49ers Investment
This is a first cut at some of the implications for Leeds United of the new investment announced today. It draws on conversations I’ve had with Club personnel over the last 12 months and has a degree of speculation where indicated. I won’t put names to conversations – if that offends, please stop reading
What Investment
The investment is a result of a link up with the San Francisco 49ers who have an investment arm called 49ers Enterprises. This company was created by the 49ers to handle outside investment opportunities for the 49ers and has already made many other investments. The company was not created just to invest in Leeds United.
How much has been invested?
The Club has yet to release this information but I’m led to believe that it is something over 10% of equity value so I’d guess at around $15m to $20m or about £12m to £15m.
All the investment is in new share equity and does not include any loans, so no debt is being loaded on the club.
Who are these Investors?
The 49ers Enterprises has Paraag Marathe as its President. Paraag is currently in charge of identifying opportunities and making investments for the 49ers. Marathe used to be Chief Operations Officer and was then President of the 49ers until 2016 and is currently chief contract negotiator for the 49ers, part of the team’s football analytics department (which covers areas such as player fitness, training and injury recovery) along with performing other football roles as well.
Paraag Marathe is credited with the development of the 49ers Levi’s Stadium and helped bring about the well-known fan experience at the stadium; he also played a critical role in the company VenueNext, whose vision is to use technology to provide a new experience for fans at sporting events.
Clearly, the 49ers and their investment arm see future equity growth at Elland Road and have created an investment fund to generate and manage their cash specifically for the investment vehicle in the USA, calling the fund “49ers Enterprises Leeds SPV”.
Can fans invest in this fund?
This fund, like similar funds in the Uk, is only open to invited high-net-worth investors and cannot be promoted on the open market, so it won’t be available for fans to invest in, unless one of us has over a million dollars spare on top of any value in our primary residence!
Of course, the individual investors behind the fund are not published and it could just be 49ers and close associates.
Didn’t we link with 49ers before?
When Leeds United previously attempted to link up with the 49ers under GFH and David Haigh’s stewardship the possibility of bringing new technology to Elland Road was mooted. That relationship petered out to nothing due to other events at Elland Road.
This link up is a new attempt to foster close relations between the 49ers and Leeds United and it remains to be seen whether it results in a technology boost at Elland Road. However, Andrea Radrizzani is known to be keen to “digitise” our stadium so I guess it’s “watch this space”!
Whilst 49ers Enterprises is headed by Marathe the man charged with day to day matters is Brano Perkovich.
Brano, like me, studied Electrical and Computer Science at University and then gained a Masters degree in Business Administration at Stanford University (I studied for an MBA at a less exotic Sheffield though!).
Perkovich has the role of Chief Investment Officer with the 49ers and is also the managing partner at Aurum Partners. Aurum Partners are an investment fund company affiliated to the 49ers and look to invest in, and manage, growth equity investment opportunities in sport and technology.
For legal reasons, just like in the Uk, the regulations for investment funds are onerous and often it is prudent to utilise a fund management company with qualified and registered professionals to promote a fund. 49ers Enterprises is fortunate that they have an affiliate management company with Perkovich on the senior management teams of both companies. The promoter for the fund is Aurum Partners who will seek any investment outside of the 49ers own resources should it be necessary.
Any change to LUFC management?
As part of the investment, Marathe has taken a directorship on the full Leeds United board. As far as I know this is a non-executive role and he will not be involved in day to day matters with an office at Elland Road.
Is this a takeover at Leeds?
The 49ers Enterprises company behind the investment in Leeds United are purely venture capitalists, with a long history of similar investments. They aim to invest in start-ups or growing sports and technology markets and they look to provide a return on the investment made by their fund investors at some point in the future. The message from the Club is that return on investment will be maximised if we get promoted. They are not a sports management company, nor is the investment coming directly from the 49ers, which means it is clear that this investment is not a pre-cursor to a takeover at Leeds United.
Andrea Radrizzani is previously on record as saying he would allow minority investment in Leeds United if the investment would help financially but, crucially, also bring skills and expertise that would allow Leeds United to progress on its path to growth and on field success. Despite all the professionals employed at Leeds United, it would be a short-sighted owner who claimed the Club is the finished article and Radrizzani accepting proven help is a sign of business strength.
Accepting help without actually paying for it and cutting a deal where, on the information available today, the “hired help” need us to succeed for them to get a return on their investment is a great business move and motivates the 49ers in every sense.
My reading of today’s events backs this up and I don’t believe any change of ownership is in the offing at any time in the medium term.
So this means Radz is skint?
I certainly don’t read it that way.
