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How Chelsea FC’s record £4bn sale is shrouded in mystery

The relief at Stamford Bridge as new owner Todd Boehly greeted a sold-out crowd in Chelsea was palpable.

The interregnum since former owner Roman Abramovich’s assets were frozen on March 22 has been nervous, destructive and destructive. Results on the pitch have suffered, key players like Antonio Rudiger may go.

Supporters have been left stumped as to how avoiding the sale of £3 match programs could stop Vladimir Putin in his tracks.

Secret: Chelsea FC's new billionaire owner Todd Boehly (pictured), owner of the Los Angeles Dodgers baseball team, is a private investor backed by private equity funds.

Secret: Chelsea FC’s new billionaire owner Todd Boehly (pictured), owner of the Los Angeles Dodgers baseball team, is a private investor backed by private equity funds.

Surprisingly, the sale process makes Chelsea Football Club the most expensive sports franchise on the planet.

The £4.3bn asking price (it has slipped as the pound has weakened in recent weeks) is more than double the £1.9bn paid by the Carolina Panthers football team, the price so far. highest reached.

But private equity interest in sports and billionaire bidders are rapidly raising the bar. A battle over the takeover of the Denver Broncos football franchise involving heirs to the Walmart fortune and a consortium involving basketball legend Magic Johnson has already reached $5 billion (£4.3 billion).

The only sports business to exceed these valuations was Liberty Media’s purchase of Formula One motorsports in a deal with an enterprise value (including debt) of £6.9bn five years ago.

Under Abramovich’s ownership, Chelsea proved they could become a trophy-winning machine. Owners of other clubs like Liverpool, with their all-time records, and Manchester City must be salivating at the potential profits if they ever decide to cash out.

The big difference in valuation for Chelsea is that the club is in some of the most expensive real estate in West London, in one of the most expensive cities in the world.

The unusual structure of the club, where Chelsea’s ground owners have a say, raises questions about whether, in contrast to Arsenal at their former Highbury ground, Stamford Bridge is immune from becoming a property opportunity.

Because Chelsea is not a public company and Boehly, owner of the Los Angeles Dodgers baseball team, is a private investor backed by secretive private equity funds, much of the details of the deal are shrouded in mystery.

Protected: In an unusual structure, the Chelsea Pitch ownership group has a say in any proposals for Chelsea's Stamford Bridge ground (pictured)

Protected: In an unusual structure, the Chelsea Pitch ownership group has a say in any proposals for Chelsea’s Stamford Bridge ground (pictured)

In transactions involving public shareholders, there are extensive disclosure requirements and documents can be hundreds of pages long.

The details of the financing are detailed, along with the remuneration and shareholding of the key executives, the tax status of those involved, as well as the fees of the advisors.

Documents like these are red meat for financial journalism. The Chelsea takeover is further complicated by the role of HM Treasury and its determination that not a penny return to the oligarch Abramovich’s pocket.

The Treasury and the Bank of England are experienced hands when it comes to seizing the financial assets of sovereign governments such as Iran, Libya or Russia.

However, when it comes to sports companies, they are amateurs, as evidenced by the ban on the sale of new tickets and valuable shirts through the Stamford Bridge megastore.

It would not have taken a financial genius to recognize that this proceeds could have been set aside and contributed to working capital during the sale process.

There is much about the deal that is unknown. The investment bank that handled the sale process, The Raine Group, is a relative newcomer to the sports world and its website declares it to be a specialist in technology, media and telecommunications.

Boehly was represented by the much more visible entity of Goldman Sachs. As an investment bank, Goldman is rarely outdone when it comes to mergers and acquisitions.

Among the questions still unanswered is: what will be the net proceeds from the sale?

Stay: The suggestion is that Marina Granovskaia (pictured) stay as director

Stay: The suggestion is that Marina Granovskaia (pictured) stay as director

And how will the authorities, Her Majesty’s Treasury and the Premier League (not known for their penetrating scrutiny, as the takeover of Newcastle by Saudi interests showed) ensure that the money reaches Ukrainian causes, as promised?

In addition, there is little clarity about what happens to the club’s £1.6bn loan provided by Camberley Investments, which is allegedly controlled by interests related to the former owner.

The suggestion is that former Chelsea chairman Bruce Buck will remain as a figurehead, while Marina Granovskaia will remain as director. But, logically, could their long relationships with Abramovich disqualify them?

The structuring of the deal, with around 60 per cent of the financing coming from California private equity giant Clearlake Capital, means that Chelsea is trading one relatively benign ‘indebted’ owner, Abramovich, for another.

Private equity owners rely on debt due to favorable tax treatment and the power of leverage (we all know this from being homeowners), allowing financial capacity far beyond the capital put at risk.

Cash is not free. Private equity owners tend to have a short time frame and offer their own investors superior returns.

The strong new interest of private capital in sports, from Six Nations Rugby to the owners of Liverpool Football Club, suggests they see undervalued assets.

They have a vested interest in success on the pitch because that also means valuations, even Chelsea’s, can improve.

Unlike sports-loving billionaires like Jim Ratcliffe of Ineos interested in trophy assets, private equity is driven by returns.

That often means cutting costs and cutting perceived waste, like soccer academies.

Boehly, from his experience with the Los Angeles Dodgers, clearly understands the value of the most intangible asset: the great pitcher or hitter.

If the same applies to his Clearlake partners, who have put up most of the cash, it will be a huge test.

It will take a powerful, challenging, well-informed and city-savvy group of independent directors, not just a decorated board, to keep California financiers at bay.

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