In this week's Newsflash, we talk about Italy’s Serie A and North American investors, as well as sports NFTs, and Derby County’s downfall:
777 Partners acquires Genoa: Why is Serie A turning into the new far west for North American investors?
Sorare, Dapper Labs: A $980 million week for sports NFTs
On the brink of oblivion: Who will save Derby County?
777 Partners acquires Genoa: Why is Italy’s Serie A turning into the new far west for North American investors?
The acquisition of Italy’s oldest professional football team, Genoa CFC (Cricket and Football Club) - which was established in 1893 - by 777 Partners was announced last week. The deal has reportedly closed for a 99.9% stake of the share capital in Genoa, at a $175 million enterprise value for the Italian football club. It ends the ownership tenure of Enrico Preziosi, who has presided over Genoa since 2003 and will remain on the board of directors, while chief executive Alessandro Zarbano will continue to run the club’s day-to-day operations.
But where does 777 Partners come from and how is this acquisition fitting into their overall sports investment strategy?
777 Partners is a generalist Miami-based alternative investment firm founded in 2015. By generalist, we mean that they strategically invests across six broad industries: insurance; consumer and commercial finance; litigation finance; direct lending; sports, media & entertainment; and aviation. As you might have noticed, sports - and more generally sports, media & entertainment - is one of their six target sectors. Since 2015, 777 Partners has quickly built a world-class portfolio in the sports industry, acquiring a 15% stake in LaLiga’s Sevilla FC, as well as a controlling stake in the London Lions, London’s only team playing in the BBL (British Basketball League). In the broader ecosystem, their portfolio also include sports streaming service Fanatiz or women's soccer platform Atalanta Media.
Overall, they have been focusing on “undervalued businesses with deep connections to their fan bases and emerging businesses in fast growing and underserved markets.” That looks a lot like Genoa CFC. Genoa is Italy’s 6th largest city with a population of 580,000+. The club has won the Italian championship 9 times, which makes it the 4th most successful Italian club in terms of championships won. However, if Genoa’s first title came at the inaugural championship in 1898, and their most recent was in 1923/1924.
You can easily see how 777 Partners would see potential to rebuild the club and bring it back to its former glory. They already gave a few clues about what they have in mind. According to their official press release, the investment firm will "use its expertise in the sports, media and entertainment industries to help further commercialize the operations of the club". They have also signalled its intention to significantly upgrade Stadio Comunale Luigi Ferraris.
With this ownership change, Genoa becomes the 7th Serie A club owned by North American investors, including Canadian businessman Joey Saputo who acquired Bologna back in 2014. Apart from him, all other deals were closed between 2018 and 2021: AC Milan (Elliott Management, 2018), Fiorentina (Rocco Commisso, 2019), AS Roma (The Friedkin Group, 2020), Venezia FC (Duncan Niederauer, 2020), and Spezia Calcio (Robert Platek, 2021). Parma was also acquired last year by the US investment consortium The Krause Group, before getting relegated at the end of the 2020/2021 season. Looking at Italian football as a whole, the count of football clubs with full or partial North American ownership across Serie A, Serie B and Serie C is now up to 12, with the most recent additions being Spal and Ascoli Calcio.
So what's with North American investors and Italian football?
To summarize it bluntly, this interest is based on an economic bet: the awakening of the “sleeping giant” that would be Serie A. This is what explains Patrick Massey, Partner at Portas Consulting. A mismatch between Serie A’s current state and its growth potential, both domestically and internationally, creates opportunities to acquire undervalued football assets at a discount. The sum paid for Spezia Calcio, a reported $30 million, is an example of the current devaluation of Italian football, compared to other European or MLS clubs, according to Jordan Gardner, an American investor who has worked with several European clubs, and now owns Danish side FC Helsingor.
Beside current asset undervaluation, investors also see potential in both the growth of domestic and international TV rights and the modernization of ageing stadiums. KPMG Football Benchmark brought an interesting perspective on Italian stadiums in an article from February 2020. They highlight an average stadium utilization rate of 60.1% for the Serie A vs. 95.7% for the Premier League and 92.1% for the Bundesliga.
