Would Boehly’s exit be a good thing for Chelsea? | The Football Boardroom

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0:56CP, good to see you. We have another episode of Made in Chelsea, the long-running saga of the Americans at Chelsea Football Club. And are they heading for a divorce in terms of events in the boardroom, the Financial Times, as you'll have read? I know it's your early morning reading. you will have read and we all read with interest about Todd Bowley one of the co-owners and Bedag Egg Barley probably possibly selling his shares was at 12.7 percent to Egg Barley and Clear Lake and what that means for the club this is absolutely your world you know the club you work there you You know these people.

1:45This was your life, these venture capitalists. What on earth is going on at Chelsea Football Club?

1:51Henry:Well, H, you're right. The Financial Times is reporting that the sort of on-off discussions between Badade Bali's Clear Lake Capital, that owns about 62 % of Chelsea, and a group of investors led by Todd Boley that owns 38 % of Chelsea, discussions are back on about a possible buyout of Boley's group by Iqbali that could lead to Iqbali becoming the sole owner of the club. This seems to be precipitated by some very significant news in the United States around one of the other Chelsea leading shareholders, a man called Mark Walter. And Mark Walter, like Todd, owns about 12.8 % of Chelsea. Mark Walter is an extremely long-running partner, associate, actually former mentor and boss of Todd Bowley.

2:50Henry:They worked together. They're joined at the hip, aren't they? They worked together, was it Guggenheim Partners initially? They did. Mark was the CEO and co-founder of Guggenheim, a very successful investment company, and Todd Bowley was the president, effectively, is number two. Together, when at Guggenheim, on the many, many business interests that firm oversaw, Todd and Mark Walter began their foray into the world of sport. And they memorably, in 2012, bought the LA Dodgers, which has turned out to be one of the most successful investments in sport anywhere in the world. Huge success has flowed from that.

3:32Henry:Todd Bowley actually set off on his own out of Guggenheim three years later. On his Todd? On his Todd. I knew you'd get that one in. But not so much because in reality, even though he left Guggenheim, set up his own firm, Eldridge, he took some of the Guggenheim businesses with him. That's important for this story. and more importantly him and Mark Walter seem to have stayed very close because together they then invested in the LA Lakers, more of that, and ultimately together in Chelsea Football Club in 2022. So Mark Walter has run into some problems in the US. These are being reported across multiple business outlets, most notably Bloomberg, the Financial Times.

4:23Henry:It has been confirmed that companies controlled by Mark Walter are under investigation by the feds and by the SEC and we should be quite clear that probes into you know probes by the feds and the SEC often lead to nothing Mr Walter's not been accused of any crimes and most importantly Chelsea Football Club has not been named in these investigations. This is in the insurance world This is his world. It is. Mark Walter and Todd were kind of pioneers in the very sleepy world of insurance in recognizing that these companies could be, their performance could be improved by, shall we say, broadening the kind of investments that these insurance companies would typically make.

5:14Henry:Now, I should say, for our listeners' benefit, those of you who've got pensions or life insurance policies, you would want to hear that insurance is one of the most regulated industries in the world. And so it should be people putting their life savings in and hoping that one day they'll get them back to fund their pension or to help their family out if they pass away. So there's strong oversight of the industry. Very strong oversight. And it's in that context that these investigations are underway. Walters insurance companies have made a number of loans to other parts of Mr. Walters empire. Those loans are being looked into.

5:55Henry:It's perfectly legal to do so. Is that common practice in that world? Increasingly so. Increasingly so. Insurance companies being used for broader investment opportunities. And as I say, that's legal. But in the case of the insurance companies controlled by Mr. Walter, they are now being investigated to understand exactly what has been going on there. Now, as I say, those investigations may or may not lead to further problems for Mr. Walter. But what is clear is that he has embarked upon in recent days a programme of selling parts of his empire to repay a number of those loans. His sporting empire or does he have other?

