Only six months after the takeover of Milan by Rossoneri Sport Investment, the promise of a new beginning has given way to stark financial realities that threaten to engulf the new ownership group.
Prior to the change in ownership, it had been obvious for some time that Milan was stalled in neutral or worse under flamboyant politician and businessman Silvio Berlusconi.
It had become clear that Milan had served Berlusconi’s purpose and that he no longer had the resources or passion to try to resurrect Milan’s fortunes.
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The Milan financial statements for the 2016-17 year recorded a loss of $85M, which brought Milan’s cumulative loss to nearly $600M over the last 11 years.
The purchase by a Chinese consortium led by businessman Yonghong Li seemed to offer hope to Milan fans who had grown impatient watching their team slip further behind Europe’s elite sides.
Just a few months after the purchase, Forbes valued Milan at $802M, making the team the 13th most valuable soccer team in the world. In 2007 Forbes listed Milan as the fifth most valuable soccer club in the world at $824M.
During the summer the team benefited from much-needed squad investment. With a net transfer spend of over $200M, Milan was, for the first time in years, one of the continent’s big spenders.
One of the premier defenders in the world, Leonardo Bonucci arrived from Juventus for $50M, striker Andre Silva was bought for $46M from Porto, and Andrea Conti (Atalanta), Hakan Calhanoglu (Bayer Leverkusen), Ricardo Rodriguez (Wolfsburg), Mateo Musacchio (Villarreal), Nikola Kalinić (Fiorentina) and Lucas Biglia (Lazio) cost a total of $150M.
In all, there was a summer turnover of 65 players, with 30 arriving and 35 leaving.
The spend-for-success strategy seemed similar to that previously employed by the likes of Chelsea, Manchester City, and Paris Saint-Germain. Spend a lot of money on top rate talent, qualify for the UEFA Champions League, and wait for a virtuous circle to take hold.
The strategy is one thing but context is another. And the reality is that the new owners of Milan simply do not have the nearly unlimited resources made available to the three aforementioned teams.
What is more, times have changed and how to balance the books in order to stay on the right side of UEFA Financial Fair Play is increasingly difficult.
The purchase of Milan was a drawn-out affair and was postponed twice before being consummated.
Finally, funding from US-based private equity fund Elliott Management pushed the deal over the finish line.
Elliott Management provided $320M in bridge financing (April exchange rate of 1.15 euro to the dollar) to Rossoneri Sport Investment carrying an interest rate of around 10%.
Any failure to repay the money and ownership could lead to an ownership transfer to Elliott Management.
With the debt coming due in October of next year the owners are reported to have embarked on a mission to find new investors willing to help refinance the club and to share the debt load.
Unfortunately, Rossoneri Sport Investment will be negotiating from a very weak position.
Another substantial loss is guaranteed for this financial year and the team is off to only a so-so start in Serie A. Although Italy will be guaranteed four spots on account of the revamped qualification system for next year’s Champions League, Milan may still fall short.
Out of the 10 goals scored by Milan so far in Serie A, only four were from open play pic.twitter.com/aoEiecsO0k
— Milan Eye (@MilanEye) October 2, 2017
After seven Serie A matches Milan is on 12 points, four points out of a top four position. On Sunday, Milan lost to Roma (5th) 2-0 and after the international break, Milan faces city rival Inter on October 15. Inter is presently 3rd and seven points ahead of Milan.
Rather than successfully executing the Chelsea/Man City/PSG strategy, the nightmare scenario played out at Liverpool of the Premier League when US-businessmen, Tom Hicks, and George Gillett lost control of the team to the main creditor RBS is a more distinct possibility.