Football M&A: The increasing importance of environmental, social and governance factors

M&A in football

In 2022 there were more than 200 merger and acquisition (M&A) transactions in sport, including a number of landmark European football club takeovers such as Chelsea, AC Milan and Olympique Lyonnais.

Whilst Deloitte’s M&A market outlook observed that general M&A activity across most sectors had slowed during the first half of 2023 relative to a buoyant 2022, deal activity within football has remained strong. Multiple transactions reported to involve clubs in Europe’s ‘big five’ leagues continue to progress, notably the exploration of strategic investment options by both Manchester United and Liverpool FC.

As noted in Deloitte’s outlook for sports investment in 2023, the plurality of investor types continues to drive competitive deal dynamics in football. Private equity funds have deployed capital into premium football assets (at both club and league level), and sports focused funds are successfully raising capital from institutional players such as pension plans and insurance companies. Other investment structures such as family offices remain active in the sector and the prominence of sovereign wealth fund ownership is increasingly apparent.

As the investor profile broadens, there remains a consistent theme of investors placing greater significance on financially sustainable ownership, as well as the emergence of a relatively new consideration in the context of football transactions – the ESG profile of the target business.

The importance of ESG factors

There is increased pressure from multiple stakeholder groups towards sporting organisations to act in an ESG-conscious manner. Some examples of stakeholder engagement on this topic in football include:

• Governing bodies: UEFA launched its Sustainable Infrastructure Guidelines in late 2022;
• Leagues: In late 2021, the Bundesliga and 2.Bundesliga announced that  mandatory sustainability criteria would be introduced into its licensing regulations;
• Regulators: who have penalised clubs for failures of governance; and
• Fans: who have voiced concerns with sponsorship arrangements tied to certain industries.

Investors are increasingly considering ESG performance of their portfolio and due diligence on this topic has been commonplace in other sectors for some time. The core objectives of such diligence is to identify:

1. Sources of ESG risk and mitigations: non-compliance with regulation or underperformance compared to peers and the ability of an organisation to adapt to reduce these risks to an acceptable level; and
2. Opportunity: including commercial advantages, cost savings (such as energy efficiency initiatives), and cost of capital savings.

It also critically assesses the ability of an organisation, right through its value chain (from its own operations to that of suppliers and fans), to respond to ESG expectations.

Per Deloitte’s future of sport publication, we believe that ESG metrics will soon be a more common feature in football’s licensing criteria, as they are in other sports such as SailGP (Impact League) and Formula 1 (via its net zero target). This adds to the increasing number of voluntary pledges seen in sport, such as the United Nation’s Sports for Climate Action Framework (which counts many football clubs as signatories). Beyond sport, ESG reporting requirements are already prevalent for listed companies and financial institutions.

ESG due diligence metrics include greenhouse gas emissions (and plans to decarbonise), diversity of workforce, affordability and accessibility, any gender pay gap and occupational health & safety concerns. ESG due diligence will also critically evaluate a target’s ESG strategy and its ability to achieve stated objectives – often, in a sporting context, these relate to the expectations of the governing body or leagues.

To ensure an informed bid can be made, ESG due diligence is required to gain a deep understanding of key suppliers and partners, identify the extent to which any historical controversies may exist that could impact the future reputation of the organisation and the quantum of investment that may be required post-transaction- all of which can be material considerations for sports businesses.

This article was originally published in the 2023 Deloitte Annual Review of Football Finance, available to download here.