On the face of it, buying Southampton Football Club would appear to be an interesting proposition.
They have a highly-regarded academy, a 32,000-seat stadium, a manager signed to a long-term deal and a handful of good players at their disposal as they prepare for what will be their 10th Premier League season in a row.
So far, however, all that hasn’t been enough to convince a potential buyer, other than American businessman Joseph DaGrosa, that buying them would be a worthwhile investment.
Throughout the takeover process, The Athletic has strived to keep you up to date with the latest movements regarding the future of your football club. As it stands, there are still two or three interested parties, although they are yet to make the crucial step forward and show serious intent.
Why is this, though?
The Athletic spoke to several industry insiders, all with vast knowledge of the current market, about the impact COVID-19 is having on individuals who have the funds to buy such a football club and whether now is even the right time to purchase a Premier League one.
Pivotal to any sale of Southampton is Gao Jisheng, the Chinese businessman who paid between £180 million and £200 million to purchase an 80 per cent stake in the club from Katharina Liebherr in 2017.
Since that initial investment, however, Gao hasn’t put another penny in.
It must also be said that he hasn’t ever taken a penny out, either.
To get through the pandemic, Southampton’s hierarchy had to turn to MSD Capital to secure a £78.8 million loan; with the interest at 9.14 per cent, repayments will cost them £7.2 million a year.
The loan doesn’t need to be paid back until 2025, and The Athletic has learned that it includes a clause that could see the club borrow an extra £20 million if they needed to boost their working capital.
While you may think a loan of this size would put investors off, one potential buyer said that securing the extra funding was a shrewd — and necessary — move.
Southampton’s latest set of accounts don’t make for pretty reading, and you can expect the next lot to look bleak, too. The fact they went a whole calendar year without supporters at St Mary’s — bar two home games last December where a small number were allowed in — was a big factor.
But that isn’t a hidden secret, and investors will know many football clubs have been recording substantial losses since the first lockdown began in March 2020.Yet, Southampton have been on the market since 2019, so the financial impact of COVID-19 can’t be the only reason they are still searching for a buyer.
“There are two types of investors (in football). Firstly, the ones who were already interested in buying a football club pre-pandemic, as they believed in the further growth of the industry and continued to explore such opportunities,” Andrea Sartori, KPMG’s global head of sports, tells The Athletic. “A good example of this is the Friedkin Group who started negotiating the acquisition of AS Roma well before the health crisis and most likely at different conditions than the ones that were ultimately agreed.
“And then you have those opportunistic players rather (more) interested in providing debt and other financing instruments to help clubs get over liquidity issues.”
The reason Gao is crucial to the sale of Southampton is that, ultimately, he is the one who has to accept an offer for his shares. If he thinks they are worth X and someone offers only Y, it’s his right to say no.
A lot has been said about the fact Gao will want to try to save face in China and not be seen to have lost a significant portion of his sizable investment. But one source points out this isn’t the case.
“If you look at Chinese investors in football clubs over the past few years, there aren’t many people remaining,” they said. “Those people (Chinese football club owners) are the pioneers. The Chinese sports market is not mature. It’s still at the beginning period.
“China needed people like them to do this, to show people: we tried, but we also may fail. There is no saving-face point about it. It’s just a normal business decision.”
Another factor worth considering is whether the Premier League has finally peaked in terms of its domestic broadcast deals.
Investors used to see the multi-billion deals between England’s top division and broadcasters such as Sky Sports and BT Sport grow whenever the contracts ran out. But the latest agreementsremain worth roughly the same for 2022-25 as the ones from 2019-2022.
Asked whether this stagnation could lead to potential buyers thinking twice about the Premier League’s strength, Sartori added: “Every sector will eventually slow down and become less attractive to investors, so it’s not only the Premier League.
“Overall, the media market of the Premier League at international level is so much stronger in comparison to any other league. In consideration of the existing gap between the Premier League and other leagues, which is partially justifiable with the product’s quality, in my opinion, it’s hard to expect a significant growth of the Premier League at international level over the next few years.”
Another industry insider, who works with interested individuals and parties on takeovers, also mentioned the Premier League’s latest broadcast deal.
“The attraction over the years has been the value and exponential growth of its media rights,” they said. “External investors outside of Europe used to look at it (Premier League clubs) and see excess capital.
“I’ve been involved in conversations between clubs and buyers over the past six to 12 months, and when they see the state of cash flow and the numbers involved in buying and running a football club, they start to think twice.”
The most recent Premier League takeover involved American businessman Alan Pace’s ALK Capital and Burnley, yet that deal last December was leveraged and meant the Turf Moor side went from having around £80 million in the bank to being in debt.
Supporters are naturally uneasy about the possibility of an owner buying their club using borrowed money. But this is what Gao did when he purchased Southampton, although he borrowed money against assets he owned in China, which meant Southampton would be protected if he went bust.
“Your Jack Walker-type owners (the local-lad steel magnate whose wealth helped make Blackburn Rovers champions in the late 1990s) are gone,” explained a source. “You have got people who have made their money through private equity or investment funds.
“All of a sudden, they are coming in with a different mindset.
“They are coming in with a three-to-five-year plan which requires an exit in the fifth year, and if you buy a club outside of the Big Six, you have to factor in relegation. That can wipe out all of their value. It changes the way they look at things.”
Asked whether a rise in leveraged takeovers is a concern, Sartori said: “The financial structure described in the acquisition of Burnley is very, very typical of private equity in any sector of the economy.
“But when such principles are applied to sporting organisations, and not necessarily just football clubs, it is seen as more of a risk. Understandably from the supporters’ perspective, it is difficult to accept the fact that there are investors buying a club with a high level of leverage.”
Many supporters realise that fresh investment into Southampton is crucial for more reasons than simply boosting the playing squad.
In Gao, who can’t speak English, they haven’t had a vocal leader at the helm of their club, with the businessman opting to remain silent in China. The communication is left to the likes of Martin Semmens, the chief executive, and Toby Steele, the club’s managing director.
But fans care about what their owners are doing — and what they plan to do with their club.
Although many supporters feel a new buyer is needed at St Mary’s sooner rather than later, the impact of COVID-19, the failed Super League coup, the stagnating domestic Premier League broadcast deals and uncertainty of how the football world will recover post-pandemic in the coming months and years could mean it may still be a while before a takeover gets done.
