AC Milan owner says private equity investment has ‘massively inflated’ sports valuations

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Private equity interest in sports teams has led to “massively inflated” valuations based on “facile notions” about the sector’s future growth, according to the US owner of Italian football club AC Milan.

Gerry Cardinale, founder of private equity firm RedBird Capital Partners, took a swipe against rivals, saying that the sector’s move into sport had been “bad for the ecosystem” because money was simply being parked in the sector with little effort to improve the performance of the underlying business.

“This is about my crowd coming into sports. The problem with my crowd is they are asset managers,” he said on stage at the IMG x RedBird Summit on Wednesday. “They just want to buy stuff, and that’s not great for intellectual property based businesses,” he said.

The rising value of media rights has driven a wave of private equity investment into leagues and teams across the world, from Indian cricket and European football to motorsport and US basketball.

But sports asset owners, Cardinale said, were too often asking investors to pay “control premium valuations for minority stakes with no governance, no information rights and no exit”. He compared it to the tech bubble where “you put an ‘e’ in front of something and everybody wants it”.

“What do [the private equity players] bring? They bring liquidity, but there’s a better way of doing it,” he said. “We’re going to need to soft land this because right now it’s massively inflated.”

Cardinale said that RedBird, with its decades of experience in sport, was different from other investors. “What I’m trying to do there is bring what I’ve learned over 30 years in America to European football. There’s a huge opportunity to return AC Milan back to where it was,” he said.

At AC Milan, Cardinale said that RedBird has pushed to improve the team’s performance both on and off the pitch. It has ambitious plans to build a new state of the art stadium to replace the club’s ageing San Siro home, which it shares with rival Inter Milan. Last year the club reported its first annual profits in 17 years.

RedBird has faced headwinds, however, with the stadium plans proving contentious, with local politicians keen for the two clubs to invest jointly in the existing facilities. Meanwhile since the AC Milan purchase, the value of Italian broadcast rights have dropped, part of a broader cooling of the market to show live football across the region.

RedBird has a range of investments in sports. It bought AC Milan from US hedge fund Elliott Management in 2022 for €1.2bn, the highest figure ever paid for a football club outside the English Premier League. The firm’s other sporting assets include stakes in the Rajasthan Royals Indian Premier League cricket franchise and Formula One team Alpine, alongside indirect shareholdings in Liverpool FC and the Boston Red Sox.

Last week the NFL, the richest sport in the world, voted to allow Ares Management, Arctos Sports Partners, Sixth Street and a consortium that includes CVC, Carlyle and Blackstone to buy up to 10 per cent of team franchises for the first time.

Private equity is already allowed to buy into most other sports. Clearlake Capital led the £2.5bn purchase of Chelsea FC in 2022, a record price for a football team anywhere in the world.

However, Cardinale warned that too many investors saw the sector as a one way bet on rising media rights.

“The reason why there’s this demand for sports exposure is because of these facile notions that sports always goes up. It’s not correlated to the macro, it’s outperformed the S&P for the last decade”, he said. “There’s merit to those arguments, but they’ve just peddling that now and everybody wants exposure to it.”

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