Breaking Down the Numbers Behind the Roma Takeover Deal

A sustained, long-term approach. Choice words indeed.

We’d hoped that The Friedkin Group brought the moneybags with them to wave away player sales for good but, in the end, it looks like James Pallotta was strong-armed into accepting Dan Friedkin’s offer to steady the ship. The Texan was the only binding offer on the table for Pallotta to cut loose from Roma’s loss-making operation —this despite speculative bids from the Middle East and other groups that potentially would have landed Pallotta 100 to 200 million euros more cash in the sale.

But Pallotta’s group had simply run out of time; tensions through 2019 and 2020 between Pallotta and his minority shareholders were already at an all-time high, with the latter opening a class-action lawsuit against Pallotta for trying to bully them into coughing up more money to tide over Roma’s losses hitting the club from all directions.

Today, with the club sold and those minority shareholders receiving just under €9 million as their parachute out of the Eternal City, Pallotta is seeking to have that suit dismissed and call it bygones. The long and short of it, from Pallotta’s point of view, is that he simply ran out of funds to tap from his rolodex.

And so James Pallotta was forced to accept Dan Friedkin’s takeover bid that effectively amounts to €199 million in cash.

Recovering From A Sea of Financial Red and Yellow

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The first task for the Friedkin Group looks like helping Roma survive difficult times for Italian football on the whole.

Roma right now is not only facing a loss of Sky TV income for the latter third of the 2019-20 season, but is unable to set a date for selling season tickets for the new season. There’s the loss of matchday revenue (though this is offset by less matchday expenses while Serie A plays behind closed doors), and, most fatally of all, the back-to-back failures to qualify for the Champions League.

That means part of Friedkin’s takeover was really just a rescue bid, starting with his contribution to the club’s recapitalization.

Injecting Emergency Funds Into the Club: €111 Million

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Pallotta’s reign ended with one last fundraiser to help the club tide over loss of Champions League revenue; in the end raising €150 million in funds, of which around €39 million was paid into the club by James Pallotta’s group. The other 111 million (€111,079,520 to be specific) was paid into the club by the Friedkin Group as part of the pre-agreement to buy the club.

This wasn’t the plan Pallotta cooked up to raise over €300 million in bonds last winter—a plan that was originally meant to cover one season spent outside of CL football and a year’s worth of competitive transfers. But in the end, Pallotta managed to secure the funds needed to help pay the four months’ worth of wages the players had agreed to defer in 2020, as well as cover all annual staff expenses on the whole.

In short, Roma avoided the crisis that’s currently facing Valencia in La Liga.

Buying 86.6% of A.S. Roma : €71.8 Million

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As far as outright buying the club itself, The Friedkin Group offered €0.1165 a share to buy the private side of the club plus some publicly-traded shares.

Pallotta’s minority shareholders also owned 3.3% of public shares traded on the Italian Borsa, which Friedkin bought for the same price as his private offer. The end result is that the Friedkin Group owns an 86.6% majority share in the club, bought for €63,414,047 million for the 83% of the club that is privately owned, and €8,486,933 million for 3.3% of publicly traded A.S. Roma shares on the stock market.

The Public-Private Transport Deal for the New Stadium: €16 Million

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It shouldn’t be any surprise that Rome mayor Virginia Raggi immediately welcomed Dan Friedkin to the city yesterday. After all, The Friedkin Group has already gone into a binding partnership with the city as of last week.

The club had to fight tooth and nail, since 2017, to limit how much it’d have to contribute to renewing Rome’s public transport in order to get the new stadium bid over the line. At first, Raggi’s troops were talking about A.S. Roma paying as much as €300 million into the city just to have a chance at building the stadium. Obviously way too much for James Pallotta to afford (remember that the stadium project itself costs a cool €1 billion to make a reality).

In the final version of the stadium project waiting approval in Campidoglio, the club agreed to make itself liable to a maximum of €170 million investment into a new rail line, rail station and merging major roads in an around the heart of Rome, in order to rejuvenate the Tor di Valle area surrouding the new stadium project. The first tranche of that bill is the €16 million that Dan Friedkin has agreed to put into the public-private partnership between club and city.

