On the podcast: Soccer clubs, the Super League and the future of sports investing

September 21, 2021

Joe DaGrosa, chairman of DaGrosa Capital Partners and Kapital Football Group, joins the pod to discuss why current European football club valuations present an intriguing near-term opportunity for investors and how shifting audience behaviors will impact investments in professional sports.

Plus, co-host Adam Lewis signs off for the last time and reflects on his favorite episodes, including:

Listen to all of Season 4 and subscribe to get future episodes of "In Visible Capital" on Apple Podcasts, Spotify, Google Podcasts or wherever you listen. For inquiries, please contact us at podcast@pitchbook.com.


Andrew Woodman: Welcome to the latest installment of In Visible Capital. We have with us Joe DaGrosa, chairman of DaGrosa Capital Partners, and also chairman of the Kapital Football Group vertical. Welcome to In Visible Capital, Joe, really keen to speak to you and get you on the podcast to talk about football investments in general, what you guys are doing and what Kapital Football Group is doing. Just before we get into it, if you could, tell us a bit about your background and how you came to set up Kapital Football Group.

Joe DaGrosa: Sure, it's been a long, strange road. Although I'm based in Miami, I've been down here almost 25 years. I'm originally from New York. I worked the first 10 years of my career on Wall Street, two of those as an internal auditor. For those of you who are in the internal auditing business, I'm sure like me, you're dying to get out. I spent two years there and then moved on to institutional sales. I spent the next eight years in institutional sales for Paine Webber.

Then through a wonderful case of serendipity had an opportunity to join a private equity firm in Miami to be one of the co-founders of that firm, called Maplewood Capital Partners. I've been in private equity now for 25 years, and the past four as chairman of DaGrosa Capital Partners, the firm that I founded.

Andrew: How did you get sports investments? Are you a sports fan yourself?

Joe: I am a sports fan, but I'm a fan of the New York Mets, baseball team, which is a team I grew up with, which is the second team behind the New York Yankees in New York. I've always loved sports, American football, baseball, basketball. Soccer is a newly acquired love. Really my interest was generated really looking at it first to a financial prism, even before I understood the rules of the game.

I've liked to think I've gotten a little smart over the past four or five years or so, and I've really grown to love the game now, but it really started with a view that is an inefficient market. I'm in a business, the private equity business, which is interestingly very much a seller's market right now, hard to find good deals that are proprietary, meaning that are not being auctioned.

European football, and the football business in general, is a relatively inefficient market from the perspective of it's not intermediated with a lot of investment banks, there's opportunities to have direct conversations with sellers on a one-off proprietary basis. That generally means you can find more attractive deals.

Quite frankly, from a macro perspective, when you think about how technology is rendering whole industries obsolete, our view was sports is one of those businesses that havein the case of European football a lot of clubs have been around for well over a hundred years and will likely be around another a hundred years for longer than I'll be around for sure. We figured those are pretty good places to invest.

We had a very good experience with Soccerex, which is global trade show in the world of football, which really gave us some keen insights into what was happening globally in the world of football, gave us some great connections. We had direct experience in Bordeaux. We were there for a relatively brief time, but it was a very good experience from my perspective, for sure. We were very fortunate. We sold out of our interest in December 2019, weeks before COVID hit.

We probably dodged a bullet relative to a lot of other folks in the French league, but it gave us an operating into how to run a club. Also, through Soccerex, [that] gave us a macro view on where the opportunities are, and [where] we think we'll be in the future.

Andrew: Excellent. I'm interested. I'm curious, you've called it Kapital Football Group. Now, obviously, you're an American and my understanding when I say football, it's soccer investments, but you decided not to call it a soccer group, but it is football, as I would understand it rather than as our American audience would understand it. Is that correct?

Joe: You're absolutely right, Andrew. As an American, I would probably have called it Capital Soccer Group, but we took a step back and thought about what our audience is ultimately, and it's the global football audience. Football is more appropriate in light of what we aspire to build.

Andrew: What I've heard about capital football group. Actually, we've discussed it before in a different context. What you are trying to achieve with Kapital Football Group is do something that's akin to the Manchester City football group of clubs there. Would that be correct in making that comparison? Is it a similar thing you're trying to achieve?

