City Football Group. Part Two - Does It Work - The Athletic

12/14/2020 City Football Group. Part two - does it work?
– The Athletic
Special report: City Football Group. Part two – does

it work?
By Sam Lee, Matt Slater and more Dec 10, 2020 62
Additional contributors: Sam Stejskal, Paul Tenorio and Ali Humayun
In the summer of 2014, Manchester City’s most senior scouts were tasked with compiling a
list of five candidates to become Melbourne City’s “Designated Player” — whose wages could
be unlimited and would not count against the Australian club’s salary cap. These were scouts
who had recently come under the umbrella of City Football Group and had been asked to add
matches between Melbourne’s A-League rivals Brisbane Roar and Sydney FC to a schedule
that had previously focused on top-level European assignments. It was not a particularly easy,
or happy, adjustment.
They managed to come up with just two names and had to be reminded, quite sternly, that
these tasks were just as pressing as their work for Manchester City’s first team. They were also
advised to treat each meeting as if Sheikh Mansour himself were in the room with them.
Fast-forward six years and the centralised team that oversees footballing operations for CFG
totals around 100 people. It is a vast operation.
https://theathletic.com/2244579/2020/12/10/cfg-manchester-new-york-city-soriano/ 1/39
12/14/2020 City Football Group. Part two - does it work? – The Athletic
The Athletic has spoken to sources across the globe to help explain the vision for CFG, why
the group has chosen certain clubs and leagues to be part of it and how its sides share
information and resources.
You can read Part I (https://theathletic.com/2244423/2020/12/09/city-football-group-

manchester/) here. In Part II, we look at how CFG identify, develop, loan and sell players,
focus on New York City FC and analyse the commercial aspect of a business whose most
valuable asset, Manchester City, is valued by US business magazine Forbes at $2.7 billion (£2
billion).
We also ask what the future is for a business which aims to become football’s version of the
all-conquering All Blacks, New Zealand’s national men’s rugby union team…
Beyond The Headline

(https://theathletic.com/podcast/220-beyond-the-headline/)
Pep Talk: What next for C...

