SportsInvest Column #4 | Russian billionaires: When 'oil money' starts pouring into professional sports (2000-2015)
How and why Russian oligarchs have bought into sports teams since the beginning of the 21th century
For those of you who haven’t followed the SportsInvest Column series since the beginning, here’s a quick reminder of our journey so far:
SportsInvest Column #1 | Context & Approach: Why the sports industry is turning into a growing opportunity for institutional investment
SportsInvest Column #2 | A brief history of sports league ownership: The history and corporate structure of major sports leagues across the world
SportsInvest Column #3 | Who owned sports teams before the 2000s: Understanding the evolution of sports team ownership over the 20th century
In these first three columns, we have tried to revisit the history of professional sports ownership and investment, both at league and team-level.
It is now time to enter the 21th century. The past 20 years, from 2000 to 2020, saw three successive investment waves which forever transformed the professional sports ecosystem as we used to know it:
Russian oligarchs starting pouring ‘oil money’ into sports teams
Gulf states using sports ownership as a key lever to build soft power through positive brand building
A sudden and considerable expansion of Chinese investment into professional sports
In today’s column, let’s try and investigate at Russia and how ‘oil money’ suddenly started flowing into sports.
Abramovich, the pioneer
Roman Abramovich is probably the first name that comes to mind when thinking about Russian ownership in sports. According to Bloomberg, the majority of Abramovich's fortune is derived from proceeds he collected selling previously Russian state-owned assets he acquired following the fall of the Soviet Union. He began divesting his stakes in the companies in 2003, when he sold 26% of Aeroflot to the National Reserve Bank for $135 million.
The same year, he also entered the sports industry by buying Premier League’s Chelsea Football Club. A deal he reportedly completed in only 15 minutes, according to the club’s former chief executive, Trevor Birch. In Soccernomics (2014), Simon Kuper and Stefan Szymanski take us back to Roman Abramovich’s ‘thorough’ due diligence process:
“When the Russian oligarch Roman Abramovich decided to buy a soccer club, he had a look around in Spain and Italy. But ownership there seemed complicated. In Italy, many of the families who owned clubs had been doing business with each other for generations. In Spain, horror of horrors, the fans themselves owned the biggest clubs. As for the Bundesliga, Abramovich never seems to have considered it.
Not long after that, the story goes, Abramovich was flying in a helicopter over London when he spotted a soccer stadium handily located near his house in west London. “What’s that?” he reportedly asked. It was Chelsea. He bought the club, sealing the deal with the departing owner, Ken Bates, over a bottle of Evian water in London’s Dorchester Hotel.”
He acquired the club for 60 million pounds, which then was the biggest investment in the history of English football. For many, it was also utterly illogical as Chelsea was on the brink of an abyss at the time. However, Abramovich quickly provided Chelsea with the means to fulfil its ambitions. Chelsea’s wage bill during Abramovich’s first season, in 2003-2004, reached 16% of the total Premier League’s wage spending. They remained England’s highest wage bill for 6-7 years until the Manchester City’s takeover by Sheikh Mansour in 2008.
From taking over the club until now, Chelsea has won as many as 19 titles, including 5 Premier League titles, 2 Champions League, and 2 Europa Leagues. They became the second most trophy-winning club in England.
The Russian wave at the beginning of the 2010s
Abramovich’s story at Chelsea opened the way to a major wave of Russian capital flowing into the sports industry. At the turn of the 2010s decade, things accelerated and multiple European football teams were bought by Russian billionaires.
On domestic soil, several Russian teams changed hands: oil magnate Leonid Fedun had already acquired a controlling stake in Spartak Moscow in 2003, before he started pouring millions into the team. Sergey Galitsky, who dreamed of a career in football as a child and later made his fortune in the grocery store, founded the football team in his hometown of Krasnodar in 2007. In 2011, Kerimov purchased the Dagestan-based team FC Anzhi Makhachkala and famously signed Samuel Eto’o this summer.
Abroad, Premier League was the obvious destination for Russian billionaires:
In 2007, Alisher Usmanov bought a 14.6% stake in Arsenal Football Club from former Vice Chairman David Dein, for 75 million pounds ($150.6 million). He later increased his share to over 23% in a fierce battle with US billionaire Stan Kroenke. Usmanov is an Uzbek-born Russian oligarch. As reported by Bloomberg Billionaires Index in 2021, his estimated net worth amounts to $20.4 billion, and mostly comes from metal and mining operations.
Maxim Demin, a former trader and petrochemical magnate, bought a financially stricken AFC Bournemouth in 2011, and has since transformed it into a Premier League mainstay.
Two other teams — Portsmouth (Vladimir Antonov in 2011) and Reading (Anton Zingarevich in 2012) — have been in Russian hands in recent years. If Abramovich and, to a lesser extent, Demin, made quite good press of Russia in English football, Antonov’s story in Portsmouth did not have the same success. Five months after acquiring the club, he stepped down and his firm Convers Sports Initiatives (CSI) was placed into administration after he was arrested in London at the request of authorities in Lithuania. The football club itself entered administration later that season, triggering a 10-point penalty and relegation from the Championship.
