it follows this report yesterday at Offthepitch on the Danish authorities considering putting protocols in place for the changing environment and foriegn investment in the game in Denmark
Investors are targeting cheap Danish clubs in recognition of country's prominent youth development
25 June 2021 3:32 PM
- Uptick in foreign investment in Denmark's first and second tier shows how some local owners no longer have faith in their ability to keep up with football's growing costs.
- With cheap entry points, investors see a way to easily recoup their money with just few player sales.
- But new owners could create cultural clashes between clubs that have traditionally been in the hands of local businesspeople.
- The Danish football association has launched a review into foreign and national ownership to assess whether a type of owners' and directors' test should be implemented.
- Off The Pitch examines the often-contentious topic in the intersection of emotion and professionalism.
EMIL GJERDING NIELSON
nielson@offthepitch.com
One of the more unexpected tendencies that emerged in conjunction with the coronavirus pandemic was the influx of foreign investors in Danish football.
Five clubs in the first and second tier have since August 2020 accepted investment either wholly or in part by international groups, some of whom purport to utilise the multi-club ownership structure that has become increasingly popular.
Adding to those already in the top two divisions, ten out of 24 clubs now have significant foreign stakeholders. And that’s an unusually large number for a league that internationally doesn't necessarily hold the accolades that scream great potential for a significant return on investment.
Off The Pitch has spoken with several key stakeholders in the Nordic country's football industry to examine the simple question: What are the implications of Danish football becoming a hotspot for foreign investment?
Player development
Before entering the Danish market, Pacific Media Group (PMG) and its spokesperson, Paul Conway, closely assessed and discussed opportunities for investment with several clubs first and second tier clubs.
Ultimately the choice of the US based group, which also owns stakes in Championship club Barnsley, French AS Nancy, Belgium's KV Oostende, and Swiss FC Thun, fell on Esbjerg FC, a club in a seaport town in the country's Western part famous for its oil and offshore activities.
Having acquired a more than 50 per cent stake as part of a €4 million investment, Conway says what drew him to the club, whose academy helped develop Martin Braithwaite that now plays for FC Barcelona, was their synergy with PMG's strategy of utilising youth with the goal of selling players on for a profit.
"There is a lot of good, undervalued Danish and Scandinavian talent, and we wanted to invest in a Danish club to take advantage of that," Conway says.
And perhaps he has drawn experience from another successful investor in Danish football. British entrepreneur Tom Vernon acquired a 97.4 per cent shareholding in top tier "Europe's youngest team" FC Nordsjaelland in 2015 for the reported price of €13.5 million.
The club have since then become known for their ability to develop players as part of the firm Vernon founded, Right To Dream. The firm is an academy group with locations in Ghana and now Egypt after Vernon in January sold a majority stake to Mansour Group in a €100 million transaction.
"The regulations regarding foreign players are obviously important for investors. You can play as many foreign players in your team as you like. I also believe that we have shown in FC Nordsjaelland with our Right To Dream-project that you can play a very young team in the Danish Superliga [first tier] and still be quite successful," Vernon says.
Cheap entry points in stable economy
When you combine the potential for gains on player development with clubs that can be acquired at a relatively low cost it becomes evident to see why investors are attracted to Denmark.
"A lot of Danish clubs just about break even or are loss-making, and that means clubs are not particularly expensive when you start applying multiples. For example, if you purchase the majority of the shares in a club for €7 million it doesn't take a lot of player transfers to recoup your investment," says specialist in sports and entertainment law Frederik Bruhn, a partner at Dahl Law Firm.
The law firm acts as the house lawyer of several clubs including first tier sides Viborg FF and FC Midtjylland, who in the past month welcomed significant Danish majority and minority investors, respectively.
Bruhn himself and Dahl Law Firm have been involved in several club acquisitions and says more are on the way, while Dahl Law, in response to the recent interest, has begun work to focus on and establish a specific football M&A sub-department.
"Denmark compared to Norway and Sweden has a proven track record of attracting and developing foreign players, and many investors see the opportunity to use it as a talent incubator," Bruhn says, also highlighting the country's reputation as an open economy with little corruption that's easy to do business in.
Vernon concurs, further explaining that you "shouldn't underestimate Denmark's international reputation" as a liberal and open-minded society.
"Players can easily adapt in Danish society, so it seems like a safe bet from an investors point of view. Furthermore, people in Denmark speak English very well, so neither language is a problem even though Danish is a tough language to learn," Vernon says.
Locals being squeezed out
The amount of capital flowing into the game over the past couple of years has also started to show its impact. Clubs today have to invest more and more to remain competitive. In particular as more European competitions see clubs now having to go up against an ever-growing variety of international clubs.
Experts believe this trend is playing a significant part in the exodus of local owners who no longer see themselves being able to compete in the new football economy. For Viborg, who have been promoted to the first tier for the coming season, that development forced the board to make a difficult decision.