6:43Henry:He has a very broad business empire, but the profile assets, Henry, are those sports investments. And I think it's fair to say this story was bubbling under in the kind of, you know, bottom of the media coverage in the purely financial world for about four weeks. But the story really came into the mainstream when Mark Walter sold the L.A. Lakers last week. He's done pretty well out of them, hasn't he, in a very short period? He first invested in the Lakers in 21, bought about 20 % with Todd Bowley, by the way. And then they went up to 85 % just over a year ago, valuing the Lakers, by the way, then at what seemed like an extraordinary record valuation of about$10 billion.

7:29Henry:Lo and behold, in the last week or two, he has sold the Lakers extremely quickly at a valuation of$12.5 billion, Henry. So on paper, this was a wow, what a great investor story. He's made two and a half billion dollars in less than a year on buying the Lakers. And that is true. But what people are now joining the dots on is that the sale of the Lakers seems to be part of an organised programme by Mr Walter to sell assets and to use proceeds from these sales to repay loans back to these insurance companies. which are the subject of this investigation. Which leads us to Chelsea now. It does, because lo and behold, following on from the Lakers story, as I said, the FT are now confirming that discussions are ongoing between Clear Lake Capital and Todd Bowley and Mark Walter about their stake.

8:32Henry:And this is just a little technical, important point of clarification, because it would seem as though Mr Walter's desire to start to realise some of these assets for cash is a catalyst for discussions that were already speculated about, namely that Clear Lake and Todd Bowley would buy each other out one way or another. That's been in the news for a couple of years, ever since H it was first reported, that frankly, shall we say, relations between Boley and Egg Barley had gone somewhat astray. Sorry, why had they gone astray? Well, I hope the audience don't mind me saying this, but we looked into this in some detail in a long podcast on Chelsea that we put out in April.

9:23Henry:Go back and have a listen if you missed it. But in essence, when Chelsea was purchased, Todd Boley was really the deal guy. He found the deal. He led the deal. He had already been hugely successful in sport with the Dodgers deal we just talked about. And yet he knew to close the Chelsea purchase, two and a half billion pounds in an ultra competitive auction led by Reign, the investment bank. We believe there were over 20 parties lining up to try and buy Chelsea at that time. Todd Bowley and his partners, Mark Walter and one other gentleman, needed more money to close that deal. And they found it in the form of a private equity firm, Clear Lake Capital, led by two individuals, Badad Egbali and Jose Feliciano.

10:14Henry:And that partnership, that marriage, was a marriage of convenience for the purposes of buying Chelsea Football Club. And interestingly, although Bowley, Walter and Pals put up 38 % of the money and Clearlake put up 62%, perfectly understandably, actually, given that it was Todd's deal and Todd was the promoter, the lead guy on this, it would seem that they had what we call deadlock arrangements in terms of how the club would be managed going forward. In other words, Baghdad Addaali, as the chairman of Clearlake and Todd Bowley, would have to agree most important matters, both of them, for things to get done at Chelsea.

10:58Henry:And off they go. Memorably, for those of us who were in the game at the time, we all know this, Todd stepped in, came to London and literally overnight was chairman, chief executive. Sporting director. Sporting director. Kit man. Kit man. And centre forward, no, not quite, but nearly in the summer of 22. And that first year didn't go well for lots of reasons. We won't bore our audience with. Just to bore you very briefly on a snapshot of what was going on at the time. Chelsea hosted an event in the press auditorium at Cobham with Egg Barley and Boli up top, normally where the rotating cast of managers sit.

11:41I thought you meant up top as in?

11:43Henry:up top up front two forwards they only play one up front now maybe they were split strikers but that's the story but what's interesting is almost like a sort of split co-owners I mean I asked Boley a question a lot of people were sort of asking particularly to Boley because as you say he was very much the front man he was number nine and I asked him a question about actually your biggest issue is going to be the stadium everyone can talk about squads and managers but actually your biggest issue long term issue is going to be the stadium and still is and he just He didn't really sort of get to grips with it, but Egbali stepped in.