Clip - Episode 11
(https://theathletic.com/podcast/220-beyond-the-headline/?episode=11)
:00 2:14
Recruiting players good enough for Manchester City’s first team, another CFG club or
who can be sold for profit
Players signed by — or for — CFG clubs do so under the Emerging Talent programme,
which is headed up by Brian Marwood, managing director of global football. While Txiki
Begiristain signs players for the Manchester City first team as sporting director, Marwood
seals the deals for those who will need to bide their time before ever running out at the Etihad
Stadium. In fact, most will never do so — at least, not in a City shirt.
There are three main goals when CFG sign these players: they will either be good enough to
play for Pep Guardiola’s first team, for another CFG club or they will be sold for profit. Just
one or two big sales are enough to offset the running costs of the smaller CFG clubs, even if
most players to pass through the clubs have left for free rather than for profit.
Research by The Athletic has shown 36 per cent of players to have arrived at CFG clubs since
2013 have left for free and the group has made a profit in the transfer market on only 7.5 per
cent of those players. CFG clubs have made a total loss of around £420 million in terms of
player trading, although only Manchester City are in the red. The other nine CFG clubs have
made a net profit of £19 million.
While many players have been bought by Manchester City and sent to Melbourne (19),
Spain’s Girona (16) or NYCFC (four), only one player brought into CFG under the
Emerging Talent programme to date has made an impression on the City first team:
Oleksandr Zinchenko. He was initially loaned to Dutch club PSV Eindhoven, narrowly
missed out on a further loan to Italy’s Napoli in the season he achieved his breakthrough and
then refused a £15 million domestic move to Wolverhampton Wanderers a year later.
It is rare, to say the least, for one of these players to make the grade. So how can they be
convinced that this is the right move for them?
Many players are simply happy to be signed for a club connected with Manchester City.
Sources close to several players who have been identified as “emerging talents” point out that a
big move is usually too good to turn down. City’s research has also shown players from Japan,
for example, are desperate to move to Europe rather than to other Japanese clubs. Agents,
likewise, will benefit from being known in their market as the person to do a deal with CFG.
The group is honest with the players, though, telling them that they will be loaned out
straight away after signing. Loan moves are often agreed with the third club (inside the CFG
stable or not) before the player is even formally under contract. Players and their agents
generally appreciate there is a concrete plan in place. CFG’s mooted offer to Lionel Messi, for
instance, was three years at Manchester City and then two more with their Major League
Soccer side in New York. (https://theathletic.com/2034346/2020/09/01/messi-man-city-ffp/)
Over the years, CFG’s central team has analysed the careers of many successful, big-name
players to try to establish a framework that can be replicated. For example, they can look at
the career paths taken by Cristiano Ronaldo or Son Heung-min and plot loans for their
players along similar lines. How many minutes have they played, and in which leagues? There
is a recognition, though, that it can never be an exact science.
The network of players is now quite something.
Angelino, for example, was signed as a youngster for Manchester City, loaned to New York
City, then left CFG for PSV Eindhoven. The Spanish full-back then returned to the
Manchester City fold via a buy-back clause in 2019 and is now likely to make his current loan
at Germany’s RB Leipzig permanent for a fee of around £16 million.
Douglas Luiz was signed from Vasco da Gama in his native Brazil, loaned to Girona for two
years and then sold to Aston Villa for £15 million in July 2019 after failing to obtain a British
work permit. He cost Manchester City around £10 million, which appears to be about the
upper limit for these deals. Pablo Moreno, an 18-year-old signed in July, cost £8 million, and
Pedro Porro was £11 million last summer.
Moreno had played for Barcelona at youth level and was signed from Juventus, with Felix
Correia, who Manchester City had signed from Sporting Lisbon in the summer of 2019,
heading in the opposite direction to Turin. Moreno is now on loan at Girona. Porro was
signed by City from Girona and, after choosing to go on loan a few days later to another
Spanish club, Valladolid, he is now on loan at Portugal’s Sporting, with whom City have an
agreement regarding youth development.
Perhaps the player from this pool with the best chance of making it to the Manchester City
first team is Yan Couto, who was signed from Brazilian side Curitiba in July for around £6
