The 'Vulture Fund' behind the Milan takeover

Amid the collapse of the Sino-Sports Europe bid for AC Milan and its revival as Rossoneri Sport Investment Lux is the new group - one would have thought it would be a phoenix that had risen from the flames - instead of a vulture.

And that’s exactly what the ‘heroes’ of the long-running AC Milan takeover have been described as. Elliott Management have provided Li Yonghong (the sole figure behind the takeover of AC Milan) with the cash that the Chinese businessman would need to close the deal with Fininvest to secure a majority stake in AC Milan. At the very least Elliott will allow Li to buy himself more time with another deposit towards the full purchase of Milan, in the hope that for the third time, he will be able to gather investors to secure the deal (Elliott have said that they have ‘found’ other investors, but will not disclose their names). Whatever the case, Elliott will finance Li - and their involvement in football should make Milan fans, and football fans at large, pretty worried.

Elliott, readers, are known as a vulture fund. Do you know what a vulture is?

Photo by Pablo Blazquez Dominguez/Getty Images

It’s this thing. For the sake of context, it’s worth going into detail on the nature of Vultures. These scavenging birds fly around dying, or dead, creatures and nest near the corpse so they can dip their long beaks and bald head to pluck carrion away after a death. Where’s the financial context to this? The following is from ‘THE EVOLUTION OF MODERN SOVEREIGN DEBT LITIGATION by Jonathan Blackman and Rahul Mukhi. It’s more academic than our purposes, but it’s the best description of a vulture fund out there.

This article examines the progression of sovereign debt case law as displayed by the succession of litigation strategies employed by professional suers of defaulted sovereign states. These plaintiffs are often referred to as “vulture funds” because their strategy is to buy sovereign debt instruments when a country is most vulnerable, which enables the funds to purchase the debt at a deep discount from its face value and attempt to enforce the full claims. This business plan necessarily depends on the lack of bankruptcy protection for sovereigns, but it is constrained by the sovereign-immunity rules that national legislatures have enacted and national courts have elaborated to protect the vultures’ targets from some of their attacks.

‘Buy when a country is most vulnerable’ - that should send a shiver down your spine. While the term Vulture fund seems like something to be feared, plenty of outlets refer to Elliott as a hedge fund. Elliott themselves don’t have a lot of information on their own website - it’s pretty sinister and it’s all very ‘big finance’.

From the description of a vulture fund and vultures - we can assume what happens here. The fund dips its beak into vulnerable companies and does what it can to turn a profit. These aren’t venture capitalists who deal in success, these are groups which want to turn a profit - no matter what. Elliott bought Argentine bonds when the country was in turmoil and turned a gargantuan profit to the dismay of the country. This might seem smart or cruel and it is both, in a way - but to big finance, this is day-to-day.

To put it simply, Elliott are liquidators. They are asset strippers. AC Milan’s future, should the sale go through, will rely on one man - the unknown Mr. Li who has jumped ship from China to Luxembourg. The man is powerfully determined to own AC Milan despite the collapse of his previous deal. One must question his enthusiasm and whether it is grounded in the right place.

Why? Because football clubs are not profitable things - you don’t stand to make huge money unless you do strip the club of assets and walk away with cash. In Serie A, the TV money is good - but it’s not Premier League money. It’s the type of money which can help a club maintain success, not make riches for everyone involved. Champions League success for Milan in the future will make the club a lot of money and might push the earnings towards that of the Premier League, but that’s a big gamble for Li - if that is the goal.

To be cynical, this deal is very fishy. Elliott are not a charitable company and haven’t given Li money from the kindness of their hearts - they want a return. Whether that return is optimistic and comes from the success of the Milan and the Rossoneri brand, or whether that return comes from trading off the back of Milan’s misfortune remains to be seen.