Does Jürgen Klopp’s exit signal the end of the golden age of FSG?

Whenever Fenway Sports Group has added to its sprawling global portfolio of sports franchises, now valued at more than $10bn, the story it has told about its intentions has been the same: respect tradition, build the brand, leave the team on a more sustainable footing for future growth, and above all, win. Reflecting on the two-year anniversary of the group’s 2021 acquisition of the Pittsburgh Penguins ice hockey team late last year, FSG chairman Tom Werner told The Pittsburgh Post-Gazette: “We feel a certain responsibility as stewards to make sure we’re not only preserving the legacy of the Penguins, but that we are trying to bring more Stanley Cups to Pittsburgh.”

In the mouth of any other sports investor, words like these would seem like standard-issue corporate smarm. But FSG has the track record, built up over more than two decades, to back them up: from Boston to Liverpool and beyond, FSG’s arrival has heralded success on the field and renewal off it, bringing trophies and a fresh sense of connection between the teams it has taken over and the communities those teams represent.

At Liverpool in particular FSG has offered perhaps the best model of what sustainable institutional investment in the Premier League can look like, engineering happy memories on the field without burning the balance sheet: in the year ending May 2022, Liverpool’s most recent set of financial results, the club generated record revenues of £594m, with a pre-tax profit of £7.5m. Of all the American investors who’ve descended on European football over the past two decades, FSG has been comfortably the smartest and most successful – and while that distinction may seem easily earned when the principal competition is the Glazer family, it’s taken time to win it.

But now what? Jürgen Klopp’s announcement that he will be leaving his post at the end of this season is as much of a blow for FSG as it is for Liverpool. The Red Sox and Liverpool, acquired in 2002 and 2010 respectively, have long been the twin jewels in the FSG crown, and for much of the past 15 or so years the two teams have helped turn the investment group into a kind of reputational hedge fund, with success in one team helping to compensate for failure in the other. The Red Sox broke the ‘Curse of the Bambino’ and claimed their first World Series in 86 years in 2004, with a further three titles following in the years since. Success in Boston helped burnish FSG’s prestige as a canny sports investor and buy some patience with Liverpool fans through the lean opening years of the group’s tenure at Anfield, when the Reds seemed simultaneously a slip and an eternity away from winning their first championship since 1990.

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Over the past five years, however, the teams’ fortunes have reversed. Liverpool have enjoyed their most sustained period of post-Boot Room success – claiming fresh Premier League and Champions League trophies – while the Red Sox have slumped to three last-place finishes in the (admittedly very competitive) American League East division in four years, an abysmal showing for one of baseball’s most storied franchises. Despite promises of a “full throttle” winter and the budget to go after big signings, the Red Sox have remained relatively inactive in the player market over recent months. Apathy has grown among fans at the owners’ perceived lassitude in the face of chronic failure. Does FSG care any more? Can it handle a larger portfolio of clubs? Soon it may be Liverpool supporters asking these questions too.

John W Henry, FSG’s principal owner, is known for being a data and details obsessive, the type of figure that profile writers love to describe as a “shy quant” or a “walking algorithm”: he famously made his fortune trading soya bean futures to help his family’s farming business; he read over 60 books on soccer to educate himself about the sport after buying Liverpool with relatively little football knowledge; and one of his first instructions as Red Sox owner was to order new clay for the infield at Fenway Park because the existing clay was “not the right color” for him.

The group Henry leads has built a similar reputation for focus and technical mastery, but for all the blather about data “revolutionizing” football, FSG’s success at Liverpool has ultimately been down to the single, inspired decision to hire Klopp in October 2015. At Boston the early triumphs arrived through similarly smart hiring decisions, but the core ownership group – Henry, Werner, and FSG president Mike Gordon – are all baseball fans, which has given a different texture and depth to their involvement in on-field operations. At Liverpool they’ve been far more reliant on Klopp’s charisma and energy to drive the club forward – and they’ve been extremely lucky to have him.