However, English football was not the only foreign target. In 2011, Dmitry Rybolovlev bought a majority stake in AS Monaco. Even if they were in second division at the time, Rybolovlev pledged to invest at least 100 million euros over 4 years to develop the club. As explained by the BBC, Rybolovlev sold his stake in fertiliser producer Uralkali for $6.5 billion in June 2010, his net worth is estimated at $9.5 billion, and he bought Donald Trump's Palm Beach mansion for $100 million in 2008.
Even if most of the Russian post-USSR capital poured into European football, investment cases can also be found in other sports. In 2010, Mikhail Prokhorov picked up an 80% stake in the New Jersey Nets for $200 million, as well as 45% of their yet-to-be-built home in Brooklyn. Prokhorov, who had a longstanding passion for basketball, became the first non-American owner of an NBA. In 2018 last year, he sold 49% of the club’s shares to Alibaba’s co-founder, Joseph Tsai, retaining the status of the principal owner with a 51% stake.
Worth mentioning are also Russian state oil company Gazprom’s long-term commitment to Bundesliga side Schalke 04 in the form of a sponsorship deal established in 2007, as well as Russian mogul Len Blavatnik owning a controlling stake in Perform Group, which broadcasts English soccer, tennis and other sports online, and running websites for sports teams and leagues.
But what’s the rationale (and is there one) for this sudden Russian interest in professional sports?
Trophy assets or diplomatic shields?
Back in 2011, Business Insider published an article called The Ultimate Russia Status Symbol: A Sports Team. They stated the following:
“Among Russia's Uber-rich, it's not enough to merely show off with a massive yacht or private Gulfstream jet.
The true indicator of wealth among Russia's upper echelons is ownership of a sports team, be it an American basketball team, British football club, or hometown franchise.”
Let’s go on with Kuper and Szymanski’s inside Abramovich:
“When the Financial Times rang to ask about his purchase, he revealed that his favorite player was Thierry Henry (then at Arsenal), and explained why he had bought Chelsea: ‘I’m looking at it as something to have fun with rather than having to realise a return. I don’t look at this as a financial investment.’
He has barely spoken another word in public since, but two things have become clear: (1) Buying a soccer club made this unknown billionaire world-famous. (2) As he predicted, the purchase hasn’t been a ‘financial investment.’ In his first eight years as owner, Chelsea lost a total of about $1 billion.”
However, when looking at Russian sports ownership as a whole, it seems to be about more than fun and prestige.
In a Business Insider article written in 2010, John Helmer - a journalist based in Russia - tried to see beyond the only ‘trophy asset’ thesis. He wrote than Russian tycoons particularly valued foreign sports teams since they may help build good press and goodwill among the local population in case they needed to see asylum down the road, even though these teams weren't necessarily money-makers. Russian oligarchs probably felt that, if they became highly visible owners of beloved sports franchises, they would be less likely to be in the sights of the Kremlin. From a financial perspective, there was also a more urgent need on the part of the Russian rich to build offshore havens for their wealth, in case their assets are confiscated at home.
Beyond their personal and financial security, owning a sports organization is also a way for Russian billionaires to participate in Russia’s effort to leverage sports as a powerful soft power tool globally. Here’s how Simon Chadwick and Paul Widdop shed some light on that point in a column for Policy Forum in 2017:
“From the 2018 World Cup to gas giant Gazprom, Moscow is using sport to promote its image both at home and abroad.”
They highlight how the Sochi Winter Olympics in 2014 was perhaps the most tangible manifestation of Russia’s desire to present a strong, positive image of itself to the world, arguably becoming the most expensive sports mega-event in history. It is easy to see the same pattern in the 2018 World Cup which Russia used as a further attempt to cast itself as a major sporting, economic and political power.
Beyond sports ownership and mega-events, Russia has added another string to its soft power bow: sponsorship. Simon Chadwick and Paul Widdop write:
“On the same basis, we also contend that Gazprom is involved in UEFA and FIFA sponsorships because they provide the company with access to key decision-makers in government and in energy companies across key territories in which football is very popular. In a similar way, VTB (a majority Russian state-owned bank) and Aeroflot (a majority Russian state-owned airline) have also been engaged in soft power sponsorship programmes.”
Back in 2005, Gazprom acquired a 73% stake in Russian oil firm Sibneft for $13 billion in 2005. Sibneft was then owned by… Roman Abramovich.
I hope that it is now clearer how and why Russia oligarchs suddenly started acquiring sports organizations across the globe.
In the next piece of the SportsInvest Column series, we’ll try and look at Gulf states using sports ownership as a key lever to build soft power through positive brand building.
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Best,
Achille
Sources
Soccernomics | Simon Kuper and Stefan Szymanski
Articles from Bloomberg, BBC, Business Insider, New York Times, Policy Forum