swiss billionaire Hansjoerg Wyss, Guggenheim Partners CEO and Dodgers co-owner Mark Walter, and Jonathan Goldstein, co-founder and CEO of Cain International.
Manoeuvring through the unique and complex conditions and handling the sale throughout was US advisory firm Raine Group, which had worked with Chelsea for several years. The buyers were supported by Robey Warshaw, Moelis, Goldman Sachs and Deutsche Bank.
“It was certainly Raine's most complex and intense project by a meaningful margin. For a deal that ordinarily would have taken six months, we essentially completed it in 40 days,” said Colin Neville, who leads Raine Group’s sports practice.
“Under normal circumstances we would have been very pleased with the outcome. Given the extreme circumstances and time pressure we were working under, it was an incredible success. We secured a record price with several novel transaction elements,” Neville said.
Abramovich had owned Chelsea since July 2003, and during his ownership the club won the Premier League five times and the European Champions League twice, mostly with full-kit trophy-accepter John Terry as captain. But in more recent years he appeared to lose interest in bankrolling the club, and in 2018 and 2019 approaches were made to buy it, which he rejected.
That all changed following Russia’s invasion of Ukraine on February 24 2022, as sanctions were applied on individuals with links to Russia’s regime. Abramovich said on March 2 he would sell the club, and all proceeds would go to a charity set up to support victims of the conflict.
The UK Treasury kept a close eye to ensure no money would leak out to sanctioned individuals. The government and the English Premier League wanted to ensure the club went to a stable long-term owner too. Provisions about financing were applied to bidders so they could not saddle Chelsea with debt. There were restrictions on future dividends and management fees that could be paid.
Sports and entertainment advisory specialist Raine has a low profile in the UK but has been involved in deals for Manchester City FC, the LA Clippers and Brooklyn Nets, often led by Neville and Joe Ravitch, a former Goldman Sachs banker who co-founded Raine in 2009. By April it had whittled Chelsea bids down to a shortlist of four.
Raine gave guidance on how offers should be broadly structured between proceeds to charity, investment in the stadium and investment in other areas, such as the women’s team and academy. The winning bid comprised £2.5bn to charities and £1.75bn in investment and infrastructure.
The Boehly consortium had flexibility on its bid’s structure. It deliberately kept its group relatively small and low profile, focusing on keeping its pitch simple. “We took a conscious decision to stay low profile and make sure we were the simplest, cleanest, most attractive bidders to the seller and to the government," said David Rawcliffe, a senior member of Robey Warshaw’s team.
The consortium also benefited from expertise in relevant areas. Former UK chancellor of the exchequer George Osborne is a partner at Robey Warshaw, for example, while Boehly had experience modernising and redeveloping Dodger Stadium in Los Angeles in relation to plans for Chelsea's Stamford Bridge.
One standout difference from many complex M&A negotiations was that there was little time for any due diligence to be done. That was not missed as the high-profile assets were pretty well known.
The Boehly consortium has emphasised its long-term plans and willingness to be patient in expecting returns on the high price paid. That’s just as well. Despite heavy investment in new players, the club may not qualify for the lucrative Champions League in 2023/24. It’s a funny old game.
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