Does the real value for investors lie beneath Italian football’s elite?

Italy’s Serie A, one of the so-called ‘Big 5’ European football leagues, has seen a steady flow of international investor interest over the last decade.

Since 2011, foreign investors have acquired stakes in no fewer than nine Serie A clubs – including most recently AC Milan, Spezia Calcio, Genoa CFC, and Atalanta BC within the last 18 months.

Part of the attraction for investors may be the realisation that Serie A hasn’t yet come close to extracting the full potential of broadcasting rights deals – certainly not in the way some of its European counterparts have, such as England’s Premier League and Spain’s La Liga.

For domestic TV rights, the latest negotiated deal for Serie A was €928 million, roughly half what the Premier League has secured; for international rights the English league’s packages total nearly ten times the Serie A equivalents.  A recent change in Italian law that abolishes the three-year limit on contracts for foreign TV rights has been welcomed by Serie A and should go some way to increasing revenues from future deals.

While broadcasting deals are only part of the picture, they are one of the reasons investors might be wise to consider opportunities further down Italy’s football pyramid. For this and a variety of other reasons, clubs in Serie B and C may potentially offer a wider range of value creation levers.

1. Automatic revenues uplift: Promotion to Serie A can lead to an automatic uplift in revenues from broadcasting rights of approximately €30 million. This is even allowing for the perceived untapped potential of current top-flight broadcasting deals. On top of this, the average value of jersey and technical sponsorship deals is typically higher when a club is promoted to Serie A.
   
   
2. Arbitrage on transaction multiple: While international PE interest in Italian football has hitherto focused largely on Serie A clubs, acquiring a lower league club and securing a quick promotion to the top flight offers two additional advantages. Firstly, the initial investment for a Serie B or C club is typically limited to few million Euros. For example, in 2021, PE fund managers Robert Lewis and John Aiello acquired a 60% stake in Serie C side Cesena FC for a reported €1.8 million, while in 2022 the City Football Group acquired an 80% stake in Palermo FC for a reported €13.0 million. Secondly, revenues uplift is amplified by a higher multiple on operating revenues. In fact, while this multiple is typically in the range of 1.0x for Serie C clubs and 1.5x for Serie B clubs, it can increase to 2.0x or even 2.5x for Tier 2 Serie A clubs.
    
3. Stadium redevelopment: Construction of a new stadium can increase a club’s revenue profile considerably. New stadia offer value creation levers such as naming rights, increased ticket sales, higher average ticket prices including more premium/corporate seats, in addition to revenue from ancillary services, such as food and drink, stadium tours, club shops and museums, and hosting of other events. Refurbishing an existing stadium rather than building new may offer a quicker and less expensive route to capitalise on many of the same value levers – especially for those investing in Serie B and C clubs. Because lower league clubs do not require such a high capacity, in many cases building a new stadium may not be necessary; a refurbishment of existing facilities may suffice.
   
   
4. Academies and scouting networks: Development of an effective scouting and/or academy model, aimed at acquiring and developing young talent before selling on at a premium, is another proven value creation lever. While this is true for clubs at all levels of the footballing pyramid, it is particularly true beneath Serie A, as lower league clubs face less pressure to acquire elite players who can immediately perform at the highest level. These clubs may be able to devote more time and resources to their scouting networks and academies.
   AlixPartners’ analysis of five years of European football transfer data last year identified how both the scouting and academy models can lead to significant value creation. Italy’s Atalanta B.C. is one of European football’s success stories in this regard, creating an estimated €380 million in value over the past five years through its academy and scouting network.
   
   
5. New/additional revenue streams: Investors should also be alert to new possibilities as a result of shifts in consumer trends. For example:
   • Changes in viewing patterns, with fans increasingly consuming sports via digital platforms instead of traditional TV
   • Effective utilisation of social networks could increase sponsor visibility and provide a new channel for merchandisingDigital products (such as fan tokens/NFTs) could alter how fans interact with their team
   • The rapidly growing market for eSports offers an opportunity to appeal to new audiences, in particular younger fans.

Many of these opportunities will only be fully realised by clubs playing at the elite level of Italian football. For example, last year 16 Serie A clubs sold exclusive rights to EA Sports to allow their club names, crests, kits, and playing squads to be used in the FIFA videogame franchise. Clubs who achieve promotion following investment may open up new opportunities such as these.

Recent investment activity in Serie B and C

It is true that there have already been some significant investments in clubs in Italy’s second and third divisions. However, unlike Serie A investments, these have mostly been from wealthy individuals rather than PE firms.

City Football Group’s recent acquisition of a majority stake in Palermo FC – newly promoted from Serie C to Serie B – might spur a wave of investments in second and third-tier clubs, backed by PE funds. New Chelsea owner Todd Boehly has recently confirmed his plans to emulate the City Football Group’s model of buying lower-tier clubs across various international leagues.

Given that so many Serie A clubs have already been acquired by overseas investors, this is all the more reason for PE to look beneath Italy’s footballing elite in the search for value.

Italian football investment case studies:

• Parma Calcio – the club was acquired out of bankruptcy by a group of Italian investors (Nuovo Inizio) in 2015, and then rose from Serie D to Serie A in only three seasons. The Equity Value of the transaction was reported to be approximately €70 million, while during their five years of ownership, the owners injected €30 million of equity. Parma Calcio was then sold to Krause Group in 2020 when it was in Serie A and now plays in Serie B.
  
  
• Venezia FC – In September 2015, a group of American investors led by lawyer Joe Tacopina moved to acquire the club, then in Serie D, out of bankruptcy. In 2020 the club was recapitalized, and the owner Duncan Niederauer took his role of club president, at that time the club was playing in Serie B. The club managed to rise to Serie A (19 years after the last time) at the end of 2020-2021 season, although it was relegated one year later.
  
  
• Hellas Verona FC – In 2012, the current owner acquired 80% of the club in Serie B for approximately €10 million. Another €10 million of equity has been injected over time. The club has played in Serie A in seven of the last 10 seasons and the equity value of the club today is likely in the region of €80 million. It currently represents a solid Serie A’s club, following 2 seasons reaching a top-10 ranking.
  
  
• Como 1907 – In April 2019, Como 1907 (then in Serie D) has been acquired by Sent Entertainment (owned by the Indonesian tobacco magnate Robert Budi Hartono) for less than €2 million. The new ownership managed to reach Serie B in just two seasons, ending 13th in its first year of participation, and confirmed its ambitions with several major grafts achieved throughout the past couple of years, such as the former French striker Thierry Henry who recently became shareholder of the club.
  
  
• AC Monza – AC Monza has been acquired by former AC Milan owner Silvio Berlusconi (through its family holding company Fininvest S.p.A.) in September 2018 for around €3 million. The ambition to reach prestigious European tournaments soon led the club, then in Serie C, to spend a total of more than €70 million (including around €12 million for the stadium renovation) and achieve Serie A at the end of 2021-2022 season.