Hours after landing in Milan on the last day of May, Gerry Cardinale bypassed reporters camping in front of his hotel and headed to the home of an Italian football legend.
Cardinale, founder of the American Investment Group RedBirdhe had just signed a 1.2 billion-euro deal to buy AC Milan from hedge fund Elliott Management, but, before announcing it to the city’s public and football-obsessed media on June 1, the 54-year-old wanted to win over Paolo Maldini.
“It was very important to me that I did that,” Cardinale said of his lunch with Maldini, one of Milan’s most respected captains and now the club’s technical director, who recently accused Elliott of excluding him from the sale negotiations. “In the end, we spent three and a half hours together. . . it was fantastic. “
Surrounded by lemon trees and over spreads of prosciutto crudo and buffalo mozzarella drizzled with Aperol spritz, Cardinale convinced Maldini to remain a central spot in the future of the club, which just a few days earlier became Italian champions for the first time since 2011.
Concluding a whirlwind of four weeks of negotiations for the Cardinals, the meeting was also a mild introduction to the often tense politics of Italian football – one of the multiple challenges RedBird must now face in order for its ownership to succeed.
While New York-based RedBird has long nurtured ambitions to own an elite club, Elliott has shown little appetite until this year to sell the one he took control of in 2018.
Known for his combative approach, which has led to more than a decade of conflict with the Argentine government and public warnings to companies from Twitter to Samsung, Elliott it has grown more receptive to possible sales this year, says a person versed in the matter.
Elliott founder Paul Singer did not feel comfortable owning such a prominent business, the person added, angry at any suggestion that Milan was just a trophy and irritated to see employees in the stands at the San Siro club stadium.
As the Serie A season approached its peak, and Milan approached the title, the race to find a new owner was getting faster. Exclusive talks with Investcorp, a property manager headed by Bahrain, failed in May.
Cardinale lost little time, flying to London on May 5 to meet with Gordon Singer, who leads Elliott’s European operations and is the son of the founder. As RedBird stated that it will improve the inflow of AC Milan’s money, his original plan to buy the club through private capital has been turned into an unconventional one in which Elliott helps with financing.
Elliott has agreed to lend € 600 million to RedBird at an interest rate of 7 per cent, which is expected to fall to € 200 million later this year as the company raises money from existing investors and partners. The fund also provided warrants, financial instruments that Elliott could turn into an ownership stake of between 1 and 2 percent if the club were resold or listed, according to people familiar with the matter.
“This has allowed us to start from the coins, close the deal, allow them to continue to participate in the way they like to participate,” explained Cardinale, who founded RedBird in 2014 after two decades as a banker at Goldman Sachs.
However, the sale process has drawn criticism from board member Milan Salvatore Cerchione, whose holding company Blue Skye owns just under 5 percent of the club.
“Blue Skye is unhappy with the opacity of the disposal process,” Cerchione told the Financial Times. “We are confused by the real motives behind the club’s dismissal, especially when we have such a bright future ahead of us.”
Elliott declined to comment on Cerchione’s criticism.
These financial silver elements built into Elliott’s departure from Milan add extra shine to the returns he has made from a club he never intended to own.
Even after injecting 750 million euros into the club, Elliott will make a profit of approximately 450 million euros – not counting the interest that comes from RedBird, according to people who are directly familiar with it. That results in about 15 percent return per year, people add.
Unlike RedBird, Elliott had no aspirations to own a football club. A solid group that is relentless in finding earning opportunities, Elliott spotted one in 2017 when little-known Chinese businessman Li Yonghong made a bold offer to buy AC Milan from former Italian Prime Minister Silvio Berlusconi.
Led by Franck Tuil, then the fund’s senior portfolio manager, Elliott secured Liu 300 million euros in high-interest debt, securing a stream of income and leaving the Chinese entrepreneur in control of one of the most efficient football clubs. The left ownership proved short-lived, and Elliott took control when Li made the default.
“We started as financiers,” said Giorgio Furlani, Elliott’s portfolio manager and board member of Milan. Financial Times Business of Football Summit in March. “Shortly afterwards, within a year, the club fell into a difficult financial situation; the owner was exploited in terms of resources. So we had to go in, we took over the property. ”
Elliott took over the club in disarray – the legacy was aggravated by skepticism that welcomed the establishment of a hedge fund as owner.
