Hours after landing in Milan on the last day of May, Gerry Cardinale avoided the press kit camped outside his hotel and headed for the home of an Italian soccer legend.
Cardinale, the founder of US investment group RedBird, had just struck a €1.2 billion deal to buy AC Milan from the hedge fund Elliott Management but, before announcing it to the public and crazed media of City football on June 1, the 54-year-old wanted to win Paolo Maldini.
“It was very important for me to do this,” Cardinale said of his lunch with Maldini, one of AC Milan’s most revered captains and now the club’s technical director, who had recently accused Elliott of excluding him from sales negotiations. “We ended up spending three and a half hours together…it was fantastic.”
Surrounded by lemon trees and on a spread of prosciutto crudo and buffalo mozzarella drizzled with Aperol spritz, Cardinale reassured Maldini that he remained at the center of the future of a club which days earlier had been crowned European champions. Italy for the first time since 2011.
Capping off a whirlwind four weeks of negotiations for Cardinale, the meeting was also a smooth introduction to the often tense politics of Italian football – one of the multiple challenges RedBird now faces to make his ownership a success.
While New York-based RedBird had long harbored ambitions of owning an elite club, Elliott had until this year shown little appetite to sell the one he took over in 2018.
Known for his combative approach that has seen him clash for more than a decade with the Argentine government and publicly berate companies from Twitter to Samsung, Elliott has become more receptive to a possible sale this year, according to a person familiar with the case.
Elliott founder Paul Singer was uncomfortable owning such a prestigious company, the person added, upset at any suggestion that AC Milan were simply an asset for the trophy and angered to see employees in the stands of the club’s San Siro stadium.
As the Serie A season approached its peak with AC Milan closing in on the title, a race to find a new owner gathered pace. Exclusive talks with Investcorp, the Bahrain-led asset manager, broke down in May.
Cardinale wasted no time, flying to London on May 5 to meet Gordon Singer, who heads Elliott’s European operations and is the founder’s son. As RedBird explained how he would improve AC Milan’s cash flow, his original plan to buy the club via a private equity deal turned into a more unconventional deal in which Elliott is helping with the funding.
Elliott has agreed to loan RedBird 600 million euros at an interest rate of 7%, a sum that is expected to drop to 200 million euros later this year as the company raises funds from investors and of existing partners. The fund also secured warrants, financial instruments that Elliott could convert into a 1-2% stake if the club was sold or went public, according to people with direct knowledge of the matter.
“It allowed us to move forward in no time, get a deal done, allow them to continue to participate in a way that they like to participate,” explained Cardinale, who created RedBird in 2014 after two decades. as a banker at Goldman Sachs.
However, the sale process has drawn criticism from AC Milan board member Salvatore Cerchione, whose holding company Blue Skye owns just under 5% of the club.
“Blue Skye is unhappy with the opacity of the disposal process,” Cerchione said in a statement to the Financial Times. “We are confused as to the real motives behind the club’s sale, especially when such a bright future awaits us.”
Elliott declined to comment on Cerchione’s criticism.
Those silver financial linings built into Elliott’s exit from AC Milan add an extra shine to the returns generated by a club he never intended to own.
Even after pumping €750m into the club, Elliott will make a profit of around €450m – excluding interest payments from RedBird, according to people with direct knowledge of the matter. That equates to a return of around 15% per year, the people added.
Unlike RedBird, Elliott did not aspire to own a football club. A hard-nosed bunch that relentlessly seeks out money-making opportunities, Elliott spotted one in 2017 when little-known Chinese businessman Li Yonghong made a bold bid to buy AC Milan from Italy. former Italian Prime Minister Silvio Berlusconi.
Led by Franck Tuil, then the fund’s senior portfolio manager, Elliott provided Li with €300 million of high-interest debt, securing a source of income and giving the Chinese entrepreneur control of one of the most decorated football clubs. Li’s ownership proved brief, with Elliott taking control when Li defaulted.
“We started as financiers,” said Giorgio Furlani, portfolio manager at Elliott and member of the AC Milan board, at the Financial Times’ Business of Football summit in March. “Shortly after, within a year, the club fell into a difficult financial situation; the owner has been exploited in terms of resources. So we had to come in, we took over the property.
Elliott took over a club in disarray – a legacy made more delicate by the skepticism that greeted the hedge fund’s installation as owners.