Joe: I think the common denominator is we would like to aggregate a portfolio of football assets. I'd say our focus is slightly different in city football group, which is number one, we're more player-centric than club-centric with the view that as we think about the opportunities going forward, particularly coming out of COVID, there's a real opportunity to build a player-centric football platform and really capitalize on the development of players.

We're seeing some interesting things happening in the world of football, particularly as it relates to identifying talent much earlier in the process and finding that talent, perhaps in markets that are not first and foremost on people's minds. In general, we believe in a multi-club ownership structure, similar to city football group. I think where we deviate is the markets we're focused on and the fact that we're more player-centric, with the view that the opportunity to generate good returns comes from being player-centric rather than club-centric.

Andrew: To be clear your background is in private equity. One of the reasons I wanted to speak to you because there's been a lot of private equity investment in football, interest in football investments and other sports actually, with CVC looking across different areas of sports. With Kapital Football Group, it wouldn't be accurate to call it private equity in the traditional sense, would it? How would you say that fits into that? Are the investments coming via fund structure, is this something out of your balance sheet?

Joe: The common denominator with private equity, private equity is simply the purchase of equity investments in private companies in a simplest sense, and that's exactly our approach. Our approach is a little bit different in that we set up a company rather than a fund. A fund, in many cases, buys dissimilar assets and needs to sell off those assets piecemeal, and then ultimately wind down the fund.

In our case, we set up a company because our view is very simple. We're buying very similar assets in the sense that they have a common denominator being in the world of football, they're synergistic, they fit together. The collection of those assets is worth more in the aggregate than they would otherwise be worth individually. We concluded a company structure was the optimal way to maximize shareholder value.

Andrew: That said, a lot of the headlines we are seeing now when it comes to private equity in football, and I'll continue using the word "football," so America which is, no I'm saying soccer, I mean football. When we are looking at private equity involvement in football at the moment, we're seeing deals like we've seen with CVC, particularly CVC have been very active in sports investments. They approached to do a deal with Serie A, they're looking at La Liga these are league investments. You are looking at acquiring clubs.

How do those investments compared? Is it still a play on media rights and content? Or is it a completely different business model when you are targeting clubs over say a league?

Joe: I think it's a little bit different. Let me start by saying, I think for global football, and certainly European football, that media rights drive revenues at the end of the day. All roads lead to those broadcasting rights revenues.

In the case of CVC and Advent and a number of other private equity firms that are looking to partner with leagues, they're really trying to get a little bit closer, ultimately, to the source of revenue. In their view, it reduced the risk profile, and it becomes far less dependent on any particular club's performance. It's really a function of the overall growth in the industry over time. That's their view.

Our view is similar in that we're not looking to be overly exposed with respect to club performance. That's why I mentioned at the outset really player-centric. Those broadcasting rights revenues ultimately drive revenues to clubs, but then you have to look at the expense side, which is, where is the money being used? It's to acquire and ultimately pay the salaries of players that accounts for the vast majority of where those revenues ultimately end up.

We're looking to CVC and the other folks are looking at the revenue side of the equation. We're looking at the expense side, where a club spending their money? The answer is they're spending it on players, and we believe we can be a little bit better, a little bit more efficient in identifying talent and ultimately monetizing that talent.

Andrew: Do you think it's easier to land deals when it comes to clubs rather than the leagues? Because it seems with the league investments where they have to get the approval of all the clubs and obviously in the case of—not to harp on about CVC, but obviously the most high-profile example recently. In Serie A, the Italian clubs have come out against that deal and it's seems to be that league and the similar things happening with Barcelona.

Do you expect as much opposition from, say, or generally just from club shareholders or fans when it comes to investing in clubs?

Joe: First of all, just to put it in perspective CVC, those guys are among the smartest folks around. If they're having trouble getting a deal done, everyone else is going to run into similar problems and probably more problems, because they're very smart guys and they thought through these issues, but the way we look at it, it's like hurting cats. It's a very tough road to go down. They've certainly experienced their challenges with the Italian league. It sounds like everyone's back at the table for what are described as another round of preliminary discussions.

In the case of La Liga, there's opposition there. It's a very challenging situation. If anyone can solve it, it's CVC, and the hat's off to them, and my hope is they ultimately will. They're smart guys, and good guys, but we're in a different ball game in terms of our focus on it. We're looking at club level owner ownership. We're looking at investments in academies and quite frankly, they're much easier deals to get done. It's not at all or nothing proposition. If a club doesn't want to sell to us, we'll go on to the next club.

