Well, this is one of the more surprising Tweets I’ve seen come across the timeline recently:
EXCLUSIVE: Liverpool have been put up for sale by Fenway Sports Group. Sale deck has been produced for interested parties. Goldman Sachs + Morgan Stanley assisting evaluation process. Unclear if deal gets done but FSG inviting offers @TheAthleticFC #LFC https://t.co/hdmPKeb1ec— David Ornstein (@David_Ornstein) November 7, 2022
If you don’t follow European soccer in general, and the English Premier League in particular, then you may be unaware that the latter is essentially being taken over by American ownership groups. When Los Angeles Dodgers minority owner Todd Boehly closed a deal to purchase Chelsea Football Club earlier this year, it meant that, for the first time in history, nearly half of all Premier League teams were controlled by American money. It’s happening elsewhere, too. Seven of Italy’s Serie A clubs are owned by Americans, and Americans own Mallorca in Spain’s La Liga, and Lyon in France’s Ligue 1, as well.
Most of these US-based owners, like John Henry, knew and cared little about soccer before buying in. But it isn’t hard to understand why they wanted to get involved with these teams nonetheless: English Premier League clubs are a big fucking deal.
We Red Sox fans are rightly proud of the size of our fanbase and our team’s place as one of the sport’s standard-bearers. Ballparks across the continent are filled with Sox fans when the team comes to town; Hollywood makes movies about us; our triumphs are used as a plot points in hit TV shows. But the truth is, compared to Premier League teams and the biggest clubs in Europe’s other major leagues, we are insignificant minnows. The Red Sox have 2.1 million followers on Instagram; Real Madrid has 127 million. The Red Sox have a team store on Jersey Street; Manchester United has team stores in Hong Kong, Mumbai, and pretty much every other rising city in Asia. The Red Sox owners box at Fenway hosts guests like Dwight Evans and Keith Lockhart. The Liverpool owners box at Anfield hosts heads of state. To own one of the biggest soccer clubs in the world is to be damn near a king.
So, then, why is John Henry selling?
We don’t know the answer to that and, in order to extract as much money from the deal as possible, he is not going to go public with an honest explanation. But here’s something to keep in mind: for as massive as these soccer clubs are, owning one is not necessarily as financially lucrative as owning an American sports team. Why? Because European soccer owners have not rigged their game’s financial structure as successfully as their American counterparts have.
Over the years, American owners have successfully implemented an endless number market constraints that have turned American professional sports teams into guaranteed profit-generators, regardless of whether the teams themselves are successful on the field. The draft suppresses wages and attempts to distribute labor equally, all but eliminating the need for ownership to invest its own capital in securing young talent. The six-year restriction on free agency allows owners to retain players for significantly less money than they would earn on the open market. The salary caps and luxury taxes artificially cap the market for labor. Pooled-television rights and revenue-sharing guarantee each team tens of millions of dollars in revenue before they sell a single ticket. And, of course, membership in the leagues is closed, meaning any given team’s market standing cannot be threatened by upstart investors.
Almost none of these market constraints exist in European soccer. The result of this is that, in order to make money as the owner of a soccer club, you need to win on the field.
There is no draft in European soccer; if you want to employ a talented 16-year-old midfielder, you have compete against every other team for his services. There are no salary caps or luxury taxes, so smaller clubs have no choice but to find a way to grow if they want to compete for top talent. And while there are pooled television rights, no team is guaranteed a cut of the television money, because no team is even guaranteed a spot in the league.
It’s this last one — European soccer’s system of promotion and relegation — that’s the most important thing to understand. There are 20 teams in the English Premier League. At the end of the season, the bottom three teams are kicked out of the club, relegated to the second tier of English soccer, instantly and massively shrinking their TV and sponsorship money. The same thing essentially happens at the top end of the standings, where the top four teams at the end of the season are invited to compete in the continent-wide Champions League. The Champions League is the single most lucrative club sports competition in the world, and revenue is divided according to each club’s performance. Last year, teams that merely made the Champions league earned approximately $50 million in doing so, while the teams that made it all the way to the final earned close to $120 million.
