The tortuous sale of the legendary Italian soccer club A.C. Milan to a consortium led by the previously unknown investor Li Yonghong was closed on Thursday. It's just one of a series of sales of storied soccer clubs to Chinese buyers, either closed or pending.
The purchase of A.C. Milan for €740 million ($788 million), including debt, is being funded in part by the New York City-based hedge fund Elliott Management. It is highly symbolic, after two postponements.
The sale ends the reign of former Italian Prime Minister Silvio Berlusconi, who has run what is arguably Italy's most famous club for three decades. But it is a sign of the times -- Berlusconi, a media baron, did not want to front the money necessary for the club to keep competing on the international stage.
Such sellers find ready buyers by hopping on planes to Asia. Chinese investors have spent a total of $2.4 billion, not counting the A.C. Milan deal, to buy minority or majority stakes in 23 European soccer clubs over the last three-and-a-half years, according to figures from the sports-investment firm Blackridge Cross Borders.
The size of the A.C. Milan deal has raised eyebrows, given that the club is turning a huge loss, of €89 million in 2015, and carries a hefty €220 million load of debt. A.C. Milan has not won major silverware in six years, although it has been the champion of Europe on seven occasions over the course of a history that dates to 1899.
Elliott is providing €300 million in financing to the Chinese group, Reuters reports, a consortium that has not disclosed its other shareholders. The money helped out Li, who reportedly lost several key investors after Beijing began cracking down on high-priced "trophy" acquisitions overseas, forcing him to scurry around to find the necessary funding.
But having made a €100 million nonrefundable downpayment, he was loath to pull out, according to Finance Asia. His group, Rossoneri Sport Investment Luxembourg, is paying interest of 11.5% on the Elliott loan, Finance Asia adds. The final sale was due to complete on April 14, but was brought forward a day since "4" is often viewed as unlucky in China.
Elliott likes the Chinese consortium's plans for the team, which involve ramping up its presence in Asia. Soccer teams such as Manchester United (MANU) have trodden that path to riches. The Red Devils are now worth $3.3 billion and ranked only behind Spanish giants Real Madrid and Barcelona in terms of value, according to the Forbes ranking of the world's richest soccer teams.
A.C. Milan ranks No. 12 on the Forbes list of top teams. It's worth $825 million and churns out revenue of $240 million. It is well-known in Asia, but has many fewer fans than the very top clubs.
Real Madrid, worth $3.7 billion off $695 million in revenue, has produced the most revenue of all soccer clubs for the last 11 seasons. It and Barcelona, worth $3.6 billion, remain honest-to-goodness clubs, actually owned by their members. But investors from the Middle East and Asia have pumped in billions to buy the European teams that do come on the market.
Suning Commerce Group SZ:002024 led the charge for Chinese investors, becoming the first to acquire a flagship European team. It paid $307 million for a controlling 69% stake in A.C. Milan's fierce rival, Inter Milan. Suning is part-owned by e-commerce giant Alibaba (BABA) .
Other top-tier Chinese buyers include Dalian Wanda, China's largest conglomerate and parent of the listed commercial developer Dalian Wanda Commercial Properties (DLWNY) . Wanda in 2015 bought a 20% stake in the Spanish club Atlético Madrid for $52 million.
China Media Capital, which owns the TV rights to the Chinese Super League, paid $400 million for a 13% share of Manchester City. Fosun International (FOSUY) has bought the English club Wolverhampton Wanderers.
Li was previously not known in the world of soccer, and basically an unknown even within China itself. But his emergence from obscurity to take over such a storied soccer name has precedent.
The English club Aston Villa is now owned by Chinese-born businessman Tony Xia, who the Financial Times notes is running a food-additive company that is currently posting a loss. Also in England, Lai Guochuan, head of a landscape gardening company, now owns West Bromwich Albion.
Liverpool, Chelsea, Southampton, Hull City and Reading are among the English clubs reportedly attracting interest from Chinese investors. That would be a part-share in the case of Chelsea, already owned by the Russian oil billionaire Roman Abramovich, but could involve a majority stake in the other clubs.
The issue is not just coming up with the cash to buy the club, although that's been hard enough for Li. Soccer clubs are phenomenally expensive to run. Thanks to the concentration of television cash at the top of the sport's pyramid, lesser teams struggle to compete with the heavyweights fighting it out in the Champion's League.
Instead, they must build, rather than buy teams. The fairytale model to follow is that of Thai duty-free-store magnate Vichai Srivaddhanaprabha, owner of the English club Leicester City. Thanks to wise investment in the club from the bottom up, he helped propel relegation favorites and 5,000-to-1 outsiders to the Premier League title -- perhaps the greatest-ever surprise in league soccer.
The opposite path is that of the Hong Kong-based businessman Carson Yeung, a former hair dresser turned businessman. He, through a takeover battle as complex as AC Milan's, ended up owning Birmingham City, then in the Premier League, the top tier of English soccer.
Yeung, who also had financing that was hard to trace, was instantly unpopular with fans. The club was relegated soon after he took over. Yeung was ultimately jailed in Hong Kong in 2014 for money laundering. Birmingham languish in the lower half of England's second division, and unknown in Asia.