million, a figure which could double if he plays five Premier League or Champions League
games for City in the next five years. The 18-year-old right-back is hopeful that it will happen
as the pathway spelt out to him was different to most of the others: when the move was agreed
at the start of this year, he was told he would join up with City for pre-season.
This is as close to the holy grail as an Emerging Talent player can get: City are willing to take
a closer look, with a view to including them in their 25-man senior squad. The pandemic put
paid to those plans, however, and Couto is on loan at Girona now, too.
These players will be identified as part of the ongoing process of scouting for players who
could play for City’s partner clubs. The pool of players good enough to play for Guardiola’s
first team is relatively small and therefore stable, although any teenager in Europe to make a
senior debut is automatically scouted. But there are thousands and thousands of players across
the world who could play for Japan’s Yokohama, Melbourne, New York, Torque in Uruguay
and so on. CFG clubs can also ask the central team to help them identify a player to
strengthen their squad, and generally speaking, players signed directly to those clubs will
simply stay there.
Data has played a big role in the identification of talent in recent years, but there has been a
departure from this of late, in contrast to clubs such as Liverpool
(https://theathletic.com/2216701/2020/11/30/liverpool-scouting-secrets/) and Arsenal, and it
is understood there had been some conflict between CFG’s data and scouting teams.
Although the CFG scouting team is relatively small, both centrally and at individual clubs,
their reports on players are said to be very detailed. That’s partly because City’s partner clubs
will see the opposition up close several times a season, and their scouting and match analysis
know-how has already been improved by the central resources.
In the early days of the Yokohama partnership, Ayoze Perez, then at Tenerife in Spain but
now with Leicester City after a £30 million move from Newcastle United,
(https://theathletic.com/1112852/2019/08/05/ayoze-perez-interview/) was suggested by the
CFG central team but the Japanese side pressed ahead with their original plans. That is less
likely to happen some six years on.
When it comes to Emerging Talent players, Marwood and his team will negotiate with the
selling clubs, but players identified solely for a particular partner club will be left to the
relevant sporting directors.
While this is about as naked an example as is possible of player trading quite often solely for
the purposes of turning a profit, sources close to several players currently in the system, or
even those who have been moved on after failing to live up to expectations, speak highly of the
detailed nature of CFG’s planning.
For one thing, City’s loans team is considerably bigger even than other clubs with vast loan
networks, and staff stay in touch with players and agents several times a week, analysing their
performances and discussing their progress. Joleon Lescott, a former City centre-back, looks
after CFG’s defenders.
Player trading may not have been a priority in the early days of the CFG, but they have
certainly made up for lost time and its importance to the global model will only become more
pronounced in the coming years.
The City Football Group in action: A closer look at New York City FC
Ferran Soriano and Manchester City found New York attractive for all the same reasons he
and Barcelona were interested in expanding into the US a half-decade earlier.
“Where can you find interesting soccer?” Soriano said in a 2007 interview with The New York
Times. “On what level is the local competition? Is there money available to be spent? Are
people ready to spend?”
Despite the American public’s relatively low level of interest in MLS, the massive population,
ongoing demographic shifts and the high rate of participation in the sport made the country
and its No 1 league too alluring. And in New York, one of the planet’s great cities,
Manchester City were aiming for the commercial motherlode.
The greater New York area is perhaps the most important media market in the world. It’s also
the biggest population centre in the US and corporate dollars are abundant. It’s hard to
imagine a better city to move into for a European club looking to grow their global reach.
There were positives on the sporting side, too. An MLS team could become a proving ground
for younger pros and coaches already in the CFG structure and provide a potentially fertile
academy.
By November 2012, Manchester City representatives were meeting with league executives and
then-New York City mayor Michael Bloomberg about a stadium deal at Gracie Mansion, the
mayor’s official residence on the Upper East Side of Manhattan.
That meeting, which also included members of the Wilpon family, who then owned Major
