So you want to be a minority owner: Why just a piece of a Premier League club is enough -

Manchester United are set to become the latest Premier League club to sell a minority shareholding.

Sir Jim Ratcliffe, the British billionaire who made his fortune through petrochemicals giant INEOS, is in line to buy a 25 per cent stake in England’s most successful football team, potentially signalling the beginning of the end for the controversial Glazer family ownership.

Ratcliffe, 71, is one of the wealthiest individuals in the world. According to the Sunday Times Rich List, he is the second-richest person in the United Kingdom. Earlier this year, that newspaper estimated his wealth at £29.688billion — a £6bn increase on the previous year.

Yet Ratcliffe is only pursuing 25 per cent of United. Why is he not trying to buy the club completely? And why have other Premier League investors bought minority instead of majority stakes recently?

“Generally speaking, minority investment is a way for people to get their foot in the door at a football club without having the responsibility of owning a majority stake,” says Jordan Gardner, a U.S.-based football investor who previously held stakes in Denmark’s Helsingor, Irish club Dundalk and the Championship’s Swansea City.

“It is a way to be in the background and not have that level of scrutiny,” Gardner tells The Athletic. “It is also a way to limit and de-risk the investment in terms of the amount of money you are putting in.”

In September, Fenway Sports Group (FSG) sold a minority stake in Liverpool to United States-based private equity firm Dynasty Equity. That deal is worth between $100million and $200m, representing a minority of investment between 1.9 per cent and 3.8 per cent.

Bill Foley, who owns Premier League side Bournemouth via Black Knight Football Club, a group whose minority shareholders include Hollywood actor Michael B Jordan, recently sold a stake to Ryan Sports Ventures.

Michael B Jordan, a minority shareholder in Bournemouth, at a match last year (Warren Little via Getty Images)

At Newcastle United, Saudi Arabia’s Public Investment Fund has an 80 per cent stake, with PCP Capital Partners (10 per cent) and the Reuben brothers (10 per cent) making up the remainder. Silver Lake, a private equity firm in the U.S., has a minority stake — just over 18 per cent — in City Football Group, the holding company for Manchester City, among other clubs. Crystal Palace have four major shareholders and investors, with Steve Parish, Josh Harris, David Blitzer and John Textor owning stakes of varying sizes.

There are several more Premier League clubs with multiple owners.

One reason why so many teams are being divvied up this way is their rising cost, which means the amount of people who can afford to fund takeovers by themselves has shrunk.

“As the cost of acquiring a football club increases, the pool of people who can buy 100 per cent is going to diminish. Having some form of collective ownership, which also spreads the risk, makes business sense,” says Kieran Maguire, a football finance expert.

“There are not a lot of people who want to take on that risk of owning a football club outright, so why not buy a 20 per cent stake instead? That gives you a seat at the table.”

As individuals have been priced out, entities have stepped in, including professional investors, some of whom are seeking simple financial returns rather than control.

“There is an emergence of a new class of investors in sport that are in some ways more sophisticated, or come from institutional backgrounds, or have had significant success in other sporting assets, and what that has led to is increased capital in the industry in general,” explains Theo Ajadi, an assistant director at Deloitte’s Sports Business Group.

“You will see there are new investment groups that have acquired sizeable minority investments across different sports, particularly in the North American market, and that’s now beginning to reach the European market as well — and the Premier League is the star attraction in that regard.”

U.S private equity now has a minority stake in Liverpool (Michael Regan via Getty Images)

“MLS is a perfect case study in terms of what you are seeing here,” says Gardner. “The day-to-day business model is not particularly profitable, if at all profitable, and a lot of the clubs lose money. But they have shown over the last 10 to 15 years that there has been massive long-term asset appreciation.”

“It is mirroring what is happening in America,” says Trevor Watkins, global head of sport and a partner at law firm Pinsent Masons. “These minority investors are not so concerned about having control of the club or vast returns on their investment.”

There is also the other side to consider, which is that club owners are currently motivated to sell stakes.