The reality is, this is a very robust market if you're on the buy side right now, it's a great time to be a buyer. If you can't reach agreement with a club, then it's time to move on and find the next club, because there's plenty out there that need the capital and would like to sell. I think we have an easier job. They're swinging for the fences, and in American baseball parlance, we're looking to hit singles and doubles.

Andrew: You yourself, you've looked at particular clubs. I've heard news about Kapital Football Group looking at, for example, Newcastle United. Are you still looking for a kind of club to anchor basically the Kapital Football Groups investments? Do you expect that will be in the English Premiership League?

Joe: First, the English Premier League is the biggest and best league in the world, in my view. I don't think anyone would argue that's the biggest, and very few people would argue that it's not the best. Ultimately, it'd be great to have a position there, but we certainly don't want to overpay and it has to be a deal that makes sense.

In the meantime, since we are a player-centric platform, ultimately we want to sell to the top 30 clubs in Europe. That's where the big money is. There's a dip now, but we think in the next two to four years, the pendulum's going to swing back, and it's going to be a seller's market for talent. That's our bet as it relates to the EPL. We have no plans right now. We have been in discussions in the past, but we pride ourselves on being disciplined buyers and we just haven't seen a deal that makes sense from our perspective at this point.

Andrew: Do you expect that it will be more challenging to land a deal in the current climate, when it comes to the attitude towards external investors or financial investors in football? We all saw happened in the news with the Super League debacle and that how much fans reacted against that. Do you think that's soured sentiment towards financial investors in football? Or do you think that was just a passing? Or do you think that's made it more difficult for financial investors to get involved in football?

Joe: I think it's made financial investors reevaluate. I'm not so sure it's made it more difficult to buy from the perspective of there's plenty of willing sellers out there right now. I think it was a wakeup call to potential buyers particularly financial buyers who perhaps didn't acknowledge the importance of making sure you have the support of the fans. That's very critical in any sports business, but particularly in European football.

I think it was a wakeup call that that is another variable that a potential buyer, particularly a private equity buyer needs to factor in. It certainly affects valuation, because it's a risk and it's one of those risks that can hit on intangibles, like the brand of the private equity firm can take a hit if the perception is that they've not approached things the right way and perhaps insensitive manner.

Andrew: We already wants to get a bit more now into going back to Kapital Football Group, and when you build your platform, what does that look like? How do these investments work together and how do you find those synergies?

Let's say, for example, you have an EPL investment. You've invested in a club in Brazil, or Portugal or another region. How do you, I suppose, cross-pollinate those investments or synergize those investments to create value? For example, is it through, I don't know, content platform or a sponsorship platform? Is it through the actual players themselves? How does that work in terms of using that?

Joe: There's a core business, and then there's icing on the cake. The core business, the best way to think about it, Andrew is, it's like a manufacturing facility. You start with raw material on one end, and that raw material in our case comes from young, but extremely talented players coming out of some of the best academies in the world that we've developed relationships with.

Those young players, and the way we think about it is, in certain countries there's academies that are recruiting the top 1% of the talent in their country. Then we're looking to take the 1% of the 1%, and bring them into our manufacturing facility, and that's our clubs. Depending upon the skill level and quality of the raw material, that will determine which one of our manufacturing facilities, those players go into, meaning our clubs.

Ultimately, we want to have a great portfolio of finished product. Some of those players will help make the clubs that we've invested in successful. Other players will go on to bigger and better things. Our hope is ultimately, that they'll be sold to the top 30 clubs in Europe. Out of the called 100 clubs across the five big leagues in Europe, we think roughly 30 are the perennial spenders of capital to buy players and that's our target market for our finished product.

Andrew: Interesting. What we're really focusing in is the idea of the players as assets themselves, you will build and add value to the next when you sell to a club outside the group, is that how I'm understanding it, right?

Joe: Yes, you're understanding it exactly right, but there are ancillary benefits to the platform, and you touched on a moments ago in terms of content. We'll certainly come out of what we're doing, the ability to develop our platform with fan engagement in the clubs. In addition of players, if you think about the assets that we believe are underdeveloped across European football and football globally it's really fans and what I'll call off the pitch player engagement. We think there's some really neat and exciting opportunities that we'd like to be part of.