League Baseball’s New York Mets, didn’t lead to any clarity on a stadium. Everyone pressed
ahead anyway.
In May 2013, the club brought baseball heavyweights the New York Yankees into the fold as a
20 per cent investor, with the idea that they would help navigate the city’s difficult political
landscape to secure a stadium somewhere in its five boroughs. A few days later, MLS
announced that Manchester City would start New York City FC as an expansion team in
2015, paying a $100 million expansion fee for the privilege. Of the 15 teams who have entered
MLS or been granted expansion slots since 2009, NYCFC is the only one to have done so
without an actionable stadium plan.
More than seven years since their expansion announcement and almost six on from their first
match, they still don’t have one.
Since its founding, NYCFC’s primary home has been the famous Yankee Stadium.
The arrangement isn’t exactly friendly for the MLS club, who reportedly pay $1 million in
rent per home match in the Bronx. The dimensions of the pitch are notoriously tight,
something that hurts the team in their quest to play expansive, attractive soccer.
Availability is a major issue, too. The club has had to move several matches over the years,
staging an October 2019 play-offs match at Citi Field, home to MLB team the New York
Mets, nearly 10 miles away in Queens as it clashed with Yankees games. They have also
played a significant portion of their 2020 home schedule at Red Bull Arena, across the
Hudson River in neighbouring New Jersey, due to COVID-19-related restrictions at Yankee
Stadium, where sightlines for fans are less than ideal.
Pep Guardiola at Yankee Stadium in July 2018 (Photo: Matt McNulty/Manchester City FC via Getty Images)
As a tenant, NYCFC have fewer available revenue streams at home games than they would in
their own stadium. They have less sponsorship inventory, no ability to host ancillary events,
fewer premium seating options — all of it adds up. Perhaps most importantly, playing home
games at Yankee Stadium and shuttling occasionally to Citi Field and Red Bull Arena gives
NYCFC a minor-league feel. It’s harder for the public to take them seriously because of this
vagabond status.
The team are closer than ever to getting into a new home, however. The New York Times
reported in February that NYCFC are nearing an agreement with the city to build a 25,000-
seat ground in the South Bronx. It would be part of a larger development not far from Yankee
Stadium. The impact of COVID-19, however, means the estimates of construction beginning
in 2022 and being completed by 2024 could potentially be pushed back by a year.
Their own stadium in New York would be a major boon to the value of the club, simply based
on the real estate appraisal, even if the venue is leased through the city. A soccer-specific
ground would likely also increase the visibility and overall interest in NYCFC, as well as add
the important match day revenue streams that are so critical to MLS and a key part of
operations for the league’s most successful clubs, including Seattle Sounders, Portland
Timbers and Atlanta United. A stadium would also give NYCFC and CFG a level of
permanence it hasn’t had since arriving in town in 2015.
Winning on the field has not been an issue for NYCFC. They have the best regular-season
record in MLS over the past five seasons. Translating that success to the champion-deciding
end of season play-offs, however, has been more difficult. New York have won just one of the
six play-off match-ups in their history.
David Lee, an Englishman who began his career working as the head of performance analysis
for Exeter City, is NYCFC’s sporting director. “We haven’t had the success in terms of
trophies that we would have wanted,” he tells The Athletic, “but I think there are so many
things that have happened that we would consider successful.
“We don’t do this often in our world, but when you actually take a step back and see what’s
been accomplished with the level of consistency in the regular season, what we’re achieving in
the academy, I think there’s been so many successes to be really, really proud of. And we know
that, hopefully, the next is us lifting a trophy.”
The early sporting returns of NYCFC as a part of the CFG web have been somewhat fruitful.
At the 2016 MLS college draft, New York traded for an English winger who had briefly
played for one of the club’s local youth affiliates: Jack Harrison. As a boy, Harrison left
Manchester United’s academy to attend the prestigious Berkshire School in Massachusetts,
roughly midway between New York and Boston. He went on to star for one season at Wake
Forest University in North Carolina, then earned a starting role at NYCFC, forming a
formidable attack alongside big-name European signings Frank Lampard and David Villa.
After recording 10 goals and three assists in his second season with New York, Harrison made
