Hollywood's New Multi-Million-Dollar Sports Investment Vehicle
Ryan Reynolds and Rob McElhenney are attempting to buy a 156-year old soccer club, but will their unique investment strategy work?
|Joseph Pompliano||Nov 13, 2020||5|
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From John Henry with Liverpool to Stan Kroenke at Arsenal, and a bunch of mid-level teams in between, European soccer has seen a massive influx of cash from American investors over the last two decades.
Opportunity, of course.
(📸 / Morning Post)
Unlike traditional professional sports leagues in the United States, broadcasting rights, while up 60x since 1992, still lag as a percentage of overall team revenue.
Secondly, the structure of European soccer—with promotions & relegations—presents an opportunity for American investors to dream about significant financial gain should their team improve and make the jump to higher competition.
Not to mention, the historically great franchise investment opportunities in US professional sports leagues like the NFL, NBA and MLB rarely go up for sale.
Simply put, it’s becoming an increasingly more popular and attractive investment opportunity for American investors.
Don’t believe me?
Get this — Bloomberg reports that “six teams in England’s 20-strong Premier League are at least part-owned by American investors, who have also put money into clubs in France and Italy.”
Which leads me to my next point — American investors are starting to get creative.
What do I mean?
For the last couple months, Hollywood stars Ryan Reynolds of Deadpool and Rob McElhenney of “It’s Always Sunny in Philadelphia” have been pitching the Wrexham Supporters Trust, the fan-controlled non-profit that’s owned Welch soccer club Wrexham AFC since 2011, on buying their team.
The interesting part?
Wrexham, currently in 14th place in the fifth tier of English football, isn’t good and has no clear chance of serious advancement.
So why are they doing it?
Let’s dig in…
(📸 / Metro UK)
First up — how does this work?
As a fan-controlled team since 2011, Wrexham AFC has a two part bidding process.
Ryan Reynolds and Rob McElhenney submitted an initial “vote of interst” — essentially declaring their interest to buy the team, which Wrexham Supporters Trust voted 97.5% in favor of holding talks with the Hollywood duo.
Next up — the presentation.
After being selected to present their case for ownership, Ryan Reynolds and Rob McElhenney held a video call with the 2,000+ members of Wrexham’s ownership group to discuss their financial offer, future plans for the Welch club, and more.
Here are the details:
They plan to invest ~$2.6 million in the club’s infrastructure, player contracts, and facilities.
To ensure fans they wouldn’t move the team, Reynolds and McElheeney agreed to enter into a 25-year sub-lease of the stadium for ~$150,000 annually.
They plan to increase staff, both domestically and internationally, as Reynolds told supporters he see’s Wrexham being a “global force.”
They want to film the entire process.
As part of their ownership plan, Reynolds and McElhenney want to create a “Netflix-style” documentary series which tracks their ownership purchase, investment in the club, and the teams journey back to prominence.
Think they’re kidding?
They’re not — they even filmed the presentation in case their offer is accepted.
With final votes being tallied this Sunday—Reynold’s & McElhenney need 75% approval—we’ll know shortly how Wrexham’s fan-supported ownership group feels about their offer — but with fans on social media expressing their excitement already, it’s likely to get approved.
(📸 / Wrexham)
From a financial standpoint, Ryan Reynolds and Rob McElhenney’s plan to purchase Wrexham as a media investment vehicle makes sense.
Sure, streaming providers like Netflix and Amazon Prime see value in live sports broadcasting rights, but they’ve also consistently proven to pay high content acquisition costs for sports-related documentary footage.
While consumer demand has surged, documentary style footage also allows streaming provides to increase the lifetime value of the content on their platform — unlike live sports.
For instance, check out how much streaming platforms have invested in sports documentary content in the U.K (Source):
With an increase in demand and supply lagging, sports franchises are continuing to look for ways to capitalize off their media capabilities.
Here’s what the potential economics would look like for a Wrexham streaming deal (Source):
Streaming providers would pay ~$400,000 per hour of final-cut content.
If Wrexham did an eight-part video series, they could bring in an additional $3.2 million in revenue.
At a reasonable profit margin of 25%, the club would make about $800,000.
In a typical year Wrexham losses about $400,000 on revenue of $2.7 million, meaning an additional $800,000 makes the club instantly profitable.
Not to mention, the increase in exposure would bring the club significant fiscal benefits from merchandise, sponsorships, and ticket sales.
In the end, the structure of this deal is super unique — which limits the amount of historical evidence we have to base an opinion off of.
But don’t forget — Ryan Reynolds sold his tequila brand “Aviation Gin” for $610 million, meaning if anyone understands the power of celebrity audience and distribution — it’s him.
Have a great weekend and we’ll talk Monday :)
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Bloomberg did a fantastic job breaking down the economics behind this deal — you can read their full opinion piece here, or watch the video below for more of the same.
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