Fenway Sports Group is about to hit its next growth spurt.
Even in the midst of a pandemic and worldwide recession — compounded locally by a Red Sox fan base left disenchanted over a payroll reset that sent superstar Mookie Betts out of town — the Boston-based global sports conglomerate is scaling up, not back.
Scooping up another North American sports franchise, be it in the NHL, NBA, NFL, WNBA, MLS, or NWSL, to join the Red Sox and Roush Fenway Racing?
FSG is looking into it.
A European soccer sibling for its thriving Liverpool Football Club?
Considering acquisitions in the sports betting, esports, and data analytics realms?
Launching a real estate venture in the heart of Boston?
Connecting the dots from a recent flurry of project announcements, pending deals, capital infusions, new investors, and power flexes indicates a long-term strategy by Fenway Sports Group focused on using increased financial brawn to expand its portfolio of properties and multiply its revenue streams.
“If two unicorns came together and collided, there’d be rainbows coming from it — I think that’s the capital markets right now and the sports industry, and even though sports is going through a relatively difficult time now, I don’t think anybody doesn’t think the future isn’t better than the past,” said Marty Conway, a member of the Georgetown University faculty focused on sports, media, and business.
“The demand right now is for sports and global sports, and there are a few places — FSG is one of those — that can return that. They’ve got the expertise, they’ve got the leverage, they’ve got the experience, and they’re in a position to make things happen.”
Taking into account FSG’s recently announced plans to co-develop four parcels of land around Fenway Park (with further expansion over the Mass Pike possible one day), the company’s vision can be seen as a bet-hedging strategy, allowing for it to grow and also allocate its new revenues to nurture properties such as the Red Sox or Liverpool, which are sustaining significant losses during the pandemic without game-day revenues.
If all of this planning helps them avoid situations such as the one with Betts, where they felt they had no choice but to trade a franchise cornerstone, then FSG’s forward-thinking strategy might be the kind a Red Sox fan could get behind.
To date, news this month that FSG could transform before the end of the year from a private to a public company by merging with the RedBall SPAC marks the most significant sign of its growth mind-set.
That transaction, which still has hurdles to clear, could inject as much as $1.5 billion of RedBall-raised capital into FSG and lift its value into large mid-cap company territory of some $8 billion.
Sensing an opportunity
In Forbes’s most recent valuations last December, FSG was valued at $6.6 billion, making it No. 3 on the sports empire list, one spot ahead of the Yankees' parent company ($6.1 billion). FSG was behind Jerry Jones’s holdings (Dallas Cowboys plus real estate, hospitality service, esports) worth $6.9 billion, and Kroenke Sports & Entertainment ($8.4 billion), owner of the Los Angeles Rams, Arsenal FC (Premier League), Denver Nuggets, and Colorado Avalanche, as well as media and real estate holdings.
In the past year, FSG already has received an undisclosed investment from one of its newer partners, the Dallas-based Arctos Sports Partners.
Some of the 20 known FSG individual partners will use the new liquidity to cash in a portion of their shares. But principal owner John Henry (who also owns the Boston Globe), chairman Tom Werner, and other partners plan to use the bulk of the money from outside investors to replenish current subsidiaries like the Red Sox and Liverpool when needed as well as spend it on new assets.
It’s not a coincidence that FSG sees this particular moment of economic volatility as one ripe for an opportunity to grow.
When the company, then known as New England Sports Ventures, started off with its $700 million purchase of the Red Sox in 2002, the sale was completed just as the US was emerging from a recession.
Forbes last valued the Red Sox at $3.3 billion.
FSG’s second-most significant splash came in 2010, when it snatched up Liverpool for $493 million soon after a global recession had left its previous owners cash-strapped.
KPMG recently valued Liverpool at $2.6 billion.
“Private equity thrives in uncertain times,” said Conway. “It’s not surprising, because that’s when a lot of folks move and sense that ‘maybe there’s some opportunity here because valuations have been hit, and if we have the cash, and access to the cash, now’s the time to move.’ ”
A new entry into European soccer, where clubs are more affordable than most North American sports franchises, could be one of FSG’s first moves.
