Introduction – The Context
In recent years, interest in Italian football by foreign investors has grown rapidly. Improving the economics of sports has had a profound impact on Italian football, which has been experiencing an influx of acquisitions by foreign investors. Historically a closed market to outsiders (in 2011, all Italian Serie A clubs were owned by Italians), foreigners now own 9 of the 20 clubs in Serie A.1 International interest in Italian football has also spread beyond Italy’s top league, with foreign investors purchasing various teams in Serie B and Lega Pro. This increase in investment and outside capital is helping the Italian football market experience growth after years of stagnation and to move away from being a closed, outdated and uncompetitive institution. Serie A, along with Italy’s more junior leagues, represent an exciting opportunity for investment as many teams remain grossly undervalued due to the financial impact of COVID-19, underinvestment in league infrastructure and lack of access to capital.
While Italian football admittedly has its issues, its history and unique characteristics make it particularly attractive for investment. In addition to having undervalued teams, some key differentiators include (i) lack of competition for sports viewers as Italian football dominates sports viewership (sports viewership in other European countries is typically spread across multiple sports); (ii) status as one of the Big-5 European leagues3 which attract the largest media rights, sponsorship deals and international fanbases; and (iii) the ability to exploit tourism and capitalize on visitors in cities with high tourist traffic. Furthermore, the first Italian league of women’s football recently obtained professional status. This is not only an important step for the growth of women’s football but also an opportunity for new revenue streams. All of this translates into Italian football being an exciting place to be.
Recent History of Italian Football
As professionals with expertise in M&A transactions, including in the sports industry, the authors tried to better understand the reasons underlying the unexpected and somehow counterintuitive interest in Italian football, starting with a look at the recent history of Italian football. Right after the incredible success of the nineties and first years of the millennium (Serie A had many of the top players in the world and an international audience), Serie A faced its worst crisis ever in 2006 – the infamous Calciopoli scandal. During the 15 years following Calciopoli, Serie A became a second-tier league, while the Premier League, the Bundesliga, La Liga and even the Ligue 1 were booming.
The reasons behind such decline of Italian football are quite complex, but most of them can be linked to the way Serie A and Italian clubs were managed, namely, without any common view or development strategy or entrepreneurial approach. Leading up to the COVID-19 pandemic, many Serie A (and Serie B) clubs were barely sustainable and were playing in a poorly managed league. Accordingly, the few foreign investors exploring opportunities in Serie A were more focused on the fame derived from the ownership of a football club rather than the economic aspects. Then the pandemic hit, further lowering stadium revenues and decreasing the overall value of the Calcio product. Sponsors started asking for fee reductions or to terminate sponsorship agreements and media companies started renegotiating TV rights deals. This caused a sharp decrease in club revenues and opened the doors for projects like the so-called Superleague, which would have devastated all clubs not involved in it.
So: what’s left after this perfect storm?
As we said, the answer is quite counterintuitive since such a series of events ended up presenting various opportunities which have attracted the attention of foreign investors’ (including many of the world’s most important investment funds). Foreign investors see Serie A as one of the most undervalued sports leagues in the world, with huge growth prospects and unexploited revenue streams. Further, they understand that many single clubs are distressed assets that can be purchased at low prices (compared, for example, to the price tag of sports franchises in the USA) and present an excellent opportunity for outsized returns on investment, in addition to the already mentioned local and international fame synonymous with the ownership of sports clubs.
M&A Transactions Involving Italian Football Clubs
Before starting this analysis, it should be noted that Italian Law provides special provisions relating to the legal form of professional football clubs. In particular, pursuant to Article 10 of Law no. 91 of 23 March 1991, a football club may register in its roster professional football players “only if it is incorporated in the form of joint-stock companies (società per azioni or S.p.A.) or limited liability companies (società a responsabilità limitata or S.r.l.).”
Thus, when navigating the Italian football industry, investors should always focus on the fact that professional football clubs are capital companies (società di capitali) under Italian Law, which are therefore subject both to the Italian legal regime in force for companies and to the sports system, which is parallel to and autonomous from the ordinary legal system.
The main feature differentiating Italian football clubs from other civil law companies is the “titolo sportivo”.
The “titolo sportivo” or, in English, “sports title”, is the recognition of an Italian football club by the Italian Football Association (FIGC) for meeting certain legal, economic/financial, infrastructural and sport/ related organizational conditions that allow the club to participate in the relevant championship (Serie A, Serie B or Lega Pro). The sports title acts as a sort of license or authorization that the FIGC assigns to a club and it is a unique element of the sporting order. The above-mentioned requirements for the sports title are established by the “Sistema Licenze Nazionali” (National Licensing System).6 A club’s compliance with these requirements is checked annually by the Commissione di Vigilanza sulle Società di Calcio Professionistiche (CoViSoC).
