If 777 Partners did school assemblies, last Thursday’s would have been amazing.
After the usual messages about litter and tucking shirts in, headmaster Josh Wander would have turned to the school’s sporting exploits on Wednesday and reeled off win after win, prompting raucous cheers from the pupils and satisfied nods from the staff.
The Miami-based private investment firm has not got around to disrupting the education sector yet, so don’t worry: there are no 777 school assemblies.
But Wednesday really was a doozy for its football operation. Genoa, Hertha Berlin, Sevilla and Standard Liege enjoyed cup wins, while Melbourne Victory and Paris’ Red Star sit atop their respective leagues, having won their most recent fixtures. And, on Thursday evening, Vasco da Gama earned a precious away win to climb out of the relegation zone in Brazil.
There was another win on Wednesday, too, but 777 cannot claim it yet as its agreement to buy Everton is waiting for regulatory approval. The Merseyside club’s 3-0 Carabao Cup thumping of Burnley was the match the headmaster attended, though, which suggests he is keen for the regulators to get on with it.
That is a topic we will return to in the coming weeks — the regulators will not be rushed — and focus now instead on some fundamental questions about what 777 is planning to do with these clubs, why it has chosen them and where Everton fit in.
We can answer these questions because 777 wrote the answers down in a 28-slide “teaser” it made in September when it went to the market looking for £200million ($247.5m) or so to invest in “Project Echo”, its “premier football platform with global reach and strategic asset value”. This money, if it comes, would be future funding for the entire group, not cash to complete the Everton takeover, which 777 intends to finance via its own resources.
The sales pitch was prepared with the help of Tifosy, a London-based “sports advisory and capital solutions firm”, and is meant only for prospective investors who have signed agreements not to share the document with anyone else.
Be that as it may, The Athletic has seen it and believes you — the fans — should know what 777 says about your club when it is trying to add Everton to its portfolio.
The same but differentiated
Project Echo, including Everton, is an empire comprised of eight clubs on three continents, with a combined 935-year history, revenue of €787million (£686million), 205 trophies won, local population of 42million and social media following of 32million. It is a “network of successful and iconic football clubs in major leagues with rich history and large installed fanbases”.
That revenue figure is interesting as Everton, a club 777 may never own, and Sevilla, of which 777 only owns 15 per cent, account for nearly two-thirds of the total. There is also no mention of the fact that Everton have lost more than £430million over the last five years.
In fact, every club in the group lost money last year — the aggregate annual loss was more than £200million. There is no room for such negativity in this slide show, though, as each club is “an attractive asset in a key football market with significant financial upside potential”.
To unlock that potential, Project Echo promises a management team of “senior operators with a proven track record in (multi-club ownership) and (mergers and acquisitions) value creation”.
At the top of this “best-in-class centralised” structure are 777’s co-founders, Wander and his business partner Steven Pasko, alongside Andres Blazquez, a banker with a background in science who is now chief executive of Genoa. Beneath this three-man board are two operating partners: 777’s head of commercial Sam Kline and an ex-management consultant called Nicolas Maya. Beside them is the senior management.
That is where the real football experience sits as it is comprised of Don Dransfield — a former executive at City Football Group, Manchester City’s own club empire — ex-DAZN strategist and club consultant Dan Faermark, former Huddersfield Town and Leicester City data analyst Mladen Sormaz, ex-Vitesse Arnhem sporting director Johannes Spors and Mark Thompson, who joined 777 from Burnley.
Tailwinds and television
The sales pitch details eight “key investment highlights” — or, reasons Project Echo is the investment for you.
Football is a “high-growth sector driven by the proliferation of content and significant increases in media rights valuations” and it is a “historically recession-proof industry, which benefits from market tailwinds and structural long-term growth”.
As painful as that sounds, there is truth to the idea that the value of sports teams has risen further and faster than the value of companies in other sectors. This growth has been particularly noticeable in North America, where revenues are shared and costs capped. But the values of European football teams, especially in the biggest leagues, have also jumped over the last two decades.
To illustrate this, 777 and Tifosy use a comparison between the S&P Europe 350 Index, a basket of 350 publicly listed companies in western Europe, and a “football club index”, with the year 2000 as a starting point.
Since then, the value of those regular companies has grown by 29 per cent, while the football index is 225 per cent up. It even grew during the “dot com crash” at the start of the century and the 2007-2009 financial crisis, and also rebounded quickly from the pandemic. The document does not explain which clubs comprise the football index but recent sales of Premier League teams support the thesis that these are appreciating assets, and good hedges against economic downturns.
Why? Simple: we keep watching.