Led by Gerry Cardinale, a private investor who sits on the board of both the Yankees' parent company and the YES network, and Oakland A’s executive Billy Beane of “Moneyball” fame, RedBall’s mission as stated in its prospectus is, in part, to acquire “sports franchises, including European football clubs, with intrinsic brand value,” as well as “sports, media and data analytics businesses.”
According to SEC filings, one of Fenway Sports Group’s limited partners, Seth Klarman, and his Baupost Group hedge fund recently invested $52 million in RedBall.
With the RedBird Capital Partners firm he leads, Cardinale purchased 85 percent of the French second-division Toulouse FC team last July. Beane is a part-owner of a second-division English team and adviser to a Dutch team.
Speculation is high as to which European club FSG might target.
Speaking on a panel in Abu Dhabi a month before both the Toulouse purchase and two months before the RedBall announcement, Cardinale spoke of attractive opportunities for soccer clubs ranked mid-level in their leagues in London, Madrid, France, and the Netherlands.
A spokesperson at RedBall did not immediately respond to requests to speak with Cardinale and Beane. FSG also declined comment on its plans.
Daniel Rascher, a sports economist and professor at the University of San Francisco, said that a club from a Spanish, French, Italian, Dutch, or Danish league, one at the bottom of the first division or top of the second, could be an attractive target.
“You could buy into those pretty inexpensively, and then it’s relegation and promotion — you buy new players, win, move up, and there you are,” said Rascher. “That’s probably their model; they just have to pick the right team and find who’s in a big market with a historical fan base but is struggling as a club for the last 10 years.”
Conflicts of interest?
European soccer does not prohibit cross-ownership of teams among the different national leagues, said sports lawyer Daniel Geey of the British Sheridans law firm, but there would be a hitch if, say, Liverpool were to meet another FSG team in a European competition.
“If they have a minority stake and can’t exert influence over the other club, that might be deemed OK, so the level of the investment might be an important element,” said Geey.
A merger of RedBall and Liverpool would require approval from Major League Baseball, which could have concerns about conflicts of interest with Beane and Cardinale. Having a baseball team go public and thus open its books also may give MLB pause, with labor negotiations with the players on a new CBA expected to be vitriolic.
MLB declined comment.
Henry, along with top executives at Manchester United and others in the Premier League, was behind the recent “Project Big Picture” plan in which the top six teams in the Premier League would secure better voting rights and bigger slices of broadcasting revenues than the other 14 teams, while distributing financial relief to second-tier teams. They’d also reduce the size of the Premier League to 18 teams.
The plan, which smelled like a power grab to the teams left out of the talks, wilted under fierce resistance.
That tempest was soon followed by Henry’s name being associated with another leaked plan, a European Super League that would leapfrog in importance over the top competition, the Champions League. The plan ensured that a team like Liverpool would become a permanent member of the league with no worries about having to qualify.
A Super League would allow Liverpool and the world’s other elite clubs to lock in lucrative revenue streams on an annual basis while also playing against each other more often in matches that would attract considerable interest and ratings.
There’s no consensus on that plan — some version may yet be formed — but Liverpool’s lead role in both restructuring plans is in part an outgrowth of its emergence as one of the top one or two teams in Europe over the last three years.
FSG is capitalizing on Liverpool’s elevated perch in the global soccer market by pursuing new broadcast, merchandising, and sponsorship opportunities around the globe, including China, as well as more investment in its Liverpool infrastructure designed to better the team on the field and increase game-day revenues.
“What FSG covets is the certainty that we get here in the West — you’re not going to get relegated out of Major League Baseball or the NBA,” said Conway. “The more you get Western and American owners involved throughout Italy and England and France, with the exception of Germany [where club ownership rules are more restrictive for outsiders], we’re going to have more of that.”
FSG has been assessing and exploring the feasibility of expanding its footprint not just in Boston but around the globe for years.
Now, its actions signal that the company stands poised to step out and turn its plans into a reality.
Michael Silverman can be reached at firstname.lastname@example.org.