In order to prevent the manipulation of the sports title, the FIGC enacted special provisions regulating all transactions that may involve Italian professional football clubs and which may have an impact on the relevant sport titles. First of all, under Italian sports law, a club cannot transfer its sports title as a distinctive asset along with its other assets. The rationale of such a rule is as follows: the sports title, since it is a recognition by the FIGC (and not a true license), cannot be considered owned by professional clubs as their own asset and cannot, for that reason, be subject to the private law on the circulation of assets.8 FIGC Regulations focus on all M&A transactions that may indirectly affect the “titolo sportivo” of the target club involved, requiring parties to provide particular notifications and/or granting certain national football authorities with veto powers on the conclusion of the relevant transaction. All the above said, the authors will thus provide the reader with an overview of the classic extraordinary transaction in Italian football, focusing on the features of the Italian football market and its regulatory framework.
Generally speaking, investment transactions in any industry follow similar paths. Those relating to football clubs have different and additional peculiarities – navigating them effectively could be the difference between a successful deal and a problematic one.
Acquisition consists of different phases, typically starting with initial informal contacts between the parties, followed by a non-disclosure agreement and letter of intent, then due diligence and negotiations of the final agreements and, finally, the completion of the transaction (the closing). Sometimes, there is also a post-closing phase, which could either be physiological (i.e. where the agreements include postclosing undertakings or when the seller maintains aminority stake in the target) or pathological (i.e. in case of claims relating to the breach of a party’s representations and warranties).
One of the most important phases is due diligence. During the due diligence process, the acquirer should identify items that may lead to future issues (without entering into details, some examples include: pending litigations, the club’s agreements with agents which may have unusual terms or sponsorship agreements with unreliable sponsors that may turn into uncollectable receivables), using tailored due diligence checklists.
Once potential issues are identified, protections are included in the final agreements (typically the “Sale and Purchase Agreement”), which are generally the representations and warranties and the subsequent indemnification obligations of the seller. These provisions are aimed at lowering the risks that may arise from potential issues identified in the due diligence. For example, if the seller’s financial stability is doubtful, requesting the issuance of guarantees or other kinds of monetary protections like escrow payments, cover the potential liabilities of the buyer.
When applied to transactions in the sports industry, this path has to be tailored to take into account the legal framework applicable to the sports industry’s stakeholders (similar to other regulated businesses), as well as the peculiarities of the sports business. An obvious but additional layer of complexity relates to the fact that each country has its own laws. Italian football clubs are, as already said, companies whose business activity is also regulated by civil law.
Therefore, in acquisitions involving professional football clubs, the applicable sports regulations will have to be taken into account together with such civil law provisions. Of particular importance is the FIGC’s Internal Organizational Rules (NOIF), which regulate and governs the organization of the FIGC, its affiliated clubs, players, coaches, technical staff and direct stakeholders, as well as the leagues’ statutes which contain rules dedicated to the relationship of clubs/ leagues. It is well-known that many of the transactions relating to Italian football clubs carried out in recent years were structured as multi-jurisdiction deals, where the target company and the parent companies (almost always special purpose vehicles, purposedly created for the deal) were located in different countries.
This could be due to many reasons, ranging from the country of origin of the investor(s) (for various reasons, it may be easier for a foreign investor to utilize a non-Italian vehicle to purchase the shares of an Italian football club) to the specific needs relating to features of the deal which require utilizing a certain structure, e.g. the enforcement of a pledge is far easier outside of Italy; hence, if the deal is based on funding arrangements secured by a pledge, the smartest solution could be to locate the pledged entity in a country where the pledge could be easily enforced. Based on the authors’ experience, the first question foreign investors have when evaluating a potential acquisition of an Italian football club is whether such transaction must be preliminarily authorized by any public or sports authority. Unlike other countries (and unlike other extraordinary transactions – see below), no preliminary authorization is required under Italian laws, nor under the FIGC or the league’s statutes (Serie A, Serie B, Lega Pro), since the only legal requirements for a foreign owner relate to the compliance with specific KYC (Know Your Customer) and AML (Anti-Money Laundering) provisions, whose compliance with which has to be realized following the completion of the transaction.
Another essential item to be considered relates to the rules governing the licenses for a football club to participate in the Italian and UEFA competitions. The Italian licensing system has several peculiarities, mostly related to the compliance of football clubs with certain financial parameters (including, for example, the payment of the football players’ salaries and taxes), which are monitored by the CoViSoc and other requirements, such as those stipulated by the UEFA license for Italian clubs to participate to European competitions.9 Compliance with such requirements is essential since any violation could result in sanctions or, in case of extremely severe violations, ranking points deductions or even disaffiliation. From this brief summary of potential issues, it is clear that the role of legal advisors is pivotal in minimizing the legal risks relating to a potential investment in a football club. Asking the right questions from the very beginning of negotiations and knowing the best way to structure a deal can save time and money.