12:16And I thought I came away from that thinking Egbali is the power. They're obviously reflecting that in terms of Clear Lake steak. So just walking out of that press conference at Cobham, I thought there's an intriguing dynamic between these two. And then we have Mark Walter involved as well. It's tricky, isn't it?

12:36Henry:Yes, it is. It was by no means clear at the time that Walter was really a player here. this deal was all about Todd Boley and a private equity firm that as you say represented by Iqbali but quite clearly the money not the day-to-day and then to answer your question H what went wrong the first year went wrong and when a private equity firm has put you know a huge amount of capital in behind an entrepreneur like Todd Boley trying to turn their two and a half billion dollar purchase of Chelsea into a home run. And the first year, the team's performing badly. They're finishing much lower down the Premier League than anybody would have expected.

13:18Henry:Frankly, quite a lot of noise around the whole deal. It was only natural that the private equity firm would need to step up their involvement. And from that moment on, it became clear that Egbali was more hands-on, that they were kind of sharing power. And indeed, we started to get the sense that Egbali was becoming much more day-to-day in charge at Chelsea. And that's when it was obvious that sooner or later, their, shall we say, their differences of opinion would need to get resolved. And it looks today, to bring it right back to, you know, the news in the FT yesterday, it looks as though Todd's long-standing partner, Mr.

14:01Henry:Walter's desire to sell assets and his partnership with Todd means that Clear Lake Capital are discussing buying out not just Mr. Walter's 13 % state, but Todd's too, which would result potentially in Clear Lake controlling all of Chelsea Football Club. Throw some numbers at me. What are we looking at in terms of what they could be paying, what they could be making out of it, and key, the valuation of the whole project? God, that is such an important element, And it's why I think this is really tricky. I mean, this is really tricky. Let's start with where private equity investors start, which is, you know, how much are they in for already?

14:46Henry:I think as at today, Chelsea has about one point four billion of debt, a senior loan, about eight hundred million pounds, by the way, costing plus or minus seven percent a year in interest. Sorry, is that manageable? Is that normal? Seems quite chunky. It is pretty chunky. And then the£600 million of so-called pick loans below that. Oh, our friends, the Glazers. Yes. They love a pick. I knew you'd like a pick. They're ticking also at about 11.25%. 11? Yes. So this club has... So is this normal in your world, those sort of numbers, to take those borrowings? it's extremely normal in private equity and the controlling shareholder of Chelsea Football Club is a private equity firm and those of our audience who were listening last week to our show on Liverpool where we talked about Hicks and Gillette buying Liverpool with a 100 % mortgage and the Glazers buying Man United with 100 % mortgage in so-called leveraged buyouts Chelsea isn't a leveraged buyout in as much as below that£1.4 billion of debt invested in Chelsea today is cash equity by Clear Lake and Bollies Group I think of about£3 billion so again think of the house the house has cost about 4.4 billion pounds to acquire so far they bought the house and they've done a bit of work on it they're in for about 4.4 billion pounds of which the mortgage is about 1.4 and the equity is about 3 billion pounds so that's not too bad a balance well there's a lot of equity Let's put it that way.

16:36Henry:And this is the issue to answer your question on how Clear Lake and Bowley will be thinking about the valuation discussion.

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17:14Henry:Terms and more at applecard.com. In a potential buyout, OK? And I think it's really complicated because let me ask you a question. Let me ask you a question. Using my house analogy for... Can we use my house rather than your house because it would be slightly easier. To get... Not so many noughts. For Todd Bowley and Mark Walter to get their money back, OK, we need to sell this house, we need to sell this club at a valuation of£4.4 to£4.5 billion. pounds. Okay. And I will note before you answer my question that I think the minority investment in Liverpool in the last three days by the Bartia Bezos Severin consortium, I think that values Liverpool Football Club at about five billion sterling.