“You are seeing a de-risking strategy for majority owners,” says Watkins, citing Foley at Bournemouth, who has brought in the Ryan family. “If you are going to be spending money, then it gives him more shareholders to raise it from.”

Ajadi suggests another possible reason: “Owners who have been there for a longer period of time may want to cash out some of the equity that they have built up over that period of ownership, so there’s more reception to minority investment. If you purchased the club 10 years ago and it’s gone up in multiples of what you’ve acquired it for, you may not want to sell the whole asset, but you may have capital needs or just want to take some of that equity out of the business.

“Another perspective is that you, as an owner, may look to bring in a minority investor who can provide some additional capital to help with sort of any strategic or commercial goals that the club has.”

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A crucial aspect of such a relationship is finding the right partner.

“We have seen quite a few investors or clients come to us looking to purchase minority stakes in businesses,” Ajadi says. “Our general advice is always to make sure you do your due diligence.

“It can often feel to clients that, when you are acquiring a smaller stake, due diligence isn’t necessarily as important. But in some cases, it’s even more so, given that you have less operational control over the future commercial performance of that asset.

“Understanding the existing management team and understanding the risks of that ownership is still really important.”

The legal framework agreed by the two parties is also vital. This sets out the rights of the minority shareholder in terms of voting, the decisions they can make, and can sometimes include a minimum length of time concerning how long they need to be investors for.

“There is a lot of focus on the percentage of shares, but the focus should be on the rights that go with those shares,” says Maguire. “You can own 10 per cent of the shares and have more than 10 per cent influence.”

“It all depends on what is negotiated between the two parties, or in some cases, more than two parties,” says Ajadi. “No two deals are ever the same. There could be occasions where someone is perceived to have more rights than the percentage of their stake would typically dictate.”

Steve Parish is one of the four major owners at Crystal Palace (Glyn Kirk/AFP via Getty Images)

“If you buy 25 per cent of a club, invariably that is not going to get you that much,” says Watkins, who has been advising clubs and investors for more than two decades. “You are not going to be able to tell the 75 per cent shareholder what colour to paint the seats, which players to sign, or what the price should be for a hot dog.

“What you are seeing with Ratcliffe is that he wants different rights. He wants to be able to control football operations, whatever that may mean. A 75 per cent shareholder won’t let that happen without checks and balances being in place.

“The guys at Birmingham City have gone in and don’t have a majority shareholding, but are running the club day to day. You will often see a shareholder who owns a club reach the end of the runway from an economic perspective, so they say, ‘Take the club forward, you spend the money and I’ll gradually become diluted’.”

Which brings us to another motivation for buying a minority share: the hope that one day they will own a majority stake in the club they have invested in. “You will also see some people taking a minority with a view to taking a majority,” says Watkins. “You are seeing this with the Ratcliffe situation.”

By taking a smaller slice of the pie to begin with, the investor may be able to establish a foothold from which they can learn about the club, understand what is needed and then, one day, take over. “When you look at some of the minority investments over the last couple of years, it does act as a gateway to potentially build more meaningful stakes over time,” says Ajadi. “You will see examples of investors buying minority stakes and then increasing that over time as they get more comfortable with the asset and understand it in more detail.”

This has happened at Leeds United, where 49ers Enterprises converted its 44 per cent shareholding into a full majority after buying out Andrea Radrizzani. At Palace, Textor recently told The Athletic he has increased his shareholding after injecting cash and diluting the other shareholders’ stakes.

If Ratcliffe’s end goal is to one day become the majority shareholder of United, then it suggests he is going to have to work closely with the club’s controversial owners for some time and that he believes that such a collaboration is possible. “With any sort of minority investment, there is a rationale that there is some level of trust in the existing expertise of the current majority owner or group of investors,” explains Ajadi.

How that turns out at United will depend on whether Ratcliffe and the Glazers can complete a deal, but there is an overwhelming sense that you should be careful who you get into bed with — even more so when billions of pounds are involved.

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(Top photo: Sir Jim Ratcliffe at Old Trafford; Peter Byrne/PA Images via Getty Images)

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