Serial winner of the biggest European tournament of the 1990s and 2000s, AC Milan has not been in UEFA’s lucrative Champions League since 2014. The exile burdened its revenues, which amounted to about 200 million euros, and left the San Siro, which shares with archival rivals. Inter Milan, which urgently needs modernization.
“What we found when we took over was a totally catastrophic situation: the club went bankrupt from the perspective of cash flow, too little earnings, too many expenses,” Furlani recalled.
Efforts to turn the club around initially yielded little. In 2018, Ivan Gazidis, an acquaintance of Gordon Singer, flew by parachute from Arsenal as executive director with a mission to improve the club’s finances and build new revenue streams. Maldini was instructed to reduce the team’s budget by rejecting big earners and bringing in younger, cheaper players.
Uefa’s ban from the European competition in 2019 due to the historical violation of the rules of financial fair play only darkened the mood. It turned out to be a fertile background for tensions, as Gazidis clashed with Maldini and Zvonimir Boban, the then chief football officer, over whether to recruit expensive players. *
But the signing of Zlatan Ibrahimovic, one of the best center forwards of his generation, at the end of 2019, was a controversial exception and one that will be decisive in reviving the club’s wealth on and off the field.
The now 40-year-old helped the club return to the Champions League at the end of the 2020/21 season, which was a much-needed boost for his finances. He also returned to Deloitte’s Football Money League, a widely viewed club revenue list, after earning 216 million euros that season.
Although Ibrahimovic’s contribution sparked a recovery that took place even in the midst of the coronavirus pandemic, the young team – including Rafael Leão, Theo Hernández and Sandra Tolani – helped the club return to the pinnacle of Italian football during Elliott’s last season in control.
You want to be an American
Despite this triumph, Cardinale describes AC Milan as a “sleeping giant”. Reducing the gap with well-funded rivals across Europe is a significant challenge.
The Wall Street veteran bets that his experience working with some of America’s top sports clubs, including the New York Yankees and Dallas Cowboys baseball teams, and athletes like Alex Rodriguez and LeBron James basketball players, created a game plan that could take AC Milan to new heights.
The new stadium is at the top of RedBird’s to-do list, which includes achieving a media rights package for the entire Serie A, as well as hiring celebrities and fashion brands to bring a little glamor to the AC Milan brand.
“A brand of this magnitude, like AC Milan, should have an infrastructure that points to its football strength and global potential,” Cardinale said. “We had a lot of experience with stadium projects in the United States. Milan and Italy deserve a world-class stadium with the best sports and entertainment on a global scale. ”
Cardinale does not seem intimidated by the wealth amassed by the English Premier League, which has capitalized on the global appeal of competition through a range of lucrative media deals. According to Deloitte, England’s top 20 clubs generated revenue of € 5.1 billion in the 2019-20 season, which is about € 3 billion more than Serie A. Just a decade earlier, that gap was around € 1 billion.
“There is a huge opportunity at the macro level with Serie A,” Cardinale argued. “There should be no such difference in revenue on the media side between Serie A and the English Premier League.”
Leveraging Milan’s status as the global fashion capital – Armani, Versace and Prada are among the brands calling the city home – is also part of RedBird’s multiple strategy to build AC Milan as a business.
The stakes are high for RedBird. Although his investments include YES, the Yankees regional sports network, and Fenway Sports Group, the owner of Liverpool FC and the Boston Red Sox, AC Milan is by far his most prominent business.
The recent record of other rich Americans seduced by the rich heritage of Italian football and their future potential is not encouraging. Boston hedge fund tycoon James Palota’s plan to build a 52,500-seat stadium for Roma was thwarted by politics in 2014, and he has sold the club ever since.
RedBird’s hopes of building a new stadium – along with its other ambitions – ultimately depend on AC Milan maintaining its renaissance on the field.
Cardinale’s introduction in Maldins was made by Maverick Carter, head of SpringHill, a media and entertainment business that counts RedBird as a shareholder.
“I connected him with Paolo because I knew how important and valuable that partnership was [would be]”Carter said. The renewal of Maldini’s contract, which expires at the end of the month, is at the top of Cardinale’s list.
*This article has been amended to clarify the role of Zvonimir Boban in AC Milan