Palace Investors

By the looks of things, Palace has a new investor called Robert Franco. He has been added to the significant interest list. To be added to this list you need to have at least 10% or more shares of the club. Don’t actually know much about this person. I am not even sure which Robert Franco has invested. Is it the trader that left Glencore or the very good skiier with the same name? So let's look at the other investor's Josh Harris and David Blizter with more than 10% of the shares. 

Private Equity Background

Josh Harris is a co-founder of Apollo global management. This company invests money on behalf of its customers. So for example a quarter of their investors are public pension funds. Other investors are Finance Companies, Insurance Companies, Sovereign Funds, and Governments. Apollo at end of 2020 had $445 billion assets under management; this was up by $124 billion in the last year. So in theory at that time if they sold all of their investments they own under their investment funds they would receive $445 billion for their investors. Similarly, David Blister is Global Head of Tactical Opportunities at Blackstone. So for comparison, Blackstone had at end of 2020 had $619 billion assets under management.

How do they make money for their investors? They buy up companies that have high debts (distressed company) and struggling to pay the cost of the interest or other companies with underutilised assets or undervalued companies. So with a distressed company, they buy up the debt and they can get debt at the cheaper rate or run the business without debt. They run companies lean to ensure that there going to make more money than the previous owners and then increase the value of the company. 

The ownership of these sports teams helps build Harris and Blitzer’s personal brand. Harris’ about me page on the Apollo website has got paragraph one is about co-founding the company; the second paragraph is about Sports teams’ ownership; and after that, it’s the boards he is a member of, education and family. So the sports teams are the second most important thing about Harris to sell Apollo to investors. To change that to a former owner without making a good return may hurt their personal brand. 

In February 2019, Josh Harris sold off 1.1% of shares in Apollo for $153 Million and has 12.1% left. That’s close to how much Palace got last season in TV money. Their personal wealth will mean that they are not reliant on income from Palace. For them, it’s like having a gambling account. Personally, I try to make money from gambling, and more often than not I lose money. They know it will be difficult to make money and that is the challenge.

Other Sports teams

A common way for Private equity firms to make money is to buy up similar companies and merge the back office and support staff. They would need less staff to run the company compared to if they run as two separate companies. The company can pool resources and save money by using the same head office. The Harris Blitzer Sports Entertainment based in New Jersey own 76ers (NBA), Devils (NHL), and Dignitas (Esports). But Palace sits outside of this structure. Palaces head office and support staff roles are still based in the UK and Parish is running the company. 

So what are the advantages for HB Sports Entertainment being connected to Palace? Well, similar industry but very different culturally. For example recently in Pennsylvania in the last three years has relaxed its sports betting laws. That's the state 76ers are based. They were the first in NBA to partner with a mobile sportsbook, FOXBet in November 2019. They might enquire with Palace to find out the disadvantages and advantages of close links to gambling companies. This might not happen at the executive level but senior management level. In this example it's possible gambling could be so different from the UK to the US that information wasn't worth enquiring. 

Motivation

Josh explains his sports investments in a bloomberg interview in 2017. 

“As an investor, I try to figure out what is interesting to own. For me high single-digit growth and a little bit of leverage for an individual you make a great low double-digit return over a long long time. That might not be perfect for private equity where you have to make more than. But for an individual, it’s a fantastic thing to own.”

So Crystal Palace is a personal investment that is a business challenge that end goal is to make small amount of growth compared to the risk involved. This is not something that he would do as part of Apollo as the returns aren’t worth the risk. 

Not the day job

This is not the day job for Palace’s American Investors. For them, this is a fun long-term project. If it’s no longer fun for them they might want to sell up. At the same time they are so wealthy and this such a small investment. They could just stop paying attention to the club and let Parish run it and almost forget about it. They are not expecting a double-digit return. But we are not there yet as in the November interview Steve Parish mentioned (8mins 20 sec in) they had dipped into their own resources for the youth facilities. That the main shareholders and small shareholders are very supportive. I will come back to the small shareholders. 

It’s worth adding the way that Harris and Blizter improved the 76ers was via the draft. In America, teams don’t have youth teams. The worst teams pick the best players when they leave college. This is a painful way to improve the team. Teams that know they are not good enough will trade away the best players to get more draft picks and make the current team worst. It’s like supporting Derby in low points total season but you don’t get the release of relegation. It lasts for two or three seasons as you blood young players. Your team will be the laughing stock. They had four seasons when they were bottom or second bottom of their conference. In one of those seasons, they won only ten games and lost seventy-two. But the last two seasons they managed to get into the playoffs and got knocked out in the final eight.  This shows that they have got patience. I have seen accusations from fans that they were bad at the start (by trading away best players and not signing good free agents) to get better young players but I don’t know enough about NBA to make a comment. 

Other Investors

Harris and Blizter are the public faces but not the only investors. The main Palace holding company is based in Delaware. In this state, they don’t need to make public knowledge of who owns the shares.

 In a recent interview with Fobes, Micheal Rubin was introduced as a minority owner of Crystal Palace. Micheal is the founder of Fanatics a company that sells and makes sports merchandise for Leagues and clubs. Currently, they run the online store for PSG, Chelsea, Manchester Utd, Manchester City, Everton, and Aston Villa. Also for leagues like the MLS and NFL. They recently took over for the NFL international shop. As a customer, I was impressed with the improvement. The gear is expensive but high quality. The NFL private equity fund brought up 10% of Fanatics. This shows that NFL owners have faith in the company. This company was valued at $6.2 billion USD in August last year.   

 Micheal got his start owning a ski shop. In his first season, there was terrible winter with little snow. His shop almost went under and he noticed that a lot of shops had similar problems. He borrowed more money and brought the Ski gear from bankrupt ski shops for very cheap prices. Then sold that equipment to other shops and became a wholesale trader. Micheal is one of the few investors that I can find that wasn’t from private equity.

Micheal at the start of the pandemic he set up the all-in challenge charity. This raised over $60 million to feed America. Micheal is quoted on the website saying “I believe when the world faces a crisis, business and sports have an obligation to step up and make a difference.” 

Interestingly Fanatics don’t run Crystal Palace’s shop. Retail sports system run Palace’s online shop as well as Brighton, Fulham, Sheffield Utd, WBA, West Ham, and Wolves. See the pattern there that if the team doesn’t have international appeal as PSG or Manchester Utd then it’s not Fanatics client. On the Retail Sports System’s website, there is glowing praise from Mike Pink - Head of Consumer Sales at Palace. So the club is happy with Retail Sports Systems.

Micheal Rubin is not the only minority investor at the club. Done some googling found a couple of names that include on their LinkedIn that minority shareholders but don’t know if they are fake or legit. When the original take over it was reported in the Guardian that there were seven investors. But this group didn’t include Micheal Rubin. 

So why be a minority investor in the club? It's costing the investor a lot less and there isn't the pressure of being the person that calls all the stops. Football finance lecturer Kieran Maguire is a small shareholder of various clubs. He mentioned on a recent podcast (Price of Football) that likes getting statutory accounts early and investor reports. It gives him more insight into how the football clubs operate. It could also be tired into networking. Building up their network with people connected to football and when they are networking else where they can drop into the conversation that they part-owner of the company. To know what going on at the club and you probably have some influence.