Wearing the asset strip

Andrew White examines how the sale of two Argentinian stars to West Ham may change the business of soccer. It seemed like a joke at first. Just hours before the August 31st deadline for English Premiership clubs to sign new players, news had filtered out that two of the biggest stars of the World Cup, Argentinians Carlos Tevez and Javier Mascherano, were on their way to the UK - yet to lowly West Ham United, for a paltry US$2m each.

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By  Andrew White Published  September 10, 2006

|~|71777964-200.jpg|~|NET PROFIT: Argentinian star Tevez played against Brazil last week, watched by fans and businessmen alike. His and Mascherano’s transfer to West Ham has opened the door to a new form of player sale.|~|Andrew White examines how the sale of two Argentinian stars to West Ham may change the business of soccer. It seemed like a joke at first. Just hours before the August 31st deadline for English Premiership clubs to sign new players, news had filtered out that two of the biggest stars of the World Cup, Argentinians Carlos Tevez and Javier Mascherano, were on their way to the UK - yet to lowly West Ham United, for a paltry US$2m each. The football world was baffled. What about the expected US$40m fee, and where were big spenders Manchester United and Chelsea, heavily linked to the two South American superstars? It was, and is, no joke. Instead, the transfer of the two Argentinians to a relatively small club for a pittance, may represent a new trend in soccer. An investment group, not a club, was behind the deal: the scheme, it seems, involves buying the transfer rights to players, then taking advantage of football’s soaring transfer fees to engineer serious profits for lucky investors. The man credited as being behind the move is Iranian-born Kia Joorabchian. Two years ago - after he became a multimillionaire through the sale of his equity company American Capital - his name was first publicly linked to football when he founded Media Sports Investment (MSI), with the explicit aim of taking control of Brazil’s second largest club, Corinthians. He had spotted a team that had not fulfilled its earning potential, and was – despite a huge fanbase – sinking deep into debt. A businessman first, and football fan second, Joorabchian entered into a 10-year agreement under which MSI would provide US$35m cash for players in return for 51% of future profits. He immediately bought about changes at the club, streamlining costs and reworking Corinthians’ business operations until the club was able to announce an increase in revenues of 500% for the first year. However, in a separate investment unrelated to the acquisition of Corinthians, MSI also bought the registrations of both Tevez and Mascherano from the Argentinian clubs for which they played. While the former cost a hefty US$20m, Mascherano’s price has never been disclosed. In the shady and difficult-to-regulate world of Brazilian football, MSI now owned two of football’s hottest properties, as well as a club – or shop window – at which they might demonstrate their skills. “The essential contradiction of South American football in this globalised world, is that it runs at a financial loss but produces some of its most marketable commodities: the best players,” South American football analyst Tim Vickery told the BBC. “So investment consortia take advantage of the financial weakness of the clubs to secure the rights to sell the players, which is where the money is.” The new order at Corinthians quickly found itself under scrutiny, as it emerged that all but five of the first-team squad were owned by MSI, not the club. Rumours began to fly: that MSI were in league with exiled Russian oligarch Boris Berezovsky (MSI deny they are backed by Russian money. Nevertheless, Berezovsky and Joorabchian have had business dealings in the past, and the oligarch has expressed interest in building a new stadium for Corinthians); that the move was part of an elaborate scheme to secure the players work permits for a move to Roman Abramovich’s Chelsea; that the Brazilian authorities were investigating accusations of money-laundering and fraud. With the heat rising in Brazil, it is reported that Joorabchian cut all ties with MSI in June this year, resigning as president, yet retaining his investment in the two players. Whilst Corinthians was doing well, Joorabchian realized that the real money – the real return on his investment - lay elsewhere. “South American football just doesn’t generate the sort of money that makes that [initial investment on the two players] worthwhile,” continues Vickery. “So where’s the return on the investment? From selling the players to European football.” Two months later, and Tevez and Mascherano are on their way to Europe for fees representing a fraction of their value on the open transfer market. However, whilst the London club might have secured a bargain for the two players’ services, MSI still hold the aces in that they have effectively retained the players’ registrations. Should either player move on – and it is anticipated that neither will be at West Ham for more than one season – the London club will barely profit from their sale (this caveat to any potential transfer is believed to have ended the interest of leading European clubs). Joorabchian and MSI, on the other hand, will cash in. So why not sell the players directly to one of the big, rich European clubs? Essentially, the West Ham ‘stopover’ is a shrewd move on behalf of the players’ handlers, and virtually guarantees them a greater return on their investment. From a footballing perspective, the players will be granted time to assimilate to the pace and physicality of the Premiership, and European football. From a business perspective, not only will the players ply their skills in the world’s most popular and profitable league, but the obscene amounts of cash in the English game means that transfers between two English clubs are often the most lucrative. If Chelsea, Arsenal or United do take the plunge on either player, they will pay a vastly inflated sum, as they are plundering talent directly from a competitor. There remains a twist in the tale. Joorabchian is currently in takeover talks with West Ham, and has received several offers of support from the Middle East. Explaining his close connection with the region, he said: “I am Middle Eastern by origin. And I have worked in the Middle East for many, many years. I have done a lot of deals in the Middle East, and I have a lot of friends there.” The club, valued at around US$150m, has confirmed “exploratory” discussions to the London Stock Exchange. And whilst the fans may welcome the arrival of two of the world’s most sought-after players, how will they feel about their club’s first team being used as a glorified shop window? And how will they feel once the mysterious Joorabchian and his backers are running the show? Football has long been big business, and for the Argentine superstars and Joorabchian – mentor, entrepreneur, management consultant, and super-agent – it’s certainly no game. ||**||

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