“Italy is known for having relatively cheaper tickets and several older and bigger stadia with lower utilization figures. Stadium capacity in Italian clubs offer much room for improvement and revenue and profit generation for potential investors.
It is not surprising that the new foreign owners have ambitious redevelopment plans at their clubs, hoping to boost matchday revenues. AS Roma, Fiorentina, AC Milan and Inter Milan all plan to move to newly-built stadiums.”
Will the fresh capital and expertise brought by North American investors allow Italian football to enter a new era of modernization? We’ll see the answer of that in a few years.
Sorare, Dapper Labs: A $980 million week for sports NFTs
For starters, a few figures to keep in mind: in about a week, Sorare, a French NFT-based fantasy football game, raised $680 million in a round led by SoftBank which valued the company at $4.3 billion, while Dapper Labs, the startup behind digital basketball trading card platform NBA Top Shot, is now valued at $7.6 billion following a $250 million funding round.
Sorare already has 600,000 users, of which 150,000 users are either buying a card or composing a team every month. They have registered a volume of $150 million worth of cards traded on the platform since January 2021. They have already partnered with 180 football organizations, including some of the most famous clubs in Europe, such as Real Madrid CF, Liverpool FC and Juventus, thus creating significant barriers to entry for other companies in the space. And they’re starting to duplicate their model at league-level, having announced a partnership with LaLiga to add digital player cards from the league.
As for Dapper Labs, if they carry a lesser-known name, they are the company behind NBA Top Shot. They have partnered with the NBA, NBPA, WNBA, WNBPA, LaLiga, Warner Music Group, Ubisoft, Genies and UFC.
Here’s what investors Coatue Ventures said about Dapper Labs:
“We think Dapper Labs is a leader in the space at the infrastructure level with Flow and in the application layer with NBA Top Shot.”
Indeed, one of Dapper Labs’ differentiating factors is that while they started running on the Ethereum blockchain, they actually ended up developing their own blockchain designed for NFTs, called Flow.
What’s next for these two NFT giants? Sorare’s vision has been clearly stated by Nicolas Julia: “Building the next sports entertainment giant”. This funding round should be used to expand to new sports, open an office in the US, grow the team and invest in marketing campaigns. Sorare also plans to launch a mobile app and have all of the top 20 football leagues signed up by the end of 2022. As for Dapper Labs, this latest investment round should supercharge the NBA Top Shot fan experience while continuing to bring transformative sports, entertainment, and music blockchain-based experiences to consumers on the Flow blockchain.
Trying to take a step back, it is still early to manage how to explain this hype about sports NFTs. Weekly sales of sports NFTs peaked at $138 million in February 2021 and have since declined by about 90%. Art NFTs have followed a similar pattern, peaking at $149 million and dropping to around $25 million per week.
Sorare’s CEO & Co-Founder Nicolas Julia explains the value of collectibles in the digital versus physical world:
“When we think about the collectibles in the physical world, most of them have no utility value. You put them in an album and that’s nice but it’s kind of limiting.
When you translate it to NFTs in the digital world, there are many more things which you can do, like using them in a game for instance. But you also have provable scarcity, which is very appealing to collectors.”
Applying NFTs to sports use cases seem to create an opportunity to unlock a new way for football clubs, footballers, and their fans to experience a deeper connection with each other. Beyond fan engagement, several sports organizations are trying to establish NFTs and other crypto assets as a way of making additional revenue. Overall, the sports ecosystem is still trying to figure out the best way to enter this space. Some football clubs have launched their own collections of NFTs, such as Manchester City, while other entered through the “fan token” use case that allows holders to vote on (mostly minor) club decisions and receive certain advantages - such as PSG with Socios.com.
Whatever the use case and the provider (Sorare, Dapper Labs, Socios.com), sports NFT have the potential to significantly transform the sports ecosystem, as long as they prove to be either a powerful medium for fan engagement, a new and sustainable revenue stream, or both.
Full story on CNBC
On the brink of oblivion: Who will save Derby County?
