Football Investors Get 62% in Run Around Players on Transfer Bet
The walls of Ray Ranson’s Manchester office celebrate the high points of his 17-year run as a defender in English soccer. In one of his most memorable moments, Ranson’s Manchester City was battling Tottenham Hotspur in the final game of the F.A. Cup in May 1981. The 92,000 chanting fans at London’s Wembley Stadium were making such a din that he couldn’t even hear the referee’s whistle.
At the 11th minute in the first half, Ranson, wearing No. 2 and pumped with adrenaline, thumped a free kick 30 meters (98 feet) into the penalty box. In quick succession, three players headed the ball before a City midfielder rammed it into the goal with his right foot, tying the game 1-1. Although City lost 3-2, Ranson’s eyes still sparkle when he describes the thrill he got that day, Bloomberg Markets magazine will report in its April issue.
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Now, 18 years after hanging up his cleats, Ranson is cashing in on his passion for the world’s most popular sport. As the founder and chief executive officer of R2 Asset Management Ltd., he competes in the controversial market of betting on the transfer value of soccer players -- the money that an acquiring club must pay to a team for an athlete under contract.
Ranson, who recruits institutional investors and scouts players, says his fund’s wagers have frequently earned returns of about 50 percent in two years.
While using transfer fees to compensate small clubs for releasing athletes started in England as far back as the 1890s, betting on them is a recent phenomenon. It began in Argentina in the late 1990s, and since then, at least 11 funds have invested in hundreds of players, including Real Madrid’s superstar forward Cristiano Ronaldo.
Eight of the funds currently have more than $500 million bet on transfer rights worldwide, estimates Julio Senn, a partner at Senn, Ferrero, Asociados Sports & Entertainment SLP, a Madrid-based law firm that advises investors on buying stakes in players.
Ranson, 52, says transfer rights investments are good for soccer, providing cash-poor teams a financial lifeline. Many clubs, particularly in southern Europe, are struggling to raise revenue and obtain bank loans following the 2008 credit crisis and resort to transfer investments for cash, says Jose Maria Gay, a professor at Barcelona University who studies soccer team finances.
In a typical deal, Ranson says, he might pay 1 million euros ($1.3 million) to a Spanish team to acquire 50 percent of the expected fee for an up-and-coming athlete.
“The clubs need it,” says Ranson, whose fund had invested about 50 million pounds ($75 million) in 20 players in Europe as of February. “The banks are shut.”
Clubs get a quick infusion of money but sacrifice a bigger payday a few years later, when they negotiate the sale of the player and share the transfer fee with an investor.
“If the player in Spain is worth 2 million today, he could go for 3 million when he is sold, and I’ve made a 50 percent return,” says Ranson, who collects a 2 percent management fee and 20 percent of profits.
Soccer officials are less than thrilled about this burgeoning market. Richard Scudamore, CEO of the English Premier League, the sport’s richest league, says the wagers threaten the integrity of soccer by giving investors influence over the sale of players.
Agents are also taking stakes in the athletes they represent, creating possible conflicts of interest with them, says Raffaele Poli, a researcher at the Centre International d’Etude du Sport, or CIES, in Neuchatel, Switzerland.
A scandal erupted in 2007 when a Premier League investigation into a West Ham United transfer deal uncovered that the club had ceded total control over Carlos Tevez, its standout striker, to investors. The league banned transfer betting a year later, which means Ranson can’t do deals where he used to play.
“These investments are immoral and have nothing to do with football as a sport,” says Theo van Seggelen, secretary-general of the International Federation of Professional Footballers, which is located near Amsterdam. “There’s not any other profession in the world where investors can buy stakes in a human being.”
The Federation Internationale de Football Association, or FIFA, which governs soccer worldwide, allows betting on transfer fees as long as investors don’t affect the movement of players - - a restriction that officials have never enforced. Scudamore denounces FIFA’s position.
“It is impossible for me to believe that the person who has the financial interest in that player doesn’t have an influence over the future of that player,” Scudamore says.
The wagering is so secretive that athletes typically don’t realize funds have taken stakes in them, Ranson says. The market has lured investors from around the globe. A group controlled by Sao Paulo-based supermarket chain owner Delcir Sonda invested 5.5 million Brazilian reais ($2.8 million) in 2009 for a 40 percent share of Neymar da Silva Santos Jr., the mohawk-sporting poster boy of Brazilian soccer, says Eduardo Carlezzo, a lawyer who worked on the deal for Sonda.
Baniyas Sports Club, whose president is United Arab Emirates Deputy Prime Minister Sheikh Saif bin Zayed Al Nahyan, and Qatar-based conglomerate Ghanim Bin Saad Al Saad & Sons Group Holdings are wagering on South American players through the Bermuda-based fund Global Eleven, according to three people familiar with the matter. Sheikh Saif’s brother owns English champion Manchester City. The fund was started in 2010 by Indoo Sella di Monteluce, the son of an Italian count, one of the people says.