the England Under-21 team and caught the eye of his hometown club, Stoke City. Then still
a Premier League club, Stoke offered a deal worth over $15 million (£11.3 million) with add-
ons to sign him in January 2018.
“Really the conversation became, ‘OK, how much do we think Jack could be worth?’” says
Lee. “‘If we move him through CFG and we manage a loan period for him, do we think he
can be worth more than he is in New York right now?’ And I think the decision was yes, we
do think he could be more valuable if we help him with the next one to two steps of his
pathway.”
NYCFC had to first convince Harrison it was the better move but once he agreed,
Manchester City purchased him that same month for a reported fee of around $6 million
(£4.25m). Harrison was immediately loaned to second-tier Middlesbrough for the remainder
of that season, then went on loan to Leeds United, also in the Championship, for the
following campaign. He’s now in his third season on loan with the Yorkshire club
(https://theathletic.com/1236535/2019/09/25/lampards-thighs-pirlos-precision-respect-
from-villa-but-jack-harrisons-mother-is-the-biggest-star/); he helped them win promotion
last season and has started 10 of their 11 Premier League games so far in this one, missing out
only when the league’s rules dictated he had to against parent club City.
More importantly, from CFG’s perspective, Harrison’s value has increased since he moved
from New York to England. If Leeds buy him at the end of this season, CFG will likely end
up with millions more than it otherwise would if he’d been sold directly to Stoke, now a
Championship side, instead.
“That’s one of the fantastic advantages we have here. We knew Jack’s personality inside and
out because he was with us for so long, and so there’s a lot less risk … versus somebody from
outside the group,” says Lee. “So I think we all felt really confident we could help him to
improve as a player, find the right club where he could go and develop and improve and, from
the club side, be a valuable asset.”
The player exchange has worked the other way, too, with NYCFC benefitting from players
brought to MLS by CFG.
Yangel Herrera was a relatively unknown 19-year-old when he arrived in New York early in
2017 but quickly became a standout player in MLS and is now a regular for Venezuela’s
national team and Granada in La Liga, where he is again on loan from Manchester City.
Herrera in Europa League action for Granada earlier this month (Photo: David S. Bustamante/Soccrates/Getty Images)
Herrera first landed on the CFG radar when a scout spotted him at a youth international
tournament in Spain in the summer of 2016. NYCFC thought he’d be a good fit for MLS,
but his profile blew up after he starred in the 2017 Under-20 World Cup qualifiers. His
newly-elevated status meant MLS was no longer all that attractive an option.
But Manchester City changed the equation. The club had a specific plan in mind for Herrera:
He would sign for City, then spend the first two seasons of his contract on loan in New York.
If he progressed adequately in MLS, he’d move to Europe following the 2018 season. City
absorbed some of his salary while he was at NYCFC, decreasing his salary cap hit, a vital part
of any deal for an MLS team. Herrera could now be sold for a tidy sum next summer.
As much as Harrison and Herrera illustrate the benefits of CFG connections, the most
valuable on-field benefits for CFG remain a work in progress. NYCFC hold homegrown
territory rights — the area from which a club holds MLS contract rights over young players
— in one of the most talent-rich areas in the United States. The New York-New Jersey region
has produced some of the best players to ever turn out for the US national team, including ex-
Man City midfielder Claudio Reyna (who was NYCFC sporting director from 2013-19),
MLS side Houston Dynamo’s current head coach Tab Ramos, former Manchester United and
Everton goalkeeper Tim Howard (https://theathletic.com/1653064/2020/03/05/tim-howard-
everton-fractures/) and ex-national team captain John Harkes.
In recent years, the region has produced several top young professionals, including New York
Red Bulls homegrown product and now RB Leipzig midfielder Tyler Adams, French club
Lille’s striker Tim Weah and Borussia Dortmund forward Gio Reyna (Claudio’s son),
(https://theathletic.com/1802307/2020/05/09/giovanni-reyna-exclusive-claudio-usmnt-
dortmund-bundesliga/) who played for the NYCFC academy but left for the German club on
a free transfer without having signed a professional deal after he turned 16.
Despite having played just four MLS games for the first team, 17-year-old defender Joe Scally
has already been sold to Borussia Monchengladbach for $2 million, a fee that could rise up to
$7 million. He’ll move to Germany on January 1. Another academy product, 20-year-old
James Sands, has become a regular starter for New York’s first team.
