Bundesliga: Investors as a solution for more competition

The corona pandemic brought many professional football clubs to the brink of bankruptcy.

Now the biggest worries seem to have been overcome, but the lack of income is throwing some clubs back by years and causing less competition within the Bundesliga.

In order to generate additional income, the German Football League (DFL) is giving international media rights a stake in the hands of investors.

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The corona pandemic is having an impact on numerous sectors of the economy and also the world of sports, after all, for many amateur athletes there is still no end of the lockdown in sight. It is different with professional athletes who have long been able to continue their business – for example the three professional football leagues in Germany.

But there was also a great need there in the meantime: The trade magazine “Kicker” reportedthat 13 of 36 teams in the first and second Bundesliga would have threatened bankruptcy if the previous season had been canceled. Now the worst fears seem to be out of the world, after all there are developed vaccines and with them at least the prospect of a normalization of the situation – even if stadiums are not likely to be filled to full capacity for a long time.

In addition, the lost income will also lead to problems for the clubs in the medium and long term. The threatening consequence is an increasing gap within the league between the clubs, which earn a lot of money through international competitions, and the other clubs, which cannot make larger transfers or have to save the money they collect in the first place.

Bundesliga: A small part of international media rights go to investors

To counteract the trend, the German Football League (DFL) also wants to set up companies together with private equity companies in order to generate income in this way. In Germany, this primarily affects the international media rights of the Bundesliga. According to insiders, more than 30 financial investors have shown interest in taking over ten to 25 percent of the shares in a newly founded company that is to build an online platform for broadcasting the Bundesliga, reported the news agency Reuters.

In the spring of 2020, the DFL had refused to allow investors to market German professional football. Now a minority stake is to be put out to tender: there are around 20 interested parties for ten to 20 percent of the rights. Overall, the value of the international rights is estimated at around one billion euros, which would promise a three-digit million sum in the event of a partial sale. The process will start in February.

Sports rights expert Kay Dammholz explains in an interview with Business Insider that the Bundesliga media rights appear crisis-proof for investors. The Bundesliga is a popular and established league with satisfied global media partners. “The stadiums were usually sold out before the corona pandemic and even during the crisis, the DFL was the first league in the world to resume games with its hygiene concept and thus successfully fulfill its media contracts,” explains the founder of the Sass Media marketing agency. “Participating in the international rights of the Bundesliga therefore seems more sustainable and predictable than investing in a single club, which always depends heavily on its current sporting situation.”

Associations should think about opening up to investors

And yet a direct investment in a Bundesliga club would certainly be attractive for some investors. However, the 50 + 1 rule stands in the way. It prevents an investor from taking over the majority of a club. The fans absolutely want this regulation to remain in place, which is why many clubs have imposed a kind of prohibition on thinking about it in recent years. But the corona pandemic could change our perspective.

“On the one hand, private equity firms have a lot of capital that should be invested and, on the other hand, the Corona crisis is tearing holes in the coffers of many clubs, making them dependent on fresh equity. The two sides are therefore moving towards each other almost logically. ”At least a handful of associations are said to have already set up specific working groups on the topic.

There are also constructs with the existing regulation that enable participation. For example at KFC Uerdingen in the third division. Mikhail Ponomarev had been an investor in the club since 2016 and held 97.5 percent of the KFC Uerdingen 05 Fußball GmbH, which was spun off from the club. In this way the association remains independent on paper, but if it is dependent on the money of a patron to the extent that the reality is different.

Deterrent examples of investors already today

So it came to the end of last year to the sporty GAU. He is emotionally tired and will get out by the summer of 2021 at the latest, Ponomarev said in December. He put his shares up for sale and the association filed for bankruptcy. Now there is a buyer of the shares, according to “Kicker” there is an investor from Armenia. Suddenly, an Armenian donor has a majority stake in a club from the third division – this is exactly what the fans are saying. The rights change hands and the club falls into completely strange hands.

“There are already rather daunting examples with the current regulation that are possible despite the applicable restrictions,” says Kay Dammholz. “An opening to investors with clear terms and conditions would appeal to a much larger number of more serious investors and thus also attract investments in ‘smart money’,” he expects. Such conditions could be, for example, that no resale of the shares and no ticket price increases would be possible without the approval of the association.

If there are clear rules and if these conditions make it possible for investors to enter the market on a larger scale, completely different investors would consider the option. “If there is an opening up for investors, it will primarily be fewer individuals who will act as donors, but rather large companies and institutional investors. This could further improve the structures in the club and implement a more professional personnel policy, ”says sports rights expert Dammholz.

Bundesliga clubs are increasingly being managed as commercial enterprises

The management of a club would be more like a commercial enterprise – which is what clubs are primarily today. Therefore, the donors would attach great importance to filling important positions with specialists in the field. The fact that the great fear in the Bundesliga has now subsided does not stand in the way of opening up to investors for Dammholz, on the contrary. “As a result, mind games are on a much more stable basis and negotiations with potential investors are possible without time pressure and at eye level. The clubs are not forced to make quick compromises and an investment does not raise the suspicion that the financier, as a profiteer, is trying to exploit the plight of a club by saving it from bankruptcy. “

The topic is likely to become more explosive in the future, after all also has the DFL Task Force Future of Professional Football tended to shed a positive light on the topic in her results report this week. It says relatively neutrally: “An impartial, open examination as to whether the path to professional football can be made easier for certain investors (…) if transparent conditions are specified is considered useful.”

What is still cautiously phrased could determine the way forward in the future. “In retrospect, Corona could have been a trigger that made some clubs think differently about the topic of investors,” says Dammholz. “The financial structure of many Bundesliga clubs is sewn to the edge and the pandemic has clearly shown everyone that the clubs today are primarily commercial enterprises and, as such, should have all economic instruments available, including foreign and above all included by equity. “

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