Serial winners of Europe’s biggest tournament in the 1990s and 2000s, AC Milan hadn’t honored the lucrative UEFA Champions League since 2014. Exile weighed on their income, which stagnated at around 200 million euros and left San Siro, which he shares with arch-rivals Inter Milan, which is in dire need of modernization.
“What we found when we took over was a totally dire situation: the club was bankrupt from a cash flow perspective, too little income, too many costs,” Furlani recalled.
Efforts to turn the club around didn’t yield much at first. In 2018, Ivan Gazidis, an acquaintance of Gordon Singer, was parachuted from Arsenal as chief executive with the mission of fixing the club’s finances and creating new sources of revenue. Maldini was tasked with cutting the team’s budget by ditching big earners and bringing in younger, cheaper players.
A 2019 UEFA ban from European competition for historic breaches of Financial Fair Play rules only darkened the mood. This proved a fertile backdrop for tension, as Gazidis clashed with Maldini and then-director of football Zvonimir Boban over whether to sign expensive players.*
But the late 2019 signing of Zlatan Ibrahimović, one of the best centre-forwards of his generation, was a controversial and decisive exception to reigniting the club’s fortunes on and off the pitch.
The 40-year-old helped the club return to the Champions League at the end of the 2020/21 season, a much-needed boost to their finances. He also returned to Deloitte’s Football Money League, a widely followed ranking of clubs by revenue, having made €216m that season.
Although Ibrahimović’s contribution kick-started the recovery that has continued even amid the coronavirus pandemic, it was a young squad – including Rafael Leão, Theo Hernández and Sandro Tonali – that helped the club return to the peak of Italian football in Elliott’s final season under control. .
You saw the Americano
Despite the triumph, Cardinale describes AC Milan as a “sleeping giant”. Closing the gap with well-funded rivals across Europe is a tall order.
The Wall Street veteran bets his experience working with some of America’s top sports clubs, including the New York Yankees baseball team and American football’s Dallas Cowboys, and athletes such as Alex Rodriguez and the basketball player LeBron James, has forged a playbook that can take AC Milan to new heights.
A new stadium tops a to-do list for RedBird which includes scrapping a media rights package for all of Serie A as well as enlisting celebrities and fashion brands to inject glamor into the AC Milan brand.
“A brand of this stature, like AC Milan, should have an infrastructure that reflects their footballing prowess and global potential,” Cardinale said. “We have a lot of experience in stadium projects in the United States. Milan and Italy deserve a world-class stadium that is home to the best in sport and entertainment on a global scale.
Cardinale doesn’t seem intimidated by the riches amassed by the English Premier League, which has capitalized on the competition’s global appeal through a series of lucrative media deals. According to Deloitte, the top 20 English clubs generated revenues of €5.1 billion in the 2019-20 season, around €3 billion more than Serie A. A decade earlier, that gap was around 1 billion euros.
“There is a huge opportunity at the macro level with Serie A,” Cardinale explained. “There shouldn’t be this kind of revenue differential on the media side between Serie A and the English Premier League.”
Leveraging Milan’s status as the fashion capital of the world – Armani, Versace and Prada are among the brands that call the city home – is also part of RedBird’s multi-pronged strategy to make AC Milan a business.
The stakes are high for RedBird. Although his investments span YES, the Yankees’ regional sports network, and Fenway Sports Group, owner of Liverpool FC and the Boston Red Sox, AC Milan is by far his most high-profile deal.
The recent record of other wealthy Americans seduced by both the rich heritage and future potential of Italian football is not encouraging. Boston-based hedge fund mogul James Pallotta’s plan to build a 52,500-seater stadium for AS Roma was thwarted by politics in 2014 and he has since sold the club.
RedBird’s hopes of building a new stadium – as well as his other ambitions – ultimately hinge on AC Milan reviving on the pitch.
Cardinale’s introduction to Maldini was made by Maverick Carter, boss of SpringHill Company, a media and entertainment company that counts RedBird as a shareholder.
“I put him in touch with Paolo because I knew how important and valuable this partnership was. [would be]Top of Cardinale’s list is the renewal of Maldini’s contract, which expires at the end of the month.
*This article has been edited to clarify Zvonimir Boban’s role at AC Milan