4th August, LaLiga announces an agreement in principle with CVC that will inject 2.7 billion euros into the competition and its clubs
LaLiga announces a strategic agreement called “Boost LaLiga” with the leading global investment fund CVC which will see a cash injection of 2.7 billion euros into the competition and its clubs. This ambitious investment plan, approved unanimously today by the league’s Executive Committee (Comisión Delegada), will provide LaLiga and the Clubs with all the necessary resources to fulfil its transformation strategy to become a leading global player in the digital entertainment market, while at the same time bolstering the competition and transforming the fan experience.
This agreement aims to lead the transformation currently experienced in the global entertainment sector, and to maximize every growth opportunity available to the clubs to develop a new business model that will allow them to diversify and maximize revenues through marketing models that will help to accelerate their digital transformation. Moving from the current single-product model, based almost exclusively on the game and the sale of audiovisual rights, to a multi-product/multi-experience one with a direct relationship with fans, amplified by technology and digital and analytical capabilities. In this sense, LaLiga is already well on the way to becoming a global player, with the best entertainment content, a strong digital presence and the ability to capture and analyse data that facilitates direct omnichannel interaction with fans all over the world, with a clear focus on the optimization of their experience with the brand.
Without the bomb that Barcelona announced that Messi had left the team, this would probably be just a piece of unpopular news that no one paid attention to. Why in the eyes of Real Madrid, Barcelona and La Liga, this cooperation has such extreme opposite sides?
What is CVC
Established in 1981, CVC is a world leader in private equity and credit with $114.8 billion of assets under management, $162.7 billion of funds committed and a global network of 24 local offices: 16 across Europe and the Americas and eight in the Asia Pacific region. CVC is majority owned by its employees and led by its Managing Partners.
CVC has also invested in sports for 20 years. It has invested in well-known companies such as the World Moto Championship, F1 and Sky Bet. In February of this year, CVC invested 300 million US dollars in establishing a joint venture with the International Volleyball Federation to operate various international volleyball events jointly. In March, it spent 500 million to buy 1/7 equity in the European Six Nations Rugby Tournament.
Details of this Business Deal
CVC is a joint venture company established with La Liga to promote future broadcasting and commerce. It acquires 10% of the shares of the joint venture and does not participate in any sports games. It can be seen that the media disclosed that the construction will only be allocated according to the La Liga broadcasting income in the last seven years if capital injection is required.
Barcelona and Real Madrid can be divided between 270 and 261 million euros. However, only 15% can be used to raise the salary cap, and the rest is used for infrastructure and compensation, debt and other operational purposes.
If one accepts the invitation to invest, Barcelona will be able to increase the salary cap by about 40 million euros.
Conflict Point
La Liga and Real Madrid have very different descriptions of the essence of this transaction. In Real Madrid’s statement of opposition, the second accusation that is most likely to resonate with spectators is the expropriation of 10.95% of the club’s digital media broadcasting rights within 50 years.
According to this statement, the essence of this transaction is more like a mortgage loan rather than an equity investment
At the present season, the total annual domestic and international broadcast rights in La Liga is about 2.1 billion euros. Even if the price is not increased for half a century, the total will reach 105 billion in 50 years, and 10.95% equals 11.5 billion.
CVC decide to use today’s 2.7 billion euros in exchange for 210 million (annualized interest rate 8%) for the next 50 years.
Conclusion
Whatever happens in the future. The only thing we can guarantee is CVC's investment is not a donation. Whether it is dividends or the transfer of operational decision-making power, La Liga and Spanish football clubs have to pay something.
Because of the COVID-19, it indeed made a huge impact on all football clubs. In addition to Barcelona, there are currently six clubs in La Liga that cannot register or renew players because they do not meet the salary cap requirements and urgently need life-saving money.