Under this financial structure, where profit requires winning and winning requires serious capital investment, even the biggest, most successful clubs can find themselves living on a financial knife’s edge. This is how Barcelona, one of the most famous teams in any sport in the world, finds itself nearly bankrupt at the moment, something that would be absolutely inconceivable for the Red Sox or Yankees. It’s also why owners of 12 of Europe’s biggest clubs (including John Henry’s Liverpool) attempted to create the so-called “Super League” last year. This was nothing more than an attempt to make the finances of European soccer work the same way they do in American sports; these owners were trying to ensure that they keep earning lucrative, global television money regardless of how they perform on the field.
Up to this point, John Henry has been very good at that whole performance on the field part. Liverpool won the Premier League in 2020, and has played in the Champions League for six seasons in a row, winning the whole thing in 2019 and making the final on two other occasions.
So what’s the problem? The problem is there is another type of ownership group that’s changing European soccer even more than the Americans are: the petrostates.
In 2008, Manchester City, a middling club that, as recently as 1999, had been playing all the way down in the third tier of English soccer, was purchased by an investment group effectively controlled by the government of the United Arab Emirates. Manchester City was the first of 10 different clubs that the UAE would come to purchase in 10 different countries, including the United States. In 2011, Qatar would follow suit by purchasing Paris Saint-Germain in France’s Ligue 1. And in October of last year, Newcastle United FC was purchased by the sovereign wealth fund of Saudi Arabia. These are clubs owned by countries.
These countries are pouring money and resources into their clubs at massively financially unsustainable rates for the simple reason that they are not in this to make money. They have purchased these clubs for political reasons, engaging in what has come to be known as “sportswashing” as they hope to use their involvement in sports to improve their nations’ global standing and reputation.
Traditional ownership structures simply cannot financially compete with these petrostate-controled clubs. The payroll of PSG, which has now won Ligue 1 eight times since 2013, is estimated to be close to $400 million.
While Liverpool nearly topped Manchester City for the league title last year, things have swiftly and surprisingly come crashing down this year. John Henry’s Liverpool currently sit just eighth in the Premier League table, and have recently lost to two teams in the relegation zone. We’re not even halfway through the season, but their title hopes are essentially dead. The goal for Liverpool, now, is to secure a top-four finish and a spot in next year’s Champions League.
Part of Liverpool’s struggles have been attributed to injuries and exhaustion; the team played six more games than anyone else last year as they attempted to win an unprecedented “quadruple” (titles in the Premier League, Champions League, FA Cup, and League Cup). But blame has also found it’s way to John Henry. FSG was criticized for not spending aggressively enough to improve the team in this past summer’s transfer market, with even manager Jurgen Klopp calling out ownership with language that should sound familiar to anyone on Red Sox Twitter. “Let me say it like this,” Klopp said, as Liverpool essentially sat out of the end of the transfer window, “from time to time I would be ready to risk a bit more.”
Ultimately, I believe that John Henry is selling Liverpool for the simple reason that he has no interest in risking more. It is becoming increasingly clear that petrostates will financially dominate European soccer for years to come. Henry may believe that it will not be possible for Liverpool to both compete with Manchester City and turn a profit at the same time. Cashing out now, when it looks like Liverpool’s Champions League money may dry up soon, might be the most lucrative move.
So how might this effect the Red Sox? It almost certainly won’t. You might be thinking that Henry is trying to get out of the sports empire game and, thus, that the Red Sox might be up for sale next. But that seems unlikely given that he only recently purchased the Pittsburgh Penguins and is reportedly in the market for an NBA team. If you’re thinking that the sale might impact the Red Sox payroll in any way, that’s unlikely, too. It’s a common misconception among fans that owners use their personal money to fund their teams. They don’t. Each MLB team is self-sustaining; the Red Sox payroll comes out of the Red Sox bank account, not John Henry’s.
John Henry spent years living like a European soccer king. But, ultimately, he’s an American businessman. And right now, owning Liverpool just might not be good for business.