Like most MLS teams, NYCFC are hoping the success of a youthful group of Americans in
Europe, including Adams, Reyna, Chelsea’s Christian Pulisic, Juventus’ Weston McKennie
and Bayern Munich’s Chris Richards, as well as the success of Vancouver Whitecaps’ Canada
international Alphonso Davies at Bayern, will lead to a sharp increase in valuations for young
MLS players.
For a team in a market so flush with talent, it could become a new revenue stream. CFG also
has a head-start over other European teams in scouting the up-and-coming players rising
through the ranks in the States.
“What the ceiling is… honestly, I don’t know,” says Lee. “I think there’s just such a huge
potential in a city this size, with the amount of kids that play soccer here. The market
potential for players in New York is massive.”
New York has also become a proving ground for coaches within CFG. When Jason Kreis was
fired following the club’s disappointing 2015 debut season, CFG moved Patrick Vieira to
NYCFC from his job in charge of Manchester City’s reserve side. After two and a half
seasons, he left to take over Nice in France’s top division. Guardiola’s long-time assistant,
Domenec Torrent, took over but left following last season. So CFG brought in another coach
with whom it was familiar: Ronny Deila, a title winner with Scottish giants Celtic and
Norway’s Stromgodset.
This turnover in the coaching staff and lack of continuity may have limited NYCFC’s growth
from season to season, but their continued regular-season success also shows the benefit of
CFG’s institutional knowledge and ability to hire quality managers.
Even though they’re yet to win a trophy, NYCFC’s sporting operation is respected by
executives at other MLS teams. Several pointed to the strength of the CFG scouting network
relative to New York’s independent MLS rivals as a significant advantage, albeit while noting
that the club don’t have as clear a sporting identity as local rivals, and fellow cog in a global
sporting conglomerate, New York Red Bulls. This was a view echoed by sources within the
Red Bull group, which sees itself as distinct from CFG because its franchises are defined by a
very particular way of playing football. (https://theathletic.com/2122577/2020/10/07/how-
hiring-gerhard-struber-aligns-new-york-red-bulls-with-their-sister-clubs/)
Of course, just how fast NYCFC can grow and just how much CFG can get out of their New
York team are limited by MLS’s strict budget and roster rules. The salary budget, limit on the
number of international players and other, more complex rules governing MLS don’t put
NYCFC at a disadvantage relative to their domestic competition (all MLS teams play under
the same rules, after all), but do mean they can’t field a team full of players such as Herrera,
for instance. A team full of marquee names like Villa or Lampard is also out of the question.
That’s a factor in capping how much CFG can profit from New York at the box office, via
corporate sponsorships and in the transfer ledger.
That’s a bit of a point of frustration for Soriano. He sits on the MLS product strategy
committee — a group of owners who play a leading role in determining, among other things,
how much teams are allowed to spend on their rosters and how they’re allowed to spend those
sums. According to a source, Soriano has over the years consistently pushed other members of
the committee to deregulate MLS and bring it more in line with the rest of the footballing
world.
“He’ll say, ‘What we’re doing now will not achieve the aims we are setting out’,” says one
MLS source. “He has a very good feel when things are limited in scope. He has the ability to
say, ‘We won’t be competitive with these salaries; we need to spend more’. He has this
overarching view. He has a progressive voice, but he’s also practical. He sees the correlation
between spending more and generating more revenue. … He’ll say, ‘No, this is the way,
because this is the way it’s done everywhere (else)’.”
NYCFC could stand to make a bit more money and be a lot more relevant. For all of their
solid work on the sporting side, the club have yet to make many serious inroads in New York’s
sporting consciousness.
Excluding the COVID-19-affected 2020 season that was mostly played without fans, average
attendance at home games decreased year-over-year for NYCFC on three of four occasions.
Despite finishing with a club-record 64 points, the club averaged an all-time low 21,107 fans
per match in 2019. NYCFC are a long way from being the driving force behind their stated
mission of building the city of New York “into one of the soccer capitals of the world.”
Of course, CFG might not be too distressed by any of this.
MLS has seen team prices skyrocket over the last decade and CFG can point to the $325
million expansion fee that David Tepper, also the owner of the NFL’s Carolina Panthers, was
charged after he was awarded a franchise in Charlotte, North Carolina late last year.