Radrizzani talked last year about bringing partners to the board if they could accelerate our return to the top of the EPL. I must admit, at the time, I doubted that he could attract finance and still maintain a large majority control given the large “egos” that seem to be flocking to the EFL with bulging wallets. However, given what we’ve learnt today it does seem like that has happened.
What does dropping to less than 100% ownership mean to Radrizzani?
Close to not a lot.
Most company decisions are taken at Board level and generally one person, one vote is in effect. The Leeds United board is now five people and only one of those is the 49ers representative. The 49ers get to speak at board meetings and must be heard, so they can sway other directors if their argument is sound but any critical, disputed decision is likely to go against them.
At shareholder level Radrizzani still has over 75% of the shares which basically means he can win any vote and control all decisions.
So what does this mean for Leeds United?
Lots and lots of things, I imagine.
Having read about the personnel involved and the changes that have happened at the 49ers Levi’s Stadium I can see that technology could be improved around Elland Road. This would hopefully include a better 4G phone signal and probably an extension of ticketless entry to the stadium but much more could be done.
Technology exists to allow replays and match analysis to phones; shopping can also be done via our phones ready to be collected after the match, even food and drink delivered to our seats; programmes can be downloaded and read without paper copies (yes, I know!) and much more to come. However, whilst these things may be welcomed by many fans they are not great money spinners. Technology for advertising via TV and streaming is advancing rapidly and being able to regionalise adverts to small sections of countries around the world has a great potential for increasing Leeds United’s revenue.
Getting a foothold in the U.S.A. which allows greater streaming and cable delivery of Leeds’s matches with state by state advertising is a goal well worth achieving – getting publicity for our Club’s name on the back of the 49ers is highly desirable and puts us on the path of competing with the top 6 EPL clubs for commercial activities.
The investment made by the 49ers will only bring them a financial return if we are successful and they now share the need to make us “famous” in the U.S.A., and around the world where their franchise is already established, if they are to make any money at all.
What about the football?
Ok, so my regular readers know I focus on money first but eventually I get to boots on grass.
I’ve asked some questions of the club and am waiting to receive some answers so some things I say about the specifics of this investment are speculation but I have had other answers earlier.
Salary Cap
Whatever has been reported previously, there is not a salary cap at Leeds United and never has been under Radrizzani.
The meaning of a report got twisted like Chinese Whispers, I think. What the Club say is that there is a pot of money that is divided up around all staff and players in as fair a way as possible and that process ended with no player on over £15k per week.
With the new investment the Club has more money available, so could increase the wage pot, and could also reduce the number of players in the squad this summer, meaning that when the pot is divided up some players are on more than £15k.
The Club will not go looking for someone to pay, say, £30k per week to as a target just because it can.
I’m told the Club will pay as much as is needed to get the right players if they come available, bearing in mind the risk involved with the player failing and the ongoing cost to the club over the length of a contract. Not a simple analysis but the player will be bought if it is deemed the Club will progress. IE recruitment is no longer about numbers but now about quality or maturity.
Does this mean no player sales this summer?
The plan to sell peripheral players who no longer fit the team’s future direction has been well publicised and will be executed. Whether fans agree with the club’s choices is another matter!
I’m also told that any player not fully behind the Club will be allowed to leave if he hands in a transfer request, no matter who they are or length of contract. It will be up to the player’s agent to provide sufficient compensation to our Club before he is released though.
Transfer Chest
There is no fixed budget that Victor Orta is working to. He has bounds within which he is expected to work but the board would authorise a deal outside those bounds if the right person cropped up.
Are we controlled by FFP?
No, no and no!
Whilst there are a few other clubs in the Championship that have run their losses up to the limits and beyond, Leeds United has been prudent in recent years, thanks to Massimo Cellino’s cost cutting and Radrizzani’s improvement in commercial income [plus Chris Wood and Charlie’s sale].
We cannot spend stupidly but we can make sensible player purchases and pay reasonable wages.
Doing what we do but do it better
The phrase above came up in a recent chat I had with someone at the Club. It related to the basics of the business at the Club and was after a discussion about this season’s accounts and our final position.
The air of failure was in the room, no one was putting a “yeah but” argument forward.
So what do we do going forward? I asked.
The atmosphere changed, confidence was there – no defeatism. The Club’s management are convinced they have a plan that will work, it’s had a dent this season but so much is going on away from the grass, that we fans don’t know about, that gives them confidence.
The plan is to carry on doing what they are doing but do things better. They know they’ve failed this season.
This investment seems to be a good move by the Club and I’m looking forward to seeing how it pans out.
BTW when any of us meet Mr Marathe his name is pronounced “mar-at-hay”!
Mike Thornton – 24th May 2018