Sella di Monteluce declined to comment, says Paul Wynne, a spokesman for a company that manages his money. Nader Saleh Abuhayyeh, who represents Baniyas, and GSSG also didn’t comment.
Some investors hide their interests in athletes in offshore firms located in tax havens, Scudamore says. Other deals are done through so-called letterbox companies in the U.K. and the Netherlands, which allow investors to shield their ownership of the firms by hiring a director to sign regulatory filings.
“Ethically, we think it’s very difficult that these sums of money are going to very opaque organizations, often with very complex ownership structures, that no one really knows where the money is going when those fees are paid,” Scudamore says.
Ranson says the moral outrage of officials is overblown and dismisses the Tevez case as an aberration. Dressed in jeans and a fawn-colored sweater, the former player is a jovial man who laughs at the pounds he’s added to his 5-foot-10-inch (1.8-meter) frame since retiring from soccer in 1995.
“I haven’t broken a sweat in 15 years,” says Ranson, who was raised in the former coal mining town of St. Helens between Manchester and Liverpool.
In his sparsely furnished office, Ranson, a boxing fan, has hung a limited-edition framed picture of middleweight champion Jake LaMotta, who’s nicknamed the Bronx Bull.
Investors such as Ranson make money only when players get transferred while they’re still under contract. If there’s no sale, the punters can lose their entire wager.
That’s why Ranson’s deals include inducements for teams to sell: His investment may automatically switch to another player if a contract expires on Ranson’s footballer, and teams may pay a penalty if they don’t move an athlete before his contract ends.
Despite the pressure he applies, Ranson says he has no influence over transfers.
“We can’t make the club sell,” he says.
The value of Real Madrid’s Ronaldo, 28, who racked up more than 300 career goals in 10 years, soared during the past decade. In 2002, Lisbon-based asset management firm First Portuguese Group SGPS SA paid 3.1 million euros for an undisclosed share of the then-17-year-old forward at Sporting Clube de Portugal and five of his teammates, club statements show.
The following year, Ronaldo joined Manchester United, which paid a 15 million euro fee for him. First Portuguese, the only investor known to have taken a stake in the player, didn’t reveal its return from the deal. Ronaldo led the team to victory in Europe’s Champions League in 2008, when he was voted world player of the year by FIFA.
During that season, Ronaldo amassed 42 goals, a club record, often using his step-over trick -- rapidly passing his foot several times on top of the ball to destabilize opponents before accelerating past them. Then he’d shrug his shoulders as the ball hit the net, as if to say it was all too easy.
His 2008 performance triggered a financial windfall for Manchester United. The next year, the club said that Real Madrid had paid a transfer fee of 80 million pounds for Ronaldo, making him the world’s most expensive player to acquire.
Traffic Sports, a unit of Traffic Marketing Esportivo in Sao Paulo, is one of the most prominent investors in transfer rights. Its second fund, which started in 2008 and raised $50 million, gained 62 percent on the first 21 players sold, according to a 2012 Traffic Sports presentation.
Traffic’s $6.8 million bet on 19-year-old Brazilian striker Keirrison de Souza Carneiro in 2008 was one of its most profitable. A year earlier, he had scored 12 league goals to elevate Coritiba to Brazil’s top division. In 2009, Barcelona, the then newly crowned European champion, paid a transfer fee of more than $19.3 million for Keirrison.
That deal produced a 114 percent return for Traffic Sports from its investment in Keirrison in just eight months, the presentation says.
Traffic is now raising as much as $100 million for its third fund in conjunction with Dubai-based buyout firm CedarBridge Partners.
“The returns are robust because Traffic has an operating team with a proven methodology to buy the right players and connections with football teams across the world to sell them at the highest price,” says Magellan Makhlouf, managing director at CedarBridge.
Investors are exploiting the widening rich-poor divide among teams worldwide. In the past 10 years, Middle Eastern oil sheiks, Russian tycoons and American billionaires have taken control of more than a third of Premier League clubs. Ranson’s former team, Manchester City, was bought by Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan in 2008.
Without wealthy backers, clubs such as Sporting are making transfer investment deals to obtain cash to buy players and remain competitive in the Champions League and Europa League.
Sporting, an 18-time Portuguese champion, gets 10 times less television revenue than leading Premier League clubs, President Luis Godinho Lopes says. Sporting also suffered from a 25 percent decline in ticket sales from 2008 through 2012 because consumers in Portugal had less money to spend.
“Outside investors in transfers are the only way we can have a level playing field,” Godinho Lopes says.
Miguel Angel Gil, CEO of Atletico Madrid, which won the second-tier Europa League in two of the past three years, says Spanish banks have shut off almost all lending to his team. So Atletico began making transfer deals with funds, which provide about 30 percent of the team’s financing.
He says investors haven’t tried to pressure the club to move players.
“It’s simply a financial arrangement; there’s no mystery involved,” Gil says.