The group is bullish on NYCFC’s prospects. A decade of losses while they rent Yankee
Stadium, the $100 million franchise fee and $500 million to build their own ground might
mean CFG is $800 million in the red in New York before it starts to make any money. But
once that new home is built, using money borrowed while interest rates are at record lows,
CFG will have the only soccer-specific stadium and MLS franchise in the five boroughs of
America’s biggest, richest city.
“We accept it’s not a great investment over five years. But if you’re looking at 15 years?” a
CFG source says. “That’s really smart and the funny thing about football is it will be there in
50 years.”
Dr Stefan Szymanski, professor of sport management at the University of Michigan and co-
author of Soccernomics, the best-selling football finance book of all time, is sceptical,
however.
“Forbes values NYCFC at $385 million,” Syzmanski tells The Athletic. “If you put $100
million into the NASDAQ in 2012 it would be worth $300 million now, without any of the
losses NYCFC has made, which must be about $100 million. Could they sell NYCFC for
$400 million?”
Five years into this experiment, NYCFC have shown glimpses of their value, but the real
gains are still yet to be realised. A move into a new stadium later this decade — and the
benefits that might come from the US co-hosting the 2026 World Cup — could begin to
truly fulfil Soriano’s vision of a potentially game-changing American market.
“We’re all obsessed with short-term investment. But there are ones which are 20 to 50 years
and maybe longer…”
Asked if he ever thinks it might be better just to run one club, Soriano said: “No, this is the
adventure, this is what we’re about. We don’t want 100 clubs. Ten is a good number. It could
be 12 or 15, but we want to be the best football organisation in the world.
“We’re long-termers. We want to achieve that today and in 10 years. If you want to be the best
football organisation in the world, can you afford to not be in China? You can’t, like any
business in the world. So those are positions that make perfect sense.”
They do make sense. But when will they start to make cents?
After six years of losses, including a £195 million deficit in the 2010-11 season which saw
Yaya Toure, Mario Balotelli, David Silva and plenty more arrive at the Etihad, Manchester
City have been making small profits since 2015. COVID-19 will scupper that, of course.
CFG cannot be blamed for that, though, and has continued to show the kind of confidence
you would expect from a company backed by people who talk about 50-year “investment
horizons”.
Manchester City had a net spend of just under £50 million in the summer transfer window
and the group also bought two more clubs, Lommel in Belgium and France’s Troyes, albeit at
what one source described as “pandemic prices”.
The underlying point is that the flagship store is, in normal trading conditions, washing its
own face. As were Girona during their two recent seasons in La Liga. The new stores,
however, in Melbourne, Mumbai, New York and Sichuan are still in expansion mode.
Melbourne’s turnover has almost doubled in five years, NYCFC’s has tripled, while the others
are yet to move the needle. Their deficits are dragging the group’s overall results into the red
— a combined £330 million for the six years to June 2019 — but City’s contribution to CFG’s
revenue has fallen every year from 100 per cent in 2014 to 85 per cent last year.
The positive underlying direction of travel is encouraging for CFG’s accountants and should
keep MLS, UEFA and any other spending regulator off its clubs’ backs for the foreseeable
future, but it is not what gets CFG’s executives excited. If you ask them when all these punts
will really pay off, including the original one in Manchester, they will say they already have
and will continue to do so long after half the companies on the stock market have disappeared.
They point to the two sales of stakes in CFG. The first came in 2015, when China Media
Capital and the CITIC group paid $400 million (£298 million) for 13 per cent of CFG. And
the second came last November, when US-based private equity firm Silver Lake shelled out
$500 million (£373 million) for 10 per cent, which diluted Sheikh Mansour’s stake to 77 per
cent.
Silver Lake’s investment implied a value of $4.8 billion (£3.6 billion) for CFG, not bad for a
group whose most valuable asset, Manchester City, is valued by Forbes at $2.7 billion (£2
billion). As one senior CFG source puts it: “There’s your return, there it is. We can replicate
that with all the other clubs and it won’t even take that long.
“We’re all obsessed with short-term investment these days. But there are medium-term
profiles and long-term ones, which are 20 to 50 years and maybe longer.”
Dr Szymanski, though, says: “Research shows investments in football have dramatically

