Theannouncementthat stars Ryan Reynolds and Rob McElhenney are acquiring Wrexham AFC has generated significant attention given potential media opportunities. However, it is the soccer club’s ability to potentially generate partnership opportunities that makes the acquisition even more interesting.
Wrexham is situated in Wales and currently plays in the National League, four tiers below the English Premier League (EPL). Reynolds is most famous for being a movie star while McElhenney is best known for co-creating, producing and starring inIt’s Always Sunny in Philadelphiaon FXX.
The first reason the deal is notable is for its structure. AsSportico’s Eben Novy-Williams states, “[Reynolds and McElhenney] won’t pay anything up front for the club, which is currently owned by a supporter’s trust. They’ve promised instead to invest at least $2.64 million (2 million pounds) into the club’s infrastructure.” The duo will alsosigna 25-year stadium lease for approximately $150k per year.
Wrexham currently is not profitable butBloomberg’s Alex Webb andHuddle Up’sJoe Pompliano explain why this should soon not be the case. Reynolds and McElhenney plan to produce a “Netflix-style” documentary (likeSunderland 'Til I Diewhich is currently on Netflix)that is projected to make $800,000 inprofit. That alone is expected to make Wrexham profitable.
The bigger media opportunity, however, is if Wrexham can eventually secure promotion to the EPL. While EPL promotion would come with increased costs, the smallest amount earned from broadcasting payments by an EPL team for the 2019-20 season wasprojectedto be $125.21 million (94.5 million pounds).
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The ability for teams to maximize media rights is one reason that several private equity firms and special purpose acquisition companies (SPACs) have looked to European soccer for potential investment opportunities. However, typically acquisition targets are teams at or much closer to the highest level of domestic competition in their countries.
That highlights the challenge for Reynolds and McElhenney with Wrexham. It will take at best multiple seasons to at least have any chance of promotion into the EPL as teams can only progress one tier per season (and need to avoid relegation in the process). In addition, it is not clear how many seasons a documentary can last or if the duo will be able to command the revenues for future episodes that they can now.
That is one reason why Reynolds and McElhenney appear to be focused on sponsorship as a primary way to grow the team’s revenues. The duo has already produced a (somewhat satirical) holiday-themed video for Wrexham sponsor Ifor WilliamsTrailersto demonstrate their commitment to helping the team grow revenues in their original presentation to the team’s supporters to acquire the team.
Sports properties leveraging non-endemicinfluencersto promote teams by engaging new and existing fans is something we highlighted in a recent post featuring theNew York Jets. In addition, we showed how athletes being owners and organic users of products can help companies build brand awareness and drive revenues in a post onBeyond Meat’spartnership with NBA players.
The Reynolds and McElhenney Wrexham acquisition is both an amalgamation and evolution of these two ideas. The pair clearly will be organic users of Wrexham given that they acquired the team. They also know how to produce content that should drive significant lifts in awareness for current partners (such as Ifor Williams) that the partners would be unable to generate on their own.
More importantly (at least from a revenue perspective), larger companies will now be looking to become partners with Wrexham to in large part work with Reynolds and McElhenney that likely would never have considered working with the team before. This increase in partnership revenue can have an immediate and sustainable impact on the club’s revenues and help catalyze its eventual EPL promotion.
Leveraging his star power to grow revenues and increase a company’s enterprise value strategy is something that Reynolds has already achieved success with in multiple previous ventures. Reynolds recently sold most of his equity in Aviation American Gin as part of a $610 million deal after having been the company’s most visible brand asset. He is currently taking a similar approach as an owner withMint Mobile.
This acquisition clearly will not always go smoothly. Reynolds rhetorically asks the audience “Are we really doing this?” in the Ifor Williamsvideo. Rather than being a joke, however, Reynolds’ and McElhenney’s decision to acquire Wrexham should have a serious impact on the team and clear a path to a successful investment exit fueled in large part by sponsorship revenue.