Small clubs’ deepening dependence on the transfer market takes a toll: They must constantly scramble to find new talent or risk dropping to a lower division. European clubs transferred about 18,000 players in 2011, triple the number in 1995, according to Brussels-based consulting firm KEA European Affairs.
The revenue from fees discourages teams from making long-term investments in facilities and coaches to attract fans, sports researcher Poli says.
“It’s a short-term perspective,” he says. “The easiest way to make money in soccer is in the transfer market.”
Investors rely on the sport’s most powerful agents to find and broker deals -- creating potential conflicts of interest with players. In 2007, Portuguese agent Jorge Mendes helped broker his client Angel di Maria’s transfer to Benfica of Portugal from Argentina’s Rosario Central.
The following year, Mendes bought a 10 percent stake in the Argentine playmaker for 1 million euros, according to team filings. In 2010, Benfica moved Di Maria, who was still Mendes’s client, to Real Madrid for a transfer fee of as much as 36 million euros.
The agent earned a profit of more than three times his investment, according to data compiled by Bloomberg. Mendes declined to comment.
Mendes advises Creative Artists Agency LLC, the biggest talent agency in Hollywood, on transfer investments. CAA, which represents Ronaldo and the clubs Barcelona and Chelsea, manages three soccer funds, according to a person familiar with the matter. Beth McClinton, a spokeswoman for CAA, declined to comment.
Some 15 percent of agents own stakes in players they represent, according to a survey of 269 agents by CIES.
“It’s difficult to be sure if the agent is acting in the interest of himself or the player,” says Poli, who helped compile the survey.
Scudamore is determined to stamp out transfer investments around the globe. His league’s probe of the West Ham deal for Tevez revealed a secretive web of investors in the muscular 5-foot-8-inch Argentine forward who jostles past defenders before shooting powerfully.
In 2004, Sao Paulo-based Corinthians, which was controlled by Media Sports Investment Group in London, paid a transfer fee of $16 million to Buenos Aires-based Boca Juniors to acquire Tevez, according to the sales agreement.
Iranian-born Kia Joorabchian, who had founded now-defunct New York-based investment firm American Capital (U.S.A.), ran Media Sports. A spokesman for Joorabchian said because of confidentiality agreements the investor was unable to comment.
In 2004, a British Virgin Islands based-company -- MSI Group Ltd. -- acquired a 35 percent stake in the forward, according to sales documents. MSI was owned by the late Georgian billionaire Arkady Patarkatsishvili, a business partner of Joorabchian, the documents say.
Russian media tycoon Boris Berezovsky also had a stake in the company, says his former public relations adviser Tim Bell.
Tevez proved his worth to investors, firing in 46 goals in 78 games in his 20-month stint at Corinthians. In 2005, he led the team to the Brazilian league title and won the country’s player of the year award -- the first time a foreign player had received the accolade since 1976.
Brazilian fans adored the Argentine for his playful dancing to celebrate goals.
By 2006, another British Virgin Islands-registered company, Just Sports Inc., had also bet on Tevez, according to the league’s investigation. The two investors, MSI and Just Sports, then transferred the forward to the Premier League’s West Ham, a bigger soccer stage that would help boost his resale value.
The investors didn’t require West Ham to pay a transfer fee for Tevez, and in exchange, the team had agreed to allow MSI and Just Sports to terminate the deal and resell Tevez without West Ham getting a say in the matter, according to the investigation.
The revelation that outside investors had dictated the moves of one of soccer’s brightest stars -- a West Ham fan favorite who scored seven goals in his last 10 games to keep the team in the top division -- spurred the league to ban such deals.
The league did allow investors to unwind their stake in Tevez, whose value skyrocketed. Harlem Springs, another British Virgin Islands-based company, paid MSI 24 million pounds for 100 percent of the player’s transfer rights in 2007, according to the sales documents.
Harlem Springs was run by Joorabchian, says a person familiar with the company. After Harlem Springs loaned Tevez to Manchester United for 9 million pounds, Sheikh Mansour in 2009 paid the British Virgin Islands company about 48 million pounds to bring Tevez to Manchester City, two people familiar with the deal say. Vicky Kloss, director of communications at Manchester City, declined to comment.
In November, Scudamore traveled to FIFA’s headquarters in Zurich and told a panel, with FIFA President Sepp Blatter in attendance, why the ruling body should outlaw transfer investments. A month later, FIFA’s legal department said in an e-mail that it was analyzing which course of action to take.
“This is one of the biggest challenges FIFA has ever faced,” says Gregor Reiter, CEO of Deutsche Fussballspieler-Vermittler Vereinigung, the German association of player agents. “If they don’t address it, someone will ask, ‘What on earth do we need FIFA for?’”
Ranson looks out of his floor-to-ceiling office window and points at the buildings down the block to defend his profession.
“The companies that own the property can raise cash against it as assets,” he says. “That’s all football teams are doing with their strongest assets, their players.”
And as investors gain a greater foothold, Scudamore says, they -- not the clubs -- are determining the fate of players.
To contact the editor responsible for this story: Christopher Elser at email@example.com