Change of Owners: American Win or Cardinal Sin?

The official announcement was made today that American private investment firm RedBird Capital Partners has entered into a definitive agreement to purchase AC Milan from Elliott Management. RedBird's founder and managing partner, Gerry Cardinale signed the paperwork and also crucially met with Paolo Maldini amidst all of the media frenzy. The club is valued at €1.2 billion, despite not owning a stadium, and is the second most expensive club sale in history, according to journalist Gabriele Marcotti. However, the structure of the sale sees Elliott lending half the money to RedBird for the sale at a very high interest rate, with shares of the club and seats on the Board of Directors tied to the loan deal. So who is really in charge? Is Cardinale just a puppet for a continued Elliott control of Milan? Is this an American win or a cardinal sin?

Milan's 4th owner in just over 5 years

Elliott seemingly bowed out in style, with a gracious farewell letter to the fans acknowledging the change in "controlling interest" after their four year ownership. Truly, we as fans owe a debt of gratitude. I know I was completely skeptical of a hedge fund known for brutally putting their own financial interests ahead of any human decency owning our beloved club. Particularly for the way that they came to acquire the club alone. Yet they have done everything they said they would – bring financial stability, sound management, and sporting success, creating a sustainable model for the future. 

Thank you, Elliott

When rumors suddenly erupted of a sale of the club at the same time Milan were vying for the Scudetto, it was honestly the last thing I wanted. Even just for bringing Maldini back to the club, Elliott have proven to be the best thing to happen to Milan in decades. The talks with the other group greatly worried me, because they had zero background in sports. That is the brightest talking point of RedBird, their specialty is in the sports industry. They are minority shareholders in Fenway Sports Group, a group including LeBron James, that owns both Liverpool and the Boston Red Sox. RedBird are also majority owners of Toulouse FC in Ligue 1, among many other investments. Their track record is good, with consistent growth in their investments.

But the structure of this deal is strange. With Cardinale's background in investment banking, it seems odd that he would take on a €600,000 loan at a reported 15% interest rate, with another €300,000 reportedly financed through JP Morgan. His initial investment is reportedly only €300,000 to purchase a €1.2 billion club, which sounds a lot like the Yonghong Li nightmare. Except Cardinale has the portfolio and assets to back up the purchase. Was this debt structuring just Elliott's way of maintaining control? Or did Cardinale really need to finance that much of the deal? Was the financing so that he would have more cash to invest in the club up front? There are a lot of questions to be answered before this deal is finalized in September.

Cardinale greets Gazidis

Elliott come out of this looking like evil geniuses. By financing literally half of the deal, financially, they are still majority owner of the club, but without the liability to UEFA, who seem to be concerned about their transactions with Lille. Included in the loan deal is a minority stake in the club, additional shares of the club based on its growth, and three chairs on the Board of Directors, reported to be Gordon Singer, Stefano Cocirio, and Giorgio Furlani. Elliott will still have a strong voice in the club, and should RedBird default for any reason, their minority shares together with the 50% financing would put them back as majority owners of the club, if I'm not mistaken.

That's the skeptical side. The positive view is that Elliott found a buyer with similar views about how to run the club sustainably, with sporting experience, and valuable ties in both the sports and sports marketing industries to help grow the club even more. Cardinale even took time to tour Sesto San Giovanni and explore a possible stadium venue there, because, as he pointed out, he's not very patient. Perhaps a wide-eyed impatient American owner is just what we needed to finally get the stadium built. But the biggest question in the change of ownership was whether or not a new owner would continue with the same management, specifically on the sporting side. Maldini's stamp of approval means more now than ever before. 

The meeting we really cared about

Maldini had voiced concerns about Elliott and Gazidis once again disrespecting him by not mentioning to him the talks of selling the club until he found out about them in the media. Shades of the Boban nightmare all over again, and I still don't trust Gazidis (people have forgotten he also blocked Ibrahimović's return at first.) He also talked about how it was disrespectful of Elliott to have not talked to Leão about a renewal, particularly with rumors of interest in him growing and the transfer window approaching. Maldini also insisted that it was time to step up to the next level or forget about growth and let the club remain stagnant. He reminded all of us that he and Massara had not renewed yet, and their contracts are up at the end of this month.

While that all has yet to be officially resolved, Cardinale did meet with Maldini and immediately assured everyone that talks were positive and it looked as though Maldini would be staying on. That is an excellent sign, because it shows that Cardinale shares Maldini's vision for growing the club and hopefully investing to see Milan be able to compete at the highest level again. Even if Cardinale is an Italian-American who doesn't speak a word of Italian. At least after witnessing the Scudetto celebrations firsthand, he did seem to understand that Milan winning the league actually involves more passion than American sporting events

He was swept up in the Scudetto celebrations

There are definitely some very positive signs that point to this being a step in the right direction for the club. But there are also some very disconcerting red flags, as well. With the deal not even closing until September, that creates a lot of question marks around this transfer window. Will Elliott dump one last bunch of cash into the club as they exit? Will they work with Cardinale to make plans to move forward? Or will this be like the mercato windows when Berlusconi was trying to sell, where we waited and did nothing? After virtually no mercato in January, we cannot afford another window of inactivity.

More importantly, why sell the club now of all times, when Milan are on top? Did Cardinale take advantage of Elliott's talks with the other group to jump in and buy now? Or did he just get caught up in the Scudetto win and let greed get the best of him? This could be an excellent investment for RedBird if Milan are ready to start a new cycle and compete at a high level again. Or it could be that he just signed his life away to a vulture fund who are set to maintain control of the club and profit from it. Is it an American win? Or a Cardinale sin?

CORRECTION: New reports as of June 2nd suggest that all of the original reports about the financing are completely inaccurate, that RedBird will NOT be receiving a loan from JP Morgan, they simply worked as advisors in the deal. Additionally, the financing from Elliott is NOT that high, nor is the interest rate that high. Rather, it is simply a vendor loan of about €200-300 million, which is more like a delayed payment, with interest more in the range of 6-7%, which makes a lot more business sense.

With this new information, obviously this changes the deal completely, as Elliott would literally be staying on as minority shareholders only, with the seats on the Board of Directors, and are not quite the evil geniuses they previously appeared to be. Rather, they are putting their trust in this new owner to take the helm and build on what they have begun, and are maintaining a minority interest to help continue that process. RedBird are known for being hands on in their sport investments, which is a key to their success, but this is by far their biggest undertaking yet. Whether this is an American win or a cardinal sin will only be seen with time.

This post inspired by the music of David Bowie's "Young Americans"

Change of Owners: American Win or Cardinal Sin? Change of Owners: American Win or Cardinal Sin? Reviewed by Elaine on 11:00 PM Rating: 5
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