We'll probably do that through certain partnerships with companies that can execute better than we can. The smart thing for us to do is partner with them.

Andrew: I'm also curious about in the case of City Football Group, which is I say, it's not exactly the same to what you're doing, but it's the closest comparison I can think of at the moment. They've looked at other areas like Esports, for example, is that something that you, as a kind of another part of the group or licensing with content?

Joe: It's very interesting. Esports is a bit of a strange animal for us. It doesn't fit neatly into traditional sports. Clearly, it's an area of growth. Fan engagement is paramount there. It's something we would look at, but it's not a cornerstone to our strategy.

It may be something that comes out of what we develop over time, but the basic blocking and tackling of what we want to do for the first call 12 to 24 months is get our core portfolio of assets in place. That core portfolio, at least of the outset does not include an Esports team.

Andrew: When we actually last spoke, we discussed the differences between, for example, MLS and the EPL in the UK. The fact that, for example, in the MLS, the structure is more like what they tried to introduce with the Super League, which is a kind of teams that can't actually be relegated stay within their league. In the UK, in Europe, you've got this risk of relegation or possible outside of promotion, depending where you're investing.

Does that factor much into the way you look at these investments? Is that seen as a bigger risk when you're looking at Europe, that your teams could be relegated?

Joe: Particularly as an American, where relegation is a foreign concept. It does factor into the equation, but I think that risk is more than adequately priced into the value of football clubs in Europe relative to say MLS clubs in the United States. I think even on a risk-adjusted basis, meaning adjusting for the fact that MLS clubs can't be relegated valuations in my view are still very much in favor of European clubs or more general only non-US clubs.

Andrew: I suspect those valuations are even more attractive in Europe now, because, like we said, at the beginning, there's more distress with clubs have gone through COVID. I suppose that's something that's affecting teams across the board, but from what I'm hearing in Europe, it's a particularly acute issue with some clubs.

Joe: It is particularly acute. You've got a move on the part of leagues, federations and confederations looking how, and in some cases, federal governments looking to help clubs that problem, but it is a very acute problem therein lies the opportunity.

The way we look at it, we've been very consistent over the past 15 months in saying that, "Things were going to get worse before they get better." It turned out that that in fact, has been the case. Things are now starting to improve in terms of fans coming back into the stands, which is great, but fans coming back into the stands don't necessarily move the needle from ticketing revenue as such a small percentage of revenue for European clubs. It's all about broadcasting revenues.

I think there's a number of leagues that are facing broadcasting revenue issues, at least for the next year or two, and are therefore clubs in those leagues are going to be financially challenged. Whether they can muddle their way through or whether they have to sell in order to get a capital injection, it remains to be seen.

Our view is quite simply, you've got in some cases what I'll call the walking deadthey're still around, but from a balance sheet perspective, there's no way they could ever pay off their debts. They need a capital infusion. In those cases, if the economics look right to us, we'll make a move.

Andrew: Do you feel that there's a somewhat narrow window opportunity to make those investments now, given that they're now going into a recovery period is now going to be the best time to invest? How big of that window opportunity is there to get the right club at the right price?

Joe: Look, I think 24 months from now we're going to say the window of opportunity is shut. Is it six months? Is it 12 months? Yes, you probably have that window. I think you go much beyond 12 months and that pendulum is going to swing back and you're going to see prices start moving back up, because the clubs that had problems probably dealt with them, or they have even bigger issues. I would say the next 12 months are pretty critical for anyone who wants to get in the game, figuratively speaking.

Andrew: In terms of the broadcasting revenues, and broadcasting in generalnot just broadcasting, but contentwe're also seeing some more structural long-term trends over technology. Do you see this as a significant growth area? For example, the way the technologies people use to access sports-related content, whether it's through their mobile or through something like AR or other internet-based means, is that a growth area at the moment?

Joe: That's a good question, Andrew, because I think you have two things going on concurrently. One as you're referencing is really the proliferation of devices on which content can be listened to or watched. That's a good thing. There are a lot more ways to distribute that content.

One thing that's cutting against that perhaps is the profile of viewers and their willingness to sit through a whole game. You've got a whole generation now that's coming up rather quickly that is focused on consuming content in much smaller increments. Rather than call it two 45-minute halves they would rather wait for the results and get the highlights.