Derby County Football Club have been crowned champions of England twice in the 1970s. They reached the Championship play-offs in 2014 and 2019. And they saw the rise of English legends Brian Clough, Dave Mackay, and Roy McFarland.
But last week, they officially entered administration after revealing that they were “unable to service their day-to-day financial obligations.” The club was also deducted 12 points by the English Football League, placing the club bottom of the Championship on -2 points.
How did they get there?
Mel Morris first got involved with Derby in May 2014. He bought a 22% stake in the club, before fully acquiring the club in 2015, as well as Pride Park’s stadium. Rumors have it that he made the acquisition for a total of £80 million, while the club was supposedly listed as worth £41 million.
For a financial perspective, the club was already walking on thin ice. They recorded losses of £14.7 million in 2016 and £7.9 million in 2017. Further losses were expected at the end of the 2017/2018 season, with the risk of breaching the English Football League’s financial regulations allowing a cumulative £39m loss over a 3-year period. To avoid that, Morris decided to buy the stadium back from the club for £80 million, which allowed the club to register a pre-tax profit of £14.6 million at the end of the season - thus meeting EFL’s financial regulations. But this move did not make Derby’s financial troubles magically disappear. In January 2020, after a review of the sale of the stadium, the EFL charged Derby for financial breaches.
Following their lost Championship play-off financial to Aston Villa under Frank Lampard in 2019, Morris stated that he had already spent over £200 million of his own money trying to get Derby back to the Premier League. He admitted he had failed, and apologized to staff and fans.
And he started looking to offload the club. Had they managed to find a buyer straight away, Derby’s financial problems could have been solved - or at least taken care of. A few candidates publicly declared their interest in buying the club, but none of them fell through:
First by securing loans to ensure Derby’s short-term financial sustainability. They took a loan with MSD Holdings, Michael’s Dell investment firm, in August 2020.
They had also taken on a loan from an investment consortium led by Swiss financier Henry Gabay. This consortium reportedly looked at acquiring the club in 2020, but their interest vanished once they saw EFL’s charges and the early impact of the pandemic.
Fans started believing again when a deal was closed in November 2020 with Derventio Holdings, which was reportedly backed by the Abu Dhabi-based Bin Zayed Group - but the takeover bid ended a few months later, in March 2021.
One month later, another takeover deal collapsed - this time with Spanish businessman Erik Alonso.
Over the past weeks, Mel Morris has been effortlessly pointing the impact of the pandemic on the Rams, with an estimated £20 million loss in revenue and losses of between £1.3m and £1.5m per month.
So what happens now?
UK-based business advisory firm Quantuma has been appointed to oversee the club’s administration, with directors Andrew Hosking, Carl Jackson and Andrew Andronikou acting as joint administrators. On paper, the challenge is pretty straightforward: finding a buyer for the two-time English champions. But the task will not be easy.
Here’s what Andrew Hosking declared:
“Covid-19 has had a significant impact on the finances of the club and its long-term ability to continue in its current form. We recognize that with the commencement of the 2021/22 season last month, this news will be of concern to stakeholders and fans, in addition to the city of Derby and the wider football community.
We are in the early stages of assessing the options available to the club and would invite any interested parties to come forward. Our immediate objectives are to ensure the club completes all its fixtures in the Championship this season and finding interested parties to safeguard the club and its employees.”
As stated by the BBC, Derby's debts could amount to £50m-£70m. According to the administrative process, the administrators should first find a way to work out how to pay the salaries. There’s a major risk there, as players can actually leave the club for free if they don’t receive salary within 28 days.
Once they figure out how to pay the wage bill, they might try and sell valuable players ahead of the winter transfer window, and somehow manage to get paid in advance.
After that, the administrators will need to establish the full financial picture to show to prospective buyers, trying to trim the bottom line as much as possible.
However, Wycombe owner Rob Couhig paints a quite pessimistic picture:
"In likelihood you would be buying a League Two team with an accumulated £50m debt. There are only so many people in the world who are out there and willing to do that."
Will Derby County finally find its savior?
Full story on the BBC
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Achille