The sales pitch picks three pieces of supporting evidence: the growth in how much money the big streaming companies spend on content, how much growth the most popular sports leagues — the Bundesliga, La Liga, the NBA, the NFL and the Premier League — have seen in their media rights since 2010, and the estimated upside in the international media rights for the biggest football markets between now and 2032.
That last projection is especially enticing as it thinks the market is going to double from £5.7billion a year in 2022-23, to £11.3billion in 2031-32.
Follow the money
Investors traditionally like some company when they make a punt — strength in numbers and all that.
So, one of the tailwinds 777 and Tifosy like is the fact that private equity firms agree with their rosy predictions, as can be evidenced by the stakes Blackstone, Carlyle, CVC and others have taken in major domestic leagues.
This point is underlined in the second investment highlight: the sight of so many “institutional capital” tanks on football club lawns.
By joining Project Echo, you will be standing on the shoulders of Ares, Oaktree, Redbird and SilverLake — private equity firms that have invested in football teams and/or multi-club ownership (MCO) groups.
According to 777 and Tifosy, these firms have been attracted to the sector by the growth in international media rights, which provide “an opportunity for clubs to build global brands”, the rise of Amazon Prime Video, Apple TV and DAZN, and a “shift towards (a) digital-first eco-system with immediate adjacent opportunities in fan engagement, digital advertising, original content, ticketing and e-commerce”.
In other words, selling you stuff online.
Better together
Reasons to be cheerful, part three, are two slides explaining why MCO platforms offer tangible investor benefits.
These range from talent development — MCO groups boast more scouts in more markets, and greater control over player pathways into the first team — to wider management expertise across markets and operational efficiencies. Project Echo touches upon reducing the risk of relegation to the group’s member clubs and commercial synergies between teams in different time zones, and suggests it delivers greater opportunities for buy-low sell-high gains.
Great theory, right? Especially the bit about relegation. So, who is doing it at the moment? And is everybody doing it in the same way for the same reasons?
All is explained in a table listing five different MCO strategies.
The first is 777’s, a “differentiated and winning” approach that features iconic clubs in leagues where there is no real dominant club. There is a shared vision and management structure, and the main focus is to develop playing talent and identify those commercial synergies to make money.
The second approach is the “crown jewel” approach where there is an apex predator and farm teams. City Football Group is the best example and 777 notes that Manchester City’s “visual identity” is applied to other clubs in the group, too. Its main focus is silverware for the club at the top of the tree.
The Red Bull group of clubs is an example of a “marketing-focused” approach, with no official dominant club but a strong brand and visual identity across the stable. The goal is selling fizzy drinks.
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The fourth type of MCO group is a multi-sport approach. Fenway Sports Group, the owner of the Boston Red Sox, Liverpool and the Pittsburgh Penguins, is a good example, as is Kroenke Sports and Entertainment, the collection of franchises that includes Arsenal, the Denver Nuggets and Los Angeles Rams. The main aim is a diversified portfolio.
The final example is the “alliance” approach, which is categorised as a loose federation of one or two main clubs alongside smaller ones that help with the recruitment and development of players. Player trading is the name of this game and it is the strategy pursued by groups such as United World, which owns Sheffield United and teams in Belgium, Dubai, France and India.
777 runs through all the various options and, unsurprisingly, concludes that its approach is markedly better than all the others.
The stats back it up
Speaking of data, 777 loves it.
To be honest, there isn’t a club in Europe — certainly in the top divisions — that would not claim to put data at the heart of its decision-making, so there is no need to spend too much time here.
However, for the sake of completeness, 777 says it uses extensive data-driven management processes to serve three goals: revenue growth, operational optimisation and player management.
Revenue growth is achieved by using technology to grow closer relationships with fans and then scaling this up, across the group, to give commercial partners a bigger target market.
Operational optimisation is about centralising key corporate functions to cut costs — a standard claim for all MCO groups. Whether they actually achieve it or not, or if it works, is another matter.
Using data to hone tactics, identify talent, prevent injuries and manage contracts almost goes without saying in modern sport. The Athletic is yet to meet a new investor in European football who does not think they can do it better than everyone else — particularly American investors.
Money, money, money
Having made one set of claims that every new market entrant makes, 777 then makes another.
777 promotes Project Echo as a resilient business model with significant expected revenue and cash flow growth, stressing there is a “clear path” to profitability following turnaround and growth capital investment.
Leaving aside Sevilla’s accounts for last season, which are yet to be released, the 777 group, including Everton, had aggregate revenues of £483million, which is a big number as long as you do not think about any of the money going the other way.