underperformed financial markets. To claim things will be different this time requires an
explanation about what has changed. The fact that investors in clubs are wealthy individuals
with money to burn rather than pension funds suggests football — and sport, in general —
remains a vanity investment project.
“There’s certainly a case to make that the Sheikh acquired Manchester City at a good moment
— the club’s valuation has risen a lot since 2008. But since 2008, the club has reported pre-tax
losses of £695 million. If you add the acquisition cost, they’ve put in around £1 billion for an
asset valued at £2 billion. If you’d put £1 billion into the NASDAQ in 2008, your investment
would have been worth £5.7 billion by the end of 2019. There are subtleties you could add,
but the basic picture is clear.
“In the end, I don’t believe this is primarily driven by money but it’s a good strategic
investment for a small state vulnerable to much larger neighbours like Iran and Saudi Arabia.”
Manchester City Women and Melbourne City Women take part in the Fatima Bint Mubarak Ladies Sports Academy Challenge in Abu
Dhabi in 2017 (Photo: Warren Little/Getty Images)
Roger Bell and John Purcell, co-founders of financial analysis firm Vysyble, go even further.
In a detailed analysis for The Athletic, Bell and Purcell compare CFG’s performance to
Manchester United’s, a reasonable benchmark given the clubs’ rivalry and the fact United are
listed on the New York Stock Exchange.
Based on United’s most recent quarterly report, which looked at the three months to the end
of September, Bell and Purcell give England’s biggest club an enterprise value of £2.3 billion,
more than £1.4 billion less than CFG’s implied value when Silver Lake invested.
Bell and Purcell believe United’s enterprise value has fallen in recent years as the club has
reported economic losses — a failure “to cover all of the costs of doing business” — but CFG’s
economic losses have been six times as great at nearly £901 million.
“This suggests that Silver Lake has overpaid by some margin,” they say. “But what were they
buying into in the first place?”
If it were their money, the Vysyble duo would want far more clarity on CFG’s “governing
objective”. Is it to produce a return on investment? Launch franchises all over the globe?
Achieve sporting dominance? Create a marketing platform?
“The issue is perhaps best encapsulated by the phrase, ‘If you don’t know where you are going,
any road will take you there’,” they say.
Enter… the All Blacks?
So where are CFG going and how will anyone know when they get there?
Bell and Purcell aren’t sure.
“Manchester City have won the Premier League but not dominated Europe,” they say. “The
economic performance is six times worse than Manchester United’s. Commercial revenues
have stalled. The ‘team in every continent’ model has not, as yet, been imitated and does not
appear to be feeding commercial incomes to the extent whereby the returns justify the
acquisitions. And the cross-fertilisation of players and any ‘sporting ideal’ criteria are best
described as unproven.”
Soriano has been on this path longer than most though, and he will not be deterred. When
asked during his Leaders Week session earlier this year why CFG sold stakes to the Chinese
and Silver Lake, he said it was not because the group was cashing out but because it needs
“strategic partners” to get even bigger. It already lists nine commercial partners, including car
manufacturer Nissan and EA Sports, the video game producers, among its backers.
Asked what those investors saw in CFG, Soriano said: “You’ll have to ask them, but I know
they believe in our view about sports and entertainment.”
The very basic investment thesis is the world is a place with eight billion people, and the
majority of them are middle class — that’s different from 30 years ago — and need to be
entertained.
“The business of entertainment will grow and sport is a fundamental part of entertainment
and football is the number one sport, no question. So the investment will work,” said Soriano.
“In football, they tried to find the best platform and they decided it’s us, and I agree! There
might be other good platforms to invest in, a single-club platform, but they decided our model
is best, it’s the most appropriate way to invest in the growth in the middle-class population,
the growth of entertainment, the growth of sport and the growth of football within sports.”
A senior source at CFG explained it to The Athletic like this: “Pep Guardiola is the perfect
manager for us because he’s a thinker, he’s a professor, a researcher. He tries things. It’s almost
that Silicon Valley approach where you take academia and you commercialise it. That’s what
we did with the City Football Academy and why we’ve recreated it. We wanted a series of
faculties around the world.”
What’s next, then?
“Football is going to change dramatically in 10 years,” they explain. “I don’t know that we’re
going to have 25 clubs — it’s not about that — but what we will be is the go-to place.
“We’ll be the equivalent of the All Blacks with multiple centres around the world, we’ll be a
university of football. I can’t say where we’ll be exactly but we’ll be winning silverware,
producing players, producing coaches, in men’s and women’s football, and also setting the
environment. That’s what I mean about the All Blacks.”
Whether this means the various City sides around the globe are going to start performing a
Haka before games is unclear. But what looks certain is that City Football Group is only
going to get bigger, faster, smarter and, for those lined up against it, more frightening.
(Top image: Alice Devine/Tifo for The Athletic)


City Football Group. Part Two - Does It Work - The Athletic

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

City Football Group. Part Two - Does It Work - The Athletic

Uploaded by

Copyright:

Available Formats

12/14/2020 City Football Group. Part two - does it work?

Special report: City Football Group. Part two – does

By Sam Lee, Matt Slater and more Dec 10, 2020 62

Additional contributors: Sam Stejskal, Paul Tenorio and Ali Humayun

You can read Part I (https://theathletic.com/2244423/2020/12/09/city-football-group-

Beyond The Headline

Pep Talk: What next for C...

The network of players is now quite something.

ons to sign him in January 2018.

Of course, CFG might not be too distressed by any of this.

Dr Szymanski, though, says: “Research shows investments in football have dramatically

Enter… the All Blacks?

Bell and Purcell aren’t sure.

What’s next, then?

(Top image: Alice Devine/Tifo for The Athletic)

You might also like