Global investors are chasing smaller European teams to ride the soccer boom

Sporting Gijón sits in the middle of the second division of Spanish football and operates in a different financial league from Chelsea FC and AC Milan, elite teams that clinched record-breaking awards earlier this year.

But clubs like Sporting in the northern coastal city of Gijón are now at the forefront of a wave of international teams chasing investment outside of Europe’s top five leagues. In June, the club was acquired by Grupo Orlegi, a Mexican investment fund aiming to build a global network of sports teams, for around €40m.

“It’s not a question of size,” says Alejandro Irarragorri, a former metal merchant who founded Orlegi. “We looked at first division clubs but none of them gave us the potential for the future that Gijón has.”

He plans to make the team’s youth academy one of the best in Europe, a popular strategy among investors. “I’m sure you’ll be hearing about Sporting in a very different way over the coming weeks and months,” he says.

The acquisition of Sporting Gijón is just one of many recent deals involving clubs in smaller leagues, with stakes changing hands with sides in Portugal, Belgium and the Netherlands, as well as the lower leagues of Spain, France and England.

Each country offers something different. Portugal is a hotbed for developing players and selling them for profit, Spain’s strict spending limits have kept costs in check, while in England some are chasing the dream of reaching the Premier League.

But the target clubs often share certain characteristics, such as a modern infrastructure, the possibility of rapid promotion, an established youth development system – and proximity to places where foreign investors might want to spend a lot of time. For example, in Italy’s Serie B, Venezia is controlled by Duncan Niederauer, former NYSE CEO.

“US investors have a fundamental thesis that European football is commercially undervalued,” said Tim Bridge, Lead Partner of Sports Business Group at Deloitte, adding that teams in smaller leagues have a price tag that many find “quite compelling” Find.

Last month, Milwaukee Brewers baseball owner Mark Attanasio bought a minority stake in Norwich City, an English second division side, while Dutch division side Vitesse Arnhem was acquired by Common Group, a New York-based investment group.

Club Deportivo Leganés, a Spanish second division club, was bought in June by Blue Crow, a Texas-based investment fund headed by Jeff Luhnow – the former general manager of Major League Baseball’s Houston Astros who left the sport after a cheating scandal. The local press says the takeover has valued the club at just under 40 million euros.

“The cost of getting into a Big Five team is pretty high — we knew that wasn’t going to be the aisle we were going to buy into,” says Luhnow, whose mutual fund also owns Mexico team Cancun FC.

French Ligue 2 club FC Girondins de Bordeaux, once home to Zinedine Zidane but recently plagued by financial difficulties, are among the sides now being targeted by investors, according to people familiar with the matter.

US investors are the most active, but others are also looking to buy. Qatar Sports Investments, which owns French champions Paris Saint-Germain, this week paid €19m for a 22% stake in SC Braga, a Portuguese giants.

Much of the interest stems from the range of opportunities available, in contrast to the US where sports franchises rarely sell and then fetch very high prices. NFL team Denver Broncos sold for more than $4.6 billion earlier this year, a record for a sports team anywhere in the world.

With top-flight football clubs also rising in value – Chelsea FC was sold for £2.5bn earlier this year – price has drawn many buyers down into lower leagues, often in the low tens of millions, for clubs they see as high Potential for growth as on-pitch performance improves.

The newcomers join a growing group of international investors, mostly from the US, with foreign shareholders now represented in more than two dozen teams playing in Europe’s smaller leagues.

US private equity billionaire David Blitzer’s list of football investments includes Alcorcón in Spain, ADO Den Haag in the Netherlands and Waasland-Beveren in Belgium. Michael Eisner, former Disney CEO, owns Portsmouth in the third tier of English football.

They are expected to be followed by more, thanks in part to the dollar’s rise against the euro and sterling.

“We represent potential investors. . . Pursuing second and third tier clubs in attractive cities with loyal fan bases and potential stadium or real estate development opportunities,” said Charles Baker, a partner at US law firm Sidley, who has represented Chelsea owner Todd Boehly.

Though Sunderland is majority-owned by Kyril Louis-Dreyfus, it could be the next big target, according to Neil Barlow, a private equity partner at Clifford Chance, who recently advised US investment firm Sixth Street in its deal to acquire part of the Advised Barcelona TV rights.

At CD Leganés, on the outskirts of Madrid, Luhnow hopes to apply data analysis techniques commonly used to improve scouting and on-field performance in baseball, to help the club achieve promotion to the Spanish top flight.

“We’re very focused on finding and developing talent – and using those players to win games and competitions and ultimately generate resources to invest back into the club,” he said.

However, Bridge at Deloitte warns that investing in the lower leagues comes with its own risks. Finances further down the England football pyramid are becoming increasingly precarious as owners spend big bucks chasing promotion to the Premier League. The average wages-to-earnings ratio in the championship reached 125 percent last season, according to Deloitte.

“In order to lead a football club into the top leagues, very high investments are required, nobody should overlook that,” he says. “Many investors come to the realities of the football industry with their eyes closed.”