18:11Henry:And I would also note that the Jim Ratcliffe purchase of a stake in Manchester United valued Man United at maybe£5.2 to£5.5 billion, all things being equal. So again, imagine my house analogy. These houses are, maybe they're all on the same rather luxurious road in Mayfair. The Man United house with the lovely red front door went for£5 to£5.5 billion for a minority state. The Liverpool house, two doors down, another red front door, went for about£5 billion. And there's another house on the road, Chelsea, with a blue front door. To get their money back would be£4.4 to£4.5 billion. Now, as a purely football matter, in the four years since Chelsea was purchased for£2.5 billion, but now four and a half of investment.

19:13Henry:Do we think Chelsea's gone up, down or sideways in value? Well, I mean, the valuation seems to have gone up, which is extraordinary given that they finished 10th last season. They're out of Europe this season. These probably venture capitalists, private equity, don't necessarily look season by season of how they're fluctuating. They look longer term. I understand that. But from a footballing perspective, I mean, your point about mid-course correction, absolutely spot on. Chelsea have done that in terms of their coach. I'm looking at mainly from the ground up from a football perspective quickly.

19:46They've obviously got a very experienced coach in there, or a very good coach in there, in Xabi Alonso. They have got more leader types, Welbeck, Henderson, individuals like that in. They brought Morgan Rodgers in for£117 million. He's a terrific player. You can see how Chelsea are going to have a good season on the pitch. So I understand that. There's obviously the stadium issue. I mean, you compare it with Liverpool or you want to make a comparison between the numbers and Liverpool. Liverpool, A, are an iconic world club and have been for 100 odd years. Chelsea, big club, been fantastic. Obviously, the 70s, I grew up in the 70s, you know, absolutely, you know, respect for them.

20:28Then you can go back to Ted Drake and Drake's Ducklings and all that. I get that. But really, it's been the last 20 years with Chelsea and that winning mentality. Well, you worked there. The Roman Empire. You must have found it easy to sell.

20:44Henry:I did. At Chelsea. I did. I mean, I was there, you know, Pete Gabramovic in my three years. Jose came back. We won the league. Second year, Jose left. Third year, Antonio Conte came in. We won the league. So I was selling a team, three of my seasons, two of them, we were champions. And selling it on a global commercial stage. This is shirt sponsor. You name it, shirt, Nike, Yokohama tyres. They haven't got a shirt sponsor at the moment. Well, this is where I'm heading, H, OK? I wanted to see, as a student of football, whether you would make sort of on-field comparisons between Manchester United and Liverpool.

21:22Henry:And I would suggest that certainly in the four years since this group bought Chelsea, on field has not gone anywhere near as well as it did for the 18 years under Abramovich. In the Abramovich era, they were the most trophy winning team in the Premier League. And we all know, and I saw it myself, if you didn't win the title, managers got fired. The standards were win and second is nowhere. And they won a lot. And those of you who've been binging on the Mourinho documentary, it's bloody brilliant, by the way, will be reminded what an absolute machine Chelsea was in trophy acquisitions, what a collection of phenomenal players they had, some of the most illustrious coaches on the planet, including Jose by the end.

22:11Henry:It doesn't feel in pure footballing terms that it's been living up to those standards in the last four years. It may yet do, but certainly where I'm more qualified to offer an opinion, Henry, is that in financial terms, I think I could line up 100 bankers who do valuation work for a living and they would put Manchester United as a business, Liverpool as a business and Chelsea as a business side by side and 100 out of 100 would say that Chelsea is a lower value business than Manchester United, Liverpool. They would look at, crucially, I think, Manchester United and Liverpool have very substantial operating profits before player acquisition.