"With the development in both Danish and international football it has long been evident for the board that we are in need of additional capital to have a realistic chance of achieving our ambitions of becoming a stable part of the Superliga," chairman of the board Kim Nielsen said recently.
That's why the board in June accepted a €5.7 million investment for 70 per cent of the shares from a group that includes the Better Collective sports betting firm, and the owners of Notts County and Football Radar, a provider of football betting advice.
"The development in the sport both in terms of the competition but also in player wages means local investors can't keep investing," Bruhn says.
Sport business researcher and business development strategist Dr. Kenneth Cortsen from the University College of Northern Denmark also sees this trend as playing its part in the withdrawal of local businessmen.
"From a historical perspective, clubs have been dependent on capital and thereby people with deep pockets. The growing requirements to be able to compete, which will always be part of elite sport because it's about winning, mean that clubs are moving from being on local, regional or national hands to being internationally owned," Cortsen says.
Clash of cultures
The shift in ownership from local businessmen to international professionals unsurprisingly also has its challenges. First tier side Sonderjyske was in September acquired by Robert Platek, an American businessman who also owns Portuguese side Casa Pia and Serie A club Spezia.
Platek and his team has since then gotten rid of Sonderjyske's head coach, assistant coach, sporting director and head of scouting among others as part of an overhaul that has raised eyebrows among local supporters.
But while some would accuse foreign investors like the Plateks of tearing clubs up by the roots, the case of Sonderjyske could also serve as an example of the potential for optimisation that local owners don't necessarily have the cynicism to capitalise on.
Cortsen explains how football is characterised by what in technical terms is known as managerial complexity which requires a diverse set of skills and competencies to facilitate the long-term process of talent development and management on and off the pitch.
"There is a high degree of production inefficiency in football because of a recruitment practice that is unlike any other industry when it comes to the importance of balancing talent and persistence with positive human relations, employment and onboarding," Cortsen says.
And often local investors will struggle to change their mindset without someone from outside coming in with a disruptive attitude.
"Many Danish clubs are still driven by businesspeople who have a sort of con amour for running a team and perhaps forget their business sense. If you have a professional investor who doesn't in the same way have the lifeblood for the club that could in many cases be helpful in the process of streamlining the business," Bruhn says.
But in Viborg, the professional cynicism which often seems to be the modus operandi of foreign owners ultimately meant the club rejected a series of approaches from foreign investors.
"It's always been our desire to keep the club on local hands," said chairman Nielsen.
For Conway, whose PMG only took over part of Esbjerg, it's all about finding the right balance, as well as having people on the ground who know the local culture.
"In all of our clubs we have local investors who know the local culture much better than we do. But the biggest problem in European football is the leakage, and that's where we come in to say, basically, 'either you get on the train or you don't'," Conway says.
Ownership review
In response to the influx of foreign investors the Danish football association (DBU) has launched a task force to assess its implications. Bruhn, who is part of the task force, says they have been tasked with mapping the up- and downsides of the growing interest from investors in Danish football, including foreign investors, and to issue a series of recommendations on how to respond to the new reality.
He underlines the task force does not have the purpose of preventing professional investments or acquisitions, including from international investors but simply to make sure that a sustainable environment and transparency will secure clubs' continued competitiveness.
"If you look at history there aren't any foreign investors who have burned Danish football badly. On the other hand, some Danish owners have. So, history doesn't show that foreign investors are more scary than the Danish," Bruhn says.
He is backed by chief executive of the Danish football league Claus Thomsen, also the chair of the European Leagues.
"Overall, we don't distinguish between international and Danish owners. We want to make sure that there are the proper conditions for both foreign and international investors, and that there is a sound financial development in the sport," he says.
Whether that will in the future be secured through an owners' and directors' test similar to that in England is at this point not entirely clear, but Thomsen says regulation should only be introduced if it effectively solves the issue that's in need of being addressed.
UEFA is at the moment, as part of its Financial Fair Play (FFP) overhaul, looking into whether new regulations are necessary to respond to the development in ownership across Europe over the past few years.
Cortsen, however, warns that a sensible balance needs to be carefully considered before new rules are introduced.
"More regulation could distance potential investors because it's obvious that when you pay a lot of money for the keys to something you want to have as much control as possible. If you tinker with that I believe many will cool down their interest," he says.
But for Vernon, in addition to Conway, regulation could have its upsides if it helps keep the integrity of the sport.
"I think it is vital that DBU [the Danish FA] takes this development seriously and try to protect the strong football-culture in this country. As a foreigner I am not the one to tell exactly how to do it, but I believe that some sort of an ownership test could make a difference," Vernon says, adding:
"And it shouldn't be one similar to the ones we have seen in English football. They have just set up a system that is a box ticking exercise, but it doesn't prevent bad owners from gaining power and destroying value in clubs. Denmark should do something different."
Additional reporting by Kasper Kronenberg