The club awaits a final approval for the Stadio della Roma project this coming September or, at latest, October. With Virginia Raggi’s government officially staking their re-election campaign on building the stadium last week—a project that represents the second-largest investment into Rome’s economy—now the club, mayor and government are all-in on getting Stadio della Roma across the line.

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So What Actually Changes and What Doesn’t?

A rough sum of what Friedkin has actually paid to make this takeover happen let’s us know he paid around €199 million directly to James Pallotta, and a further few million on top to the minority shareholders.

The enterprise value of the takeover deal was a headline-grabbing €591 million, but the biggest part of that value was the €385 million worth of debt that the club owes to Goldman Sachs during the Pallotta era. The Friedkin Group has assumed responsibility for that debt repayment, so effectively nothing changes on the bottom line, as far as Financial Fair Play goes. At least not in the immediate future.

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However, there is a glimmer of hope that Friedkin wants to run the club differently to Pallotta’s “load the club with value, and pay if off later” approach.

For one, The Friedkin Group have outright stated their interest in taking over 100% of the club and de-listing it from the stock market, with a mandatory initial public offer that would buy the remaining 14.4% publicly traded A.S. Roma shares for the same €0.1165 a share.

On paper, that’s an incredibly low offer for shares that are currently going on the Borsa for over three times that price. And we don’t know how mandatory public offers or delisting work here at CdT.

Are shareholders forced to accept the offer? Can they tell Dan Friedkin to come back with more money or hang up the phone? We’ll see.

But the motivation behind Friedkin delisting the club is both simple and boring, on the face of it. For one, the club spends around €2 million a year just on administration of the public side of the club. If Friedkin gets his way, then buying up the remaining shares would cost him just under €9 million. Whereas, to keep running the club as it is, would cost him twice that amount over the next decade. So it’s just an expense-saving operation at first.

The more Machiavellian speculation around the club potentially going 100% private is that Dan Friedkin would have the freedom to repay back the club’s debt as he pleases, without having to make that information publicly available to market or—crucially—Roma’s Serie A and European opponents.

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It helps when Juventus, Inter Milan and others don’t know that you have to forceably pay back €28 million to Goldman Sachs by a certain date every summer, while you’ve got Mohamed Salah’s agent on the line claiming his client will only accept a move to Liverpool.

But that doesn’t mean Roma will necessarily avoid major player sales. Just that they could negotiate bigger numbers without being forced to work by a transparent deadline. Remember that the Friedkins’ ambition to repay back the club’s debt would easily include selling off Nicolò Zaniolo for €100 million in the summer of 2021 or 2022, should such a mega-offer arrive from abroad.

And then there’s the idea that Friedkin could announce club sponsorships that go beyond the market value, similar to Sassuolo’s sponsor deal with parent-company Mapei that is officially the “largest” title sponsor deal on the peninsula at €17 million a season; realistically it’s just Sassuolo’s owner funneling his own funds into the club to get around Financial Fair Play. There is hope that Friedkin could convince Toyota to do similar, not just with sponsorship the club’s kits but potentially the new stadium.

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But that is all speculation.

For now, what we know is the club have earned another 12-month grace period under Financial Fair Play, as is custom for any club that passes hands to a new owner. That’s another 12 months of Nicolò Zaniolo’s career secured in Rome. The Friedkin Group claim they are “ambitious” and were keen to point out in their official statement that they are indeed business owners who are used to backing strong leadership when they build management teams.

That in itself would be a change from the days of venture capitalist James Pallotta. Already seven resignations have been accepted from Pallotta’s old board, replaced by three of Dan Friedkin’s most trusted directors and two JP Morgan bankers this week. Throughout it all, the common thread tying club present, past and future is CEO Guido Fienga, himself working around the clock to trim the squad and the player wage bill.

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The Friedkin Group will likely have a bit of a honeymoon period, but time will soon tell if the figures in this deal will lead to a stronger and more successful product on the pitch.