Not thinking about that is one of the reasons owners of loss-making businesses prefer to talk about EBITDA — earnings before interest, tax, depreciation and amortisation. Some financial experts say this provides a picture of a company’s underlying potential as it strips away variable costs.
Other experts say life does not work like that and think EBITDA is a magician’s trick.
What is most interesting about 777’s claims is it acknowledges — kind of — that its clubs lose money as the group’s aggregate EBITDA is negative, with a loss of £83million last season. Remember, that is the loss before tax, interest, depreciation and amortisation, the latter being a huge cost for most clubs as that is how transfer spending is measured.
But 777 believes it can flip this within five years, with projected EBITDA for the group in 2027-28 of £240million.
Clues as to how this will be achieved are thin on the ground, as the next slide contains a table of the value of eight leading leagues’ broadcasting deals, some fairly generic points about “fan engagement” and the logos of some of the clubs’ commercial partners.
In regards to the latter, there is a bullet point about 777 being in talks with a “global sportswear specialist to boost merchandising/retail strategy” and negotiations with a “global commercial partner to sell group sponsorships and premium ticketing packages”. So, perhaps a single kit supplier and a 777 season ticket, then?
There is, however, one tangible path to profitability provided: cutting the playing budget.
According to 777, it took £2.6million off Standard Liege’s wage bill last season, a reduction of 14 per cent. The cut was even more dramatic at Genoa, where £30million came off the payroll — 51 per cent. Any footnotes clarifying that this reduction was achieved after Genoa were relegated to Serie B are strangely absent.
Players, pathways and pools
The seventh step to heaven is the “significant and global pool of player talent developed across the 777 Football Group platform”.
It details how the Premier League spends more money on transfers than any other league, La Liga uses more homegrown players than its European peers, the Bundesliga invests in youth and Brazil exports more players than anywhere else.
The implication is these are good markets to be in, which is a reasonable but hardly unique observation.
More interesting is the claim made regarding Red Star, the French third-tier side 777 bought last year. In terms of revenue, Red Star are the smallest of 777’s teams but its location might be the most attractive, as they are based in Paris, arguably European football’s greatest talent factory.
Unlike London, Paris is not a particularly divided city when it comes to football. There is Paris Saint-Germain and then, a long way behind, there is Paris FC and Red Star. But, as 777 notes, there is more than enough talent to go around. In fact, in recent years, a lot of this talent has been hoovered up by teams outside the capital.
Might a better-resourced Red Star attract more of these players? It might. But the owners of Paris FC, in Ligue 2, have the same idea. As does a refocused PSG, where their very rich owners are keen to lean into the club’s Parisian roots.
A competitive market, then.
Red Star will have to do a lot of work to become a productive nursery. 777 itself highlights 12 Parisians who were not scooped up by PSG’s academy, including stars such as N’Golo Kante, Kylian Mbappe and Paul Pogba. The three Red Star graduates it mentions — Sofiane Feghouli, Youssouf Fofana and Moussa Sissoko — left the club in 2003, 2014 and 2001.
The well has been dry in recent years.
All sales decks require some stardust and, under the headline “777 young talents are gaining international exposure”, seven players are mentioned: Genoa’s Uruguayan centre-back Alan Matturro, Vasco’s Marlon Gomes and Rayan, Hertha’s Hungarian brothers Bence and Marton Dardai, and Standard’s Turkish winger Cihan Canak and Northern Irish midfielder Isaac Price, who coincidentally signed for the Belgian team from Everton.
Based on valuations sourced from Transfermarkt, Canak and Marlon Gomes are the picks of the bunch, worth about £3.5million each.
When addressing the “pathway” element of the argument, the teaser document picks out three players who have progressed through their careers while staying in the family. They are: Italian defender Paolo Gozzi, who went on loan from Genoa to Red Star; Genoa midfielder Filippo Melegoni, who had a loan spell at Standard; and Hertha’s Ivorian winger Wilfried Kanga, who is at Standard this season.
Worldly wise
The final selling point is the “scale and geographic diversification” of the group, which provides for a “centralised hub” that can act quickly and decisively.
According to 777, its leadership will help the individual clubs cut costs for a wide range of functions, such as HR, legal and IT, while sharing best practices.
It is not one-size-fits-all, though, as 777 says it works with its clubs “to design long-term sustainable plans” and has identified key performance indicators to measure progress. Performance against these milestones is reported upwards on a monthly basis. The big bosses will intervene “as necessary”.
In terms of cooperation within the group, 777 highlights merchandising tie-ups between Red Star and Melbourne Victory, the complementary youth development upgrades done by Standard and Hertha, and some possible work on social media at Everton, Genoa and Vasco.
Meet the team
The slide show finishes with profiles of the eight clubs and it is there that you really see Everton’s importance to Project Echo.
