#2: How LeBron James got a piece of Liverpool F.C. — for free!!
A stake in sports clubs/franchises is one of the most sought after additions to the investment portfolios for the rich today. But Lebron didn't invest, he got it for free. HOW? Let's dive in!!
First, some basic background:
About Liverpool:
Liverpool F.C. is one of the biggest clubs in the world. According to the most recent list of Forbes (in April '21), Liverpool F.C. is the 5th most valuable football club in the world.
Valuation: $4.1 billion (that is, more than ₹30,000 Crores)
Revenue: $619 million (around ₹4,600 Crores)
But, it wasn’t like this back in 2010. In fact, it was a lot worse. Liverpool’s then owners Tom Hicks and George Gillett were forced to sell Liverpool, after being rendered incapable of operating it. Fans were protesting as the debts piled up. Liverpool F.C. was on the verge of bankruptcy, and so was its 118-year legacy. Fortunately, the day was saved. And so was the legacy.
Fenway Sports Group (the holding company of multiple sports organisations including Boston Red Sox and others) bought Liverpool F.C. for around £300 million (approx. ₹3,100 Crores). Not only that, but they are the biggest factor behind Liverpool doing so well both on and off-the-field. From debt-ridden to consistently profitable. Champions in 2020. How they did it, however, is a story for another day.
About LeBron James:
Well, the NBA superstar LeBron James needs no introduction. He is easily one of the best and biggest athletes in the world today. LeBron has a huge following and is one of the few globally recognisable athletes. He will surpass $1 billion (₹7,422 Crores) in career earnings this year and will join a small elite club of active athletes who have already done it. The club that includes:
Lionel Messi
Christiano Ronaldo
Tiger Woods
Floyd Mayweather
Interestingly, out of $1 billion earnings, around $700 million (~₹5,195 Crores) have come from endorsements and sponsorships. That tells a lot about the empire LeBron has built off the court. His endorsement portfolio includes the likes of AT&T, Beats, Nike, Walmart, GMC and Blaze Pizza et al.
THE DEAL (2010):
Lebron James was (as he still is) one of the hottest commodities in the world of sports in 2010. Brands wanted to associate themselves with LeBron because of his insane global reach. And his personal brand was only growing. Rapidly. LeBron and his business partner Maverick Carter had carved out his personal brand bit by bit, making mistakes and learning from them along the way. And they did well for themselves. Forming some long-lasting meaningful relationships with people who they could learn from definitely helped. One of those relationships included the one with a man named Paul Wachter. Wachter was a very influential person, ex-investment banker, a presence on boards of directors of multiple companies and a financial genius in creating wealth. He had connections in multiple industries. Of course, few words don’t do justice in explaining Wachter’s stature and impact, but enough to tell a bit about his professional life.
LeBron and Carter were looking for companies that might want to represent LeBron for his marketing deals. Meaning, the company that would get LeBron’s marketing rights would be able to get a commitment from LeBron to work with the brands they would line up for him to endorse. LeBron and Carter particularly wanted to get a hold of international brands. Whatever the money LeBron would make on the marketing/sponsorship deals, the representative company would pocket a commission out of that, a fixed percentage of the amount the sponsors would pay LeBron.
Paul Wachter has assisted on various deals for LeBron and Carter. He worked his magic again, connected Carter with the executives of Fenway Sports Group (FSG). FSG, along with owning multiple sports entities, was also a big player in sports marketing having connections with big international companies.
The only problem?
FSG used to represent sports entities, brands, teams/franchises, not individual athletes.
Paul Wachter had the answer to this. He delivered again for LeBron and Carter. He was instrumental in making this deal happen. He convinced the execs of how LeBron wasn’t just an athlete, but was a very big brand in himself. And, it was true considering the aspirations people had to do business with LeBron James. FSG execs were convinced. They prepared their pitch to LeBron. The deal was simple - FSG would connect brands to LeBron, brands would pay LeBron for endorsing their products, FSG would pocket a commission out of those payments. FSG would then also add LeBron’s name to their list of assets. LeBron’s marketing rights were with FSG now.
But, it was not over yet.
FSG was also the owner of the Major League Baseball (MLB) team Boston Red Sox. FSG’s primary owner John Henry and his partner Tom Werner had done some amazing work to turn the Red Sox into a successful, championship-winning organisation. And now, they had Liverpool F.C. in their bag too. Lebron, Carter and Wachter were very bullish on them doing the same for Liverpool as well.
So, in return for the marketing rights, Lebron and Carter would ask for a 2% stake in the freshly FSG-acquired Liverpool F.C. To which FSG obliged and Team LeBron got a stake in Liverpool F.C. Neither LeBron nor Carter spent a single penny in buying that stake. This is how Werner felt about the deal:
There are very few athletes who can match his global reach, appeal and iconic status ... We feel the business opportunities for both working and being identified together in emerging international markets will result in unforeseen opportunities that neither would have been able to realise alone.
Result time (2019)
A 2% stake in Liverpool was worth $6.5 million back in 2011 when LeBron and Carter received it. Over the years, the valuation of Liverpool only soared. In 2019, Liverpool F.C. was valued at around $2.2 billion. With that, Lebron and Carter’s 2% stake went from $6.5 million (little over ₹48 Crores) in 2011 to $44 million (₹326 Crores) in 2019.
And, wasn’t LeBron excited when Liverpool F.C. finally won their 1st league title in the 28-year history of the English Premier League in 2020.
But was it a balanced deal? Did it benefit both parties?
Well, on paper, it looks like, all FSG ever got was the commissions from LeBron’s earnings from sponsorships which in totality may not be equal to even $44 million that LeBron got from this deal.
But, here's my opinion,
It may not be equal to the LeBron amount. But, it may very well be equivalent to it. LeBron has a fanbase all around the world, especially in nations where football (soccer) is not hugely popular, for example, China and the USA itself. A case can be made for the impact that LeBron has had in growing popularity of Liverpool F.C. in non-soccer heavy nations. After all, he does love endorsing the club and takes pride in it. This is what he told The Guardian:
Any time you have so much history and so much power behind their story, there is great potential to continue that expansion. Liverpool are definitely one of those clubs. They really are like Man U (Manchester United) – and the Dallas Cowboys and the New York Yankees. There are some teams and logos you see, no matter where you are in the world, and you know exactly who they are and what they mean. I see Liverpool in that group.
And, besides, it was a partnership, a relationship, more than just a deal. Both parties got what they expected at the time of getting into the partnership. And, if one party did get more than expected, the way I look at it, it's a bonus.
All in all, this was a smart move by Team LeBron, which major influencers today looking to make money off their reach and influence, might consider as a lesson in business. Always try to form good meaningful relationships, think about what value you can provide and what value do you get. And of course, sometimes give a shot at seeking equity (risky but potentially high rewarding) rather than guaranteed payments (no risk, low rewarding). Learn to play the long game.
That’s all from my side today. If you found this interesting, do share this newsletter with others.
If you love content like this, then subscribe to my newsletter now to get it right in your inbox (It's free)👇 👇 👇