The KYC Process
Once an acquisition is completed, the buyer must face layers of the (unfortunately) well-known Italian bureaucracy in order to comply with the various football regulations, which may be very challenging. In order to demonstrate to the FIGC that a buyer meets certain integrity requirements and is financially sound, the buyer must provide information to an ad hoc commission called “Commissione Acquisizioni Partecipazioni Societarie” (CoAPS)10 within 15 days from the acquisition (per Article 20bis of the NOIF). In particular, the buyer should submit (i) documents evidencing the acquisition and useful for identifying the buyers;11 (ii) official documents proving that the buyer has not been charged for crimes and is not a defendant in any criminal proceedings; and (iii) a bank reference letter certifying that the buyer has ordinary dealings with the bank and certifying its creditworthiness in relation to the professional or business activity carried out by it. Such controls were implemented for transparency reasons and to ensure the acquisition of a club does not hide criminal interests or allow persons without adequate financial resources to enter the football system, both of which could damage the club and its stakeholders as well as jeopardize the relevant championship. In the event of any irregularity or deficiency in the documentation submitted, the CoAPS may ask for further documentation to be provided within a nonextendable 15-day deadline. In case of non-compliance with this deadline, the CoAPS may issue sanctions, including fines, penalties of one or more points in the standings and the obligation for the buyer to sell the purchased club, pursuant to Article 32, from par. 5 to par. 5-novies, of the FIGC Code of Sports Justice (CSJ).12 Furthermore, it should be noted that the NOIF provides periodic checks and controls, which Italian clubs are subjected to each year by CoViSoc. The controls concern the balance sheets of clubs, fulfillment of fiscal obligations and payment of players’ or employees’ salaries and their aim is to guarantee that each club participating in professional Italian football leagues is compliant.
Other Kinds of M&A Transactions involving Italian Clubs
In addition to acquisitions, Italian clubs can complete other extraordinary corporate transactions such as mergers, demergers and transfers of business. To this end, the NOIF14 provides some protection requirements that pertain to the continuity of the football club and the transferability of its sports title.
Prior to completing an extraordinary corporate transaction, the parties must receive the approval of the President of the FIGC, which “is a condition for the effectiveness of the merger, demerger or business transfer.”15 The procedure and required documentation may be modified depending on the type of transaction the club is looking to complete and, therefore, the requirements may be subject to change.
Once the application for authorization has been filed, the FIGC’s internal preliminary phase begins. The FIGC President may grant its approval only after receiving the opinion of (i) the relevant league, (ii) CoViSoc; and (iii) an ad hoc commission composed of the elected Vice Presidents, the Presidents of the three leagues and the Associations of Technical Components or their representatives, the majority of which must vote in favor of the transaction. If such authorization is granted, based on the provisions of Articles 52 and 20 of the NOIF, in the case of a merger, the new company resulting from the merger, or the surviving entity, is attributed the sports title and the seniority of affiliation16 of the company that was affiliated first. In the case of a demerger, the rules are intended to prevent such a transaction from causing a multiplication of the “titolo sportivo”. Therefore, only the entity to which the entire sports business is transferred remains affiliated with the FIGC and the “titolo sportivo” and seniority of affiliation are attributed only to such entity. Given this, such a transaction is typically unattractive since the remaining companies created from the demerger that do not hold the sport’s title will be substantially inactive.
The only quality that cannot be assigned to all the entities resulting from the split, even in the amateur sphere, is the seniority of affiliation, which remains with the existing company (in the case of a partial split) or passes to one sole beneficiary (in the case of a total split where the existing company no longer exists). Finally, in the case of a capital contribution of a football business by an entity to a wholly-owned subsidiary, only the company to which the entirety of the football business is transferred will be affiliated with the FIGC and receive the “titolo sportivo” and the seniority of affiliation.
M&A Transactions and Multiple-ownership of Clubs
A further element to take into account before proceeding with investing in Italian football is whether the same parent company already owns a club or shares of a club affiliated with the Italian Football Association. At the international level, Article 20, paragraph 2 of the FIFA Statutes (2022) stipulates that the affiliated federation (e.g. FIGC with respect to Italian football) must ensure that neither a natural person nor a legal entity (including holding companies and companies controlled by them) exercises, in any way, control over more than one club, whenever the integrity of a match or competition may be compromised.
From a European point of view, UEFA provides that its member associations must respect the principles prohibiting multi-ownerships at the national level and establish an appropriate licensing system to be issued to clubs in order to participate in European competitions.19 In Italy, multi-ownerships occur if a natural or legal person (including holding companies or subsidiaries) exercises control or influence over more than one of the clubs affiliated to the same federation whenever the integrity of a match or competition may be affected.
In particular, Article 16bis of the NOIF20 provides that it is prohibited to own or control two professional clubs, even if they take part in two different professional leagues, by the same person or by two relatives within the fourth degree. As a consequence, whenever an amateur club owned by a person who also has control of a professional club (or by one of their relatives within the fourth degree) acquires professional status, the owner of the two clubs must end this situation at least five days before the deadline set by the federal rules for filing the application for admission to the relevant professional championship. The aim of this rule which changed recently is to avoid situations that may compromise the integrity not only of one league but of the whole Italian sports system.
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