No Premier League manager but Klopp has been able to marshal a team to a point of sustained competitiveness in the face of the footballing and financial tsunami that is Manchester City – and he’s done it, even more impressively, at a club whose principal owner is a midwestern American bean counter rather than a headless spender in the Boehly or Saudi mold. Klopp’s departure will leave a footballing and cultural vacuum at the heart of Liverpool that FSG will struggle to fill: there’s no Klopp-like figure waiting in the wings to take over, no set of veneers gleaming in the dark, and whoever comes in will invariably need time to recast the club in their image. At a time when the group’s other golden asset is also suffering, with Henry and Werner approaching their mid-70s, these challenges create a real question of whether the group is equal to the task of its own expansion.

And make no mistake: expansion is very much the order of the day for FSG. The group has long presented itself as a bulwark against the corporate orthodoxy of growth for growth’s sake (“We’re suspicious of the idea of ‘we need to be bigger,’” Gordon once said), and in some respects FSG is different to other big investors active in European soccer: it cares about fiscal sustainability more than most, and it has not embraced the model of multi-club ownership made popular by City Football Group and Red Bull, preferring instead to invest across different sports and markets. FSG’s investment style is heavy on blue-chip, established names: it would be difficult to see Henry and Werner scavenging to unlock value in the Italian third tier or hanging out a shingle on the Brazilian savanna.

In other ways, though, FSG is an investor like any other, looking to make money wherever it can: the whole impetus for the group to look for investment opportunities outside the US, which eventually led to the acquisition of Liverpool, was Henry’s frustration at MLB’s curbs on franchise owners’ freedom to maximize revenue.

FSG may still be suspicious of the need to be bigger, but bigger is unquestionably what it is becoming. In addition to the Penguins, the group now also owns a Nascar team, a franchise in Tiger Woods and Rory McIlroy’s planned TMRW Golf League, and two regional US sports networks; last week came news that a new investment consortium led by FSG will inject $3bn into the PGA Tour’s commercial business, potentially presenting a fresh bone of contention in the interminable merger negotiations between the PGA and LIV Golf. Though Henry remains FSG’s principal owner and biggest stockholder, the group has also moved recently to bring in a variety of new investors, from LeBron James to RedBird Capital Partners.

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Investors love to talk about synergies – and it’s not hard to see how an investor like RedBird, for instance, which has a well regarded data analytics business, can support teams across the FSG portfolio. But synergies can multiply to the point of distraction. FSG has always been a slightly unusual investor in European soccer, in that it’s not looking for returns uncorrelated to the broader market as many institutional investors are: its interest is in sport and sport alone, not in sport as a hedge against non-sporting losses. This gives a focus to the group’s operations but the exclusive concentration in sport demands total dedication to the task, which could now be difficult to maintain given all the new demands on the ownership core’s attention.

Following recent renovations to the squad, Klopp will leave Liverpool in good shape. But any downturn in the team’s post-Klopp fortunes would push FSG into uncharted waters, leaving both its prime assets in trouble at the same time as the group stretches to manage and corral new ventures and investors.

Trimming the group’s holdings to capitalize on the increase in value of its most visible assets may, at that point, start to look attractive. Both the Red Sox and Liverpool are set to release fly-on-the-wall documentaries in the coming year (the latter despite Klopp’s long-standing resistance to the idea), which could conveniently double as pre-sale marketing material. It seems unlikely that FSG will exit the Red Sox any time soon, given the historic and emotional nature of its attachment to the franchise. Henry also owns The Boston Globe, where his wife Linda serves as CEO; the family is entrenched in New England. In Old England, it’s a different story. Henry & Co explored putting Liverpool up for sale in late 2022 then quickly rebranded this as a search for “new investment”, which ended with the sale of a minority stake in the club to US private equity firm Dynasty Equity late last year. The ferocity of Liverpool fans’ reaction, in 2021, to the club’s mooted participation in the Super League – for which Henry eventually took personal responsibility, issuing an apology to supporters – gave the owners a glimpse of how things might look for them should results start to sour.

Now, with Liverpool set to lose its beloved beerfister, FSG may have further cause to reconsider its position. The club’s prestige, never in doubt off the field, has been restored on it; the balance sheet is the envy of Europe’s superclubs; Anfield is well on its way to 61,000 seats. As Liverpool prepares for the pain of a Kloppless future, its owners are racing toward a reckoning – one that may ultimately see them decide that the time has come, at last, to bid Merseyside goodbye.