Milan fashion

He’s taking over from Berlusconi

AC Milan and its city rival Internazionale share the 80,000-seat San Siro as a home stadium. And as of last week, the two teams have something more in common: both are owned by Chinese investors.

Retail giant Suning purchased Inter last summer (see WiC328) but the Chinese pursuit of AC Milan has been much more protracted.

Sino-Europe Sports – a consortium headed by Li Yonghong – likewise announced its purchase of Milan for €740 million ($800 million) last August, offering the highest price yet for a European club.

But then Beijing turned sour on overseas investments in overheated sectors such as sports and media, and Chinese regulators began to make it considerably more difficult for companies to get their capital out of the country in a bid to defend the value of the renminbi.

The clampdown saw Sino-Europe Sports miss deadlines to complete the takeover, although it scrambled to make deposits of about €250 million ($267.9 million) to keep the deal alive. The consortium was then reconfigured in Europe as Rossoneri Sport Investment Lux, which paid the remaining sum this month for the majority stake previously owned by former Italian Prime Minister Silvio Berlusconi.

But a key point is that much of this final payment wasn’t Chinese money. Li has been forced to turn to American investment firm Elliott Management for €180 million instead, as well as another €73m to help Milan meet short-term payments, plus €50 million more for spending in this summer’s transfer market.

That has led to fears that he is financing the purchase by borrowing against the club in the kind of arrangement that allowed the Glazer family to take control of Manchester United in 2005. As a result the club’s supporters have been cautious in welcoming the new owners – when Li was unveiled as Milan’s new president at their match on Saturday he was greeted with a banner asking for “seriousness, commitment and presence”.

Of course, a significant injection of investment would boost the mood, following six years in which the team has failed to win any major silverware.

But a major push back into the elite of European football looks unlikely until Milan can get onto firmer financial foundations. Talk of an IPO in Hong Kong is premature and the first task is to pay back Elliott by October next year (plus 11% in interest payments and a €15m arrangement fee).

That suggests that further investment is going to be required, despite Li’s breezy prediction that he will get Milan back into the black by doubling revenues over the next five years.

Chinese pundits are not too impressed with Li’s entrepreneur credentials. Suning is one of the biggest retailers in China and it has also invested seriously in a Chinese Super League football team in Jiangsu in recent years. AC Milan’s new Chinese owner, Sina Sports has noted, is only a “capital market player” who has invested in a number of obscure Chinese listed firms.

And fans can be forgiven for wondering what the future may hold for Italian football in general with two of the country’s most famous teams under Chinese control and the media rights for the league in which they play – Serie A – underwritten by Infront Sports, an entertainment unit controlled by Chinese giant Wanda Group (see WiC271).

All the same, Serie A is a poorer cousin to its peers in England and Spain these days and its clubs need to boost income from their Chinese fans. Milan is already highlighting plans to create a China-based company to boost marketing and licencing income. Fittingly, it played against Inter in its first game under Chinese ownership on Saturday (dubbed ‘the Chinese derby’ locally), equalising in injury time to force a 2-2 draw. And in another sign that the club (and the league) is looking east, for the first time ever the match was scheduled to kick off at lunchtime, ensuring a perfect fit for peak-time viewers in China.

Some of the supporters at the stadium were less impressed with the early start, however, unveiling a banner showing a man feasting on cash with a pair of chopsticks. “All you can eat … have a nice meal Italian league,” it jibed.

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