Despite the club’s recent relegation battles, Everton’s squad is worth 50 per cent more than the next most valuable squad in the group (Sevilla). The Premier League side have the highest revenues and biggest social media following. And Goodison Park would be the only one of 777’s stadiums that sells out every game and the new home they are building beside the River Mersey would be, by some margin, the best pad in the portfolio.
As one banker, who has seen the sales deck and therefore cannot speak on the record, puts it: “Without Everton, where’s the sizzle? What have they really got? A handful of small clubs, a slice of Sevilla and a basket case in Berlin.”
Another contact, who advises on club takeovers, was even more dismissive.
“The sales desk is painfully skewed — not a single flaw mentioned,” he explains. “To an idiot who has lived in a bubble, this would be a good pitch. But it omits all of the bad performances, on the pitch and financially, and uses irrelevant descriptive statistics to make things look good.”
Both 777 and Tifosy declined to comment when contacted by The Athletic in relation to the teaser presentation.
So make it make sense
It is perhaps best at this point to bring in some independent expertise. But we should stress that neither of these experts — Jeremy Steele, the chief executive of Analytics FC, and Shiv Jhangiani, a senior M&A consultant at Sportsology Group — was speaking specifically about 777.
Caveats noted, Steele is convinced that, when done well, the MCO model can work.
“There are the obvious advantages of economies of scale, creating pathways and sharing best practices from data analytics, scouting, sports science, coaching and even strategies around branding, marketing or ticketing,” says Steele.
Working with its partner Ankura Consulting Group, a global advisory firm, Analytics FC has advised a range of investors on takeovers.
“One group was attempting to leverage stadiums in high-population areas to build on its investor’s experience in the entertainment world to finance the on-pitch side of the business,” he explains.
“While a lot of the big MCO groups are built from the idea they will buy distressed assets, at a great price in good markets, and turn the club around and grow its revenue.
“Unfortunately, in both of these examples, the availability and method of selection of the clubs is in conflict with the likelihood of having synergies or specific combinations of sporting strengths. Not only does this not harness the benefits of being in an MCO group, it just creates a portfolio of companies with unlinked assets that may rise or fall independently.
“Given the difficulties of making money from any club, this seems strategically unwise unless the group is extremely confident in its ability to turn its clubs around.”
Steele believes investors would be better off carrying out what he calls “sporting due diligence” than simply focusing on the asking price.
For him, the better questions to ask are whether the club in question has a history of developing players or selling them for profit, or how dependent they are on revenues from UEFA club competitions.
“We recently audited a club in the Netherlands for an investment group,” he continues. “Both the owner and the prospective buyer were convinced this club was a great place to invest in training facilities and academy infrastructure to develop players to sell. The assumption was based mainly on the reputation the country has for player development.
“But, after creating a kind of ‘heat map’ of the country, we found that the club’s catchment area was almost a black hole, with very few top players having come from this region. The finding was certainly a surprise for the investors but influenced their decision to focus elsewhere.”
Steele wonders if enough MCO investors are doing these deep dives before they buy to see if alignment within a group really is possible, as opposed to buying first, figuring it out later.
“Red Bull has successfully aligned its clubs and its overall branding works in synergy with the parent company’s product: fast, vertical football from an energy drink manufacturer,” he adds. “Most other MCO groups do not seem to hang together in quite the same, sensible way.”
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Jhangiani agrees that the MCO model is on the march but says it is important we do not lump them all together.
“Some of the groups are more like a form of spread-betting, or portfolio diversification, rather than looking to create integrated models,” says Jhangiani.
“If we take the second type, the key point is the owners want to integrate operations across the group. They want scale and diversification. They want access to the key markets for talent and pathways to the biggest leagues for their players.
“But it is vital that you know what you are doing, and why you are doing it, before you start buying multiple clubs. We have seen plenty of examples where groups have rushed into acquisitions, before really defining what they wanted to achieve and whether the acquired club could help them achieve that.”
Jhangiani believes another common mistake is simply not having enough of the right people to make those synergies happen.
“Larger clubs cannot just swallow smaller clubs and think what’s good for the top club will work for the feeder clubs,” he warns.
“The first step has to be that you want each club to successful in its own right, otherwise you risk multiplying the losses. Most clubs run at a loss, so if you get this wrong on the way in, it can be difficult to fix further down the line.
“And if you get your human capital wrong, you are not running an integrated group at all, you just own a bunch of clubs.”
Some food for thought.
(Top photo: Wander shakes hands with Everton majority shareholder Farhad Moshiri; Peter Byrne/PA Images via Getty Images)
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