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What Liverpool and FSG can expect as US nears ‘catastrophic’ debt default amid investment talk
It’s some 193 days since it was first revealed that Liverpool owners Fenway Sports Group were exploring the sale of the club.
The November 7 article in the Athletic acted like something of a starting pistol for fans, but before too long the initial idea of a full sale turned into a search for minority investment to recapitalise the business ahead of what was expected to be an expensive time.
In an interview with the Boston Sports Journal, Liverpool principal owner John W Henry said that there would be no sale, and the following month he doubled down on that by stating that FSG’s commitment to Liverpool was “stronger than ever” in an exclusive interview with the ECHO.
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“While we formalised a process that has identified potential investors for the club, we remain fully committed to the long-term success of the club,” said Henry.
“Investment in the club is never for the short term.”
Potential investors have been linked, from private equity funds to sovereign wealth funds, but according to people in the US familiar with the matter who spoke to the ECHO, while the intention remains to pursue the investment search that has been narrowed down after its original process, nothing is imminent.
Financial deals such as these are subject to confidentiality agreements, and for businesses like FSG and the way that they like to conduct business away from the media noise, keeping their cards close to their chest is something that they have form for.
It still remains the case that investment could arrive this summer, with much of the leg work to identify interested parties having already been done. In selling a small piece of the business the need for lengthy due diligence as comes with a full sale would be avoided. These kind of deals, when both sides are aligned, can come together very quickly, as evidenced by the 2021 deal with RedBird Capital Partners for 11 per cent of FS. That deal arrived less than three months on from the breakdown in talks between FSG and RedBall, the special purpose acquisition company that was backed by RedBird. The two went away and came back to the table with a different plan.
There is no great urgency on the part of FSG to conclude investment, if it does arrive, in time for the summer transfer window. Liverpool will spend this summer regardless, there is a competitive need to do so that goes hand in hand with the ability to generate key revenues from such things as Champions League qualification.
But there are also other pressures that exist at present stateside that may be slowing down the process somewhat.
Concerns exist over a potential recession in the US, and for private equity and investment funds, the kind who could be interested in an investment play in Liverpool, are finding the macroeconomic situation troublesome when it comes to raising funds from investors due to rising interest rates and the risk of the US defaulting on its debt. US President Joe Biden remains hopeful that a deal can be reached to raise America’s debt ceiling beyond $31.4 trillion it currently sits at.
Should the US default then it has the potential to be economically catastrophic.
If the world’s biggest economy fails to meet its debt obligations it would have a major ripple effect globally, causing recessions, frozen credit markets and a stock market crash as investors moved to sell stocks and bonds.
The hope remains that a deal can be reached to stop the US from defaulting on its debt for the first time in its history. The US reached its borrowing limit on January 19 but a series of measures has prevented it from defaulting since, although the Treasury is set to be unable to pay its debts by the start of June. A surge of tax receipts from businesses and individuals is set to arrive by mid-June to alleviate some of the pressure.
But with such worry existing, will that be impactful for investment funds from the US who are looking towards putting capital to work at such a volatile time?
“It is a complicated question,” explained Andrew Zimbalist, an economist at Smith College in Boston, Massachusetts, and member of the editorial board of the Journal of Sports Economics.
“Both inflation and the looming debt ceiling put upward pressure on interest rates, which, in turn, make it more expensive to invest in football clubs in Europe. This is bound to have at least an incrementally negative impact on PE (private equity) deals. Yet, any sensible investor is looking at investing in football as a long term investment and, as such, might regard the current financial conditions as a good opportunity (less demand and lower prices for clubs) to invest. So, it depends on the strategy of the PE investors and the details of the purchase.
“Of course, if the US actually does default, the negative impact would be much more substantial, and the longer the default, the more devastating the effect.”
The influx of US capital into European football has accelerated over the past few years, with more and more individuals and investment funds seeing the value proposition that exists when compared with the North American sports market, which has a protected eco-system thanks to no promotion and relegation as well as salary caps, but one where valuations can be prohibitively high with less upside and growth potential.
“I don’t envisage we’ll see a huge change in approach,” said American Jordan Gardner, football investor, former owner of Danish side FC Helsingor and consultant for London-based sports intelligence firm Twenty First Group.
“Of course, if we have a full-blown recession we could see the trickle down effect, but I don’t think it’s having a huge impact right now.
“If interest rates continue to rise it becomes more difficult to raise large sums of money and debt, and that would be impactful. But I don’t think that we are at that point yet.
“I think maybe investors are in something of a holding pattern and just waiting to see what happens, but I don’t think it would be having a huge impact right now.”
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