by Brandon Russell | Jan 3, 2024
With the December 21 ruling, the European court opens the door for entities other than UEFA to organize new continental-level soccer competitions without facing sanctions from national leagues or federations.
However, this is still not a definitive step toward the potential creation of the Super League. On the one hand, there are judicial authorities that haven’t delivered their rulings yet; on the other, doubts about the viability of the new tournament persist. Unless there’s information and agreements that we aren’t aware of, it’s difficult to imagine that the current promoters of the Super League will abandon the Champions League to embark on a new adventure in which, at the moment, major markets like the English, German, or French ones might not participate.
In any case, beyond all these and other issues still to be resolved, we can still focus on the most important points of the debate from the perspective of investors in the European soccer sector. While it’s challenging given that the little information we have is still quite vague, there are some insights that investors in the sector can draw from the surge of news and reactions these days.
First, it’s crucial to remember that these conflicts in European soccer primarily revolve around the allocation of revenues from continental competitions among clubs and federations. Under the current setup, UEFA, which comprises national soccer federations, stands as the sole organizer, which means that it receives a substantial economic share annually. The emergence of the Super League and other associations stems from discontent with this distribution system, aiming for a larger portion of revenues to reach the clubs directly. From an investor’s standpoint, focus should not rest solely on how the portions are divided up, but also on expanding the overall revenue pie.
Second, as soon as the European court ruling became known, the promoters of the Super League announced further details about the new format of the competition. Among them was one of particular relevance for investors, namely the economic control of the participating clubs. This seems to be precisely the only point that both fronts of this dispute can agree on. Financial control is here to stay. While UEFA has been implementing financial fair play rules since 2011, the Super League seems to want to go one step further. This point is of paramount importance for investors, as the future profitability of the sector relies significantly on the concept of operating leverage. This refers to the substantial profit growth in companies with a high proportion of fixed costs when they successfully increase their revenues—a phenomenon already seen in American sports.
Third and lastly, another striking announcement following the ruling on the new format of the Super League is its pledge to broadcast all games for free via a streaming platform. We imagine that the project promoters must have invested significant resources in crunching the numbers thoroughly, and they’re probably very confident that the new business revenues generated through this channel would vastly surpass the current broadcasting contracts. This might serve as further evidence supporting a theory we’ve upheld for quite some time: while traditional avenues for soccer’s audiovisual business models might have hit a plateau, emerging technologies can unlock opportunities for even higher revenue generation.
As we said at the beginning of this reflection, numerous uncertainties persist, and we’ll undoubtedly witness new and intriguing chapters in this saga. In any case, we remain convinced that the best way to gain exposure to this sector is through well-managed clubs within the group, which we consider to be the “sweet spot” of the industry. In other words, clubs with the capacity to grow and generate positive profits in the transfer market on an ongoing basis. Some examples in the listed world are Borussia Dortmund or Ajax Amsterdam, which have been part of our investment portfolio for several years. Unless a complete fracture occurs, which seems unlikely as it benefits no one, any step in the evolution of European soccer that involves an increase in capital and higher revenues for the teams should benefit these clubs.