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Ballon d’Or, meet the golden age of private credit.
Football club Inter Milan this week became the property of Oaktree Capital Management, a Los Angeles-based debt specialist that manages nearly $200bn and is owned by Brookfield.
Oaktree in 2021 had loaned €275mn to Inter Milan’s then-majority owner, the Chinese retailer Suning, to help weather the pandemic storm. The club’s fine on-pitch performance did not do enough for its bottom line. The loan balance, through a so-called payment-in-kind feature, ballooned to €400mn based on a 12 per cent interest rate. When Suning could not repay or refinance the loan, Oaktree moved into the big leagues.
The presence of big-money financial investors, from Wall Street to sovereign debt funds, is not new anymore in professional sports. But rather than just private equity, private debt funds are proliferating and offering expensive loans for sport franchises that may not be steadily cash generative.
Ares Management, a California-based rival of Oaktree, has, for example, a $3.7bn dedicated sports debt and equity fund. In an era of elevated interest rates, expect more funds like Oaktree to inadvertently become owners, leaving an uncertain outlook for the product on the field.
In US sports leagues, franchises were typically family-owned and passed through generations. Eventually the “masters of the universe” arrived with their personal fortunes. But leagues historically forced team owners to be conservative with debt capital, lest fixed obligations hobble a franchise and threaten stability and competitiveness.
With franchise values skyrocketing, leagues are becoming more lax on capital structure restrictions. Tapping private debt could allow heady paper valuations to materialise in deals. That comes with risks. The Minnesota Timberwolves are in the middle of sale in which an issue arose over how much a potential loan from the Carlyle Group to the putative buyers would end up limiting sporting decisions.
Oaktree itself is one of the pioneers in distressed debt investing, with a string of spectacular “loan-to-own” triumphs. Still, with private debt returns now approaching the teens, firms are largely happy to clip those juicy coupons and relax in the stands.
A person close to Oaktree told the Financial Times that by taking over Inter Milan, it was protecting the investment of its limited partners. In a press release, the firm also acknowledged the club’s “community, history and legacy”.
Can Oaktree be a long-term football owner? Can big profits coexist with chasing trophies? The more pressing question for football fans is how much debt the fund itself will want to put on the team now that its balance sheet has been cleansed.
sujeet.indap@ft.com
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