23:02Henry:The metric we use in the financial markets is called EBITDA, earnings before interest tax, depreciation and amortisation. Basically, how much cash a business makes before it starts investing it. and Manchester United's EBITDA is 180 million quid. Liverpool's is, I think, 140 million quid. Chelsea's is minus 100 million. Why is that? Two principal business reasons. The revenues of Manchester United and Liverpool last year were 660 million at Man U, 700 million at Liverpool. At Chelsea, they weren't even 500 million. And secondly, Chelsea's wages were much, much higher as a proportion of those lower revenues.

23:53Henry:So Chelsea is a much less profitable business and profit is one driver of value. Then you talk about other aspects of branding, global appeal, global audience, the longevity. No comparison. I do think it's a notch below Liverpool and Man United. And it's interesting you asked me about my time at Chelsea and selling the kit. I'm really proud of the fact that in those three years, my team and I were able to position Chelsea as just a notch below Man United in terms of what we were demanding. So I think Adidas paid£75 million for the Man U kit. We got Nike to pay£60 million. Chevrolet were on the Man U shirt.

24:41Henry:at the time at 55 million pounds we got yokohama to pay 42 million pounds so really you know unashamedly man united are red chelsea are blue coca-cola pepsi cola you know it was a really um and we were selling perhaps not the storied history comparable to the fame of manu or indeed liverpool at the time but a trophy winning machine based in london okay and it is intriguing mystifying bloody unbelievable to be perfectly frank that Chelsea are starting another season without a shirt sponsor not because there aren't brands that would go on the Chelsea shirt but I think the Chelsea this Chelsea ownership group have taken the view bizarrely they'd rather have no shirt sponsor than a shirt sponsor paying a number that they don't think reflects its true value they've got a new director of partnerships I noticed it was They've had a revolving cast of characters in the boardroom.

25:42Henry:Honestly, nearly as many as they've had managers. I read yesterday they've had nine coaches in four years. Well, they've got five sporting directors at the moment. And they've got Xabi Alonso who might not need that. I take your point. But it looks like they are trying to address things behind the scenes. I agree. I think we have to sort of balance criticism of certainly what looks from the outside as a bit of a mess. They do have people working hard there. they've addressed what is going on on the pitch. I'm really positive about the football side or the business side? The football side, and I'm intrigued by this approach, particularly on the commercial side.

26:24Henry:But I come back to your core question, which is if Clear Lake are looking to buy out Bowley and Mark Walter, with Mark Walter's issues in America being the catalyst for these discussions to be back on, with it being Clear Lake buying out Bowley and not the other way. We've heard repeatedly that actually Bowley would have liked to go the other way. I suspect that's on hold now. The issue is valuation. OK, the first issue is valuation, because as I have said, the break even valuation values Chelsea about four and a half billion pounds. And we read, don't we? I always talk on this show about the price talk.

27:05Henry:in the deal world, people around deals feed numbers into the marketplace. They feed numbers into the media. They let it be known. And we are reading a sort of magical£5 billion number, remarkably similar to, as I've explained to our audience, the actual valuations paid by real investors, Ratcliffe into Man U and Bezos et al into Liverpool. And I'm saying to you, objectively, Chelsea being at those levels looks to me to be a hell of a stretch on the fundamentals. And by the way, you have also mentioned the stadium issue. We look at Anfield and I compare the two. Fenway bought into Liverpool very similarly to Boley and Egbali into Chelsea, seeing an opportunity to really drive growth at Liverpool.

28:02Henry:And definitely the stadium would have been a key element of what we call the investment thesis. OK, and look how they executed on it. They had, for less than a quarter of a billion quid, less than 250 million quid, they have refurbished Anfield and taken it from 44 ,000 to 61 ,000, doubling their match day income at that football club and keeping their fans tremendously happy playing at their iconic home stadium, which I'm quite sure the vast majority of Chelsea fans would like to see happen at Stamford Bridge. The difference is you can't expand Stamford Bridge for anything like 250 million quid.