I think there's a balance that's going on. I think ultimately on balance you're going to see an increase in broadcasting revenues over time. They're going to swing back. The EPL last year had their first down year in terms of broadcasting rights revenues, but the long-term trend is still up. Do I think it's a double-digit trend? No, I think it's a single-digit growth, but if they execute right, it should be 5% to 7% growth once they get things back on track and figure out how to exploit what I'll call non-match day content where I think the biggest opportunities lie.

Andrew: Are there any other thoughts you've got to share about generally the opportunity for investment in football in Europe? We've talked about that window of opportunity, but do you think as time goes on beyond that point, we are going to see an environment that's more conducive to financial investors? We going to see more say private equity participation in club investments and the kind of investments you're targeting. For example, do you envision in the future there's going to be more than one Kapital Football Group style kind of company or vehicle?

Joe: Oh, yes. No doubt that there will be other companies looking to replicate our model. Our model, quite frankly, one could argue replicates to some degree City Football Groups model, and so imitation is the sincerest form of flattery. We think what City Football Group has done is very smart in terms of diversifying their revenue base. As I mentioned earlier, they're club-centric, we're player-centric, we have a slightly different spin on things.

We think we're going to generate better risk-adjusted returns, but time will tell. [...] The capital markets abhor a vacuum, or they certainly abhor one player dominating a market, so I imagine we'll face competition at some point, and that's a healthy environment in which to operate, I think.

Andrew: OK, Joe, thank you for taking the time to come onto the podcast. It's much appreciated. Thank you for your insights.

Joe: Andrew, thank you. I really appreciate it. Thanks to your listeners.

In this episode

Joe DaGrosa headshot

Joe DaGrosa
Founder & Chairman, DaGrosa Capital Partners LLC

Joseph DaGrosa Jr. is the Founder and Chairman of DaGrosa Capital Partners LLC ("DCP"), a private equity firm based in Miami, Florida. Mr. DaGrosa has over 30 years of experience in successfully identifying and capitalizing on investment opportunities to deliver long-term value across a wide spectrum of industries including sports & entertainment, retail, food & beverage, insurance, real estate, hospitality, healthcare and aviation. To date, Mr. DaGrosa has led investments of approximately $2 billion in capitalized transactions.

Mr. DaGrosa also serves as Chairman of a number of DCP's portfolio companies, including Kapital Football Group LLC, a holding company focused on building the most sustainable and valuable player development platform in the world, as well as Soccerex Ltd, the world's largest organizer of soccer business conferences. Mr. DaGrosa also served as Chairman of GACP Sports LLC, which acquired FC Girondins de Bordeaux, a first division French soccer team.

In 2019, Mr. DaGrosa co-founded Quinn Residences, a real estate trust focused on the acquisition and development of single-family home rentals in prime rental-growth cities in the US. Quinn Residences is one of the fastest growing companies in the single-family home rental market.

Previously, Mr. DaGrosa was Co-Founder and Senior Partner at 1848 Capital Partners LLC ("1848"), where he was responsible for all aspects of the firm's private equity investments. In 2003, Mr. DaGrosa and his partners formed Heartland Food Corp. ("Heartland"), an acquisition vehicle that acquired 248 Burger King franchises out of bankruptcy, and successfully led the turnaround and sale of Heartland to GSO Capital (now part of Blackstone). In 2008, Mr. DaGrosa co-led the acquisition of Jet Support Services Inc. ("JSSI"), the largest independent provider of warranties for maintenance on private jets in the world. Mr. DaGrosa served as Vice-Chairman and Co-Chief Investment Officer of JSSI until the sale of the company in 2020 to GTCR.

Prior to 1848, Mr. DaGrosa was a Partner at Maplewood Partners LP, a Miami-based private equity firm, where he served as Chief Administrative Partner and Co-Head of Transactions. Mr. DaGrosa began his career in 1986 at Paine Webber, Inc. in the firm's Capital Markets Division.

Mr. DaGrosa serves on the board of directors for Hoy Health LLC, Soccerex Ltd, Brazil Tower Company LP and Global Crossing Airlines Group Inc. Previously, Mr. DaGrosa served on the board for Eastern Airlines Group Inc. and SMobile Systems, Inc. He also serves on the board of Camillus House, a non-profit organization focused on meeting the needs of Miami's homeless citizens.

Mr. DaGrosa holds a Bachelor of Science degree in Finance, Accounting and Statistics from Syracuse University.

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