Hedge funds have invested in wine, whiskey and movies in pursuit of returns that outpace stocks and bonds. Now they’re taking on an even riskier bet -- the search for soccer’s next Wayne Rooney.
Investors willing to pay 250,000 pounds ($470,000) will have the chance to buy a piece of the next potential superstar. Two British-registered funds, Hero Investments and Sports Asset Capital, plan to buy stakes in the contracts of younger athletes, then grab a slice of the transfer fees clubs pay to obtain players.
The funds expect to profit from a buying spree led by the billionaire owner of England’s Chelsea Football Club, Roman Abramovich, who has helped lift transfer spending by English soccer clubs to a record $627 million this year. By taking part ownership of a player, they will also help smaller clubs compete for talent with larger rivals, the funds say.
“It’s fascinating, but you could easily burn your fingers,” says Jacob Schmidt, founder of London-based hedge fund Schmidt Research Partners. “Investing isn’t about fun; it’s about hard work. While I’m not against fun, the risk is that people who are amateurs might get involved.”
Rich soccer teams often buy the rights to players for a one-time transfer fee that nets the selling club a profit. In 2001, Real Madrid paid a record $64.5 million to Juventus of Italy for the contract of French midfielder Zinedine Zidane.
English club Manchester United paid as much as $52 million to buy Rooney from league rival Everton in 2004. Rooney, a 21-year-old striker, scored 36 goals in his first two seasons with the club. He also played for England in this year’s World Cup in Germany, appearing just six weeks after breaking a small bone in his right foot during a regular season match.
Hedge fund assets have more than doubled in the last five years to $1.2 trillion as investors seek returns that outpace stocks and bonds. The funds, tailored to people with at least $1 million to invest, are private pools of capital that let managers participate substantially in the gains on investments made on behalf of clients.
Nick Hely-Henderson, the 48-year-old founder of Hero Investments, says his fund will allow well-heeled soccer fans to profit while helping bring more competition to the sport.
“If we can help with the acquisition of players, we can help create a level playing field,” Hely-Henderson said.
Hero has raised $190 million to spend on contracts, Hely-Henderson says. The fund plans to invest for at least five years and will probably gain the rights to 20% to 50% of the transfer values for each player, he says.
Sports Asset Capital, set up by player-turned-financier Ray Ranson, 46, has $95 million to invest. Ranson, a defender who had a 14-year career at clubs such as Manchester City, says his fund will buy insurance to protect it against career-ending injuries as it strives to deliver a 20% annual return.
Hedge fund returns averaged 9% in the last two years, according to Chicago-based Hedge Fund Research Inc.
The British funds are betting that a flood of cash from broadcasting deals will prompt more player transfers.
According to a Sept. 1 report by accounting firm Deloitte & Touche, clubs throughout Europe may increase spending after England’s 20 Premier League clubs signed a television contract with British Sky Broadcasting Group and Setanta Sports worth $3.2 billion, a 67% increase from the previous deal.
Hedge funds may face resistance to their attempts to grab a portion of a star athlete’s transfer value.
“It could be dangerous -- you could lose control over your assets,” said Jason Rockett, chief executive of Premiership team Sheffield United.
The prospect of creating a superstar is exactly what attracts some investors.
“It would be jolly nice to find 50 Wayne Rooneys, but that’s unlikely,” Hely-Henderson said. “Just as you don’t expect 80 winners in a traditional portfolio, we don’t expect 80 stars.”