Investment in Sport: the diligence process

Understanding the true risk profile of a sports investment requires more than standard corporate due diligence. Sport sits at the intersection of regulation, reputation, community expectation and commercial complexity. Investors need a clear and informed view of all these dynamics before deploying capital.

This briefing highlights the key diligence areas that matter most in a sports transaction, drawing on insights from specialists in our Sports team at Farrer & Co. These include regulatory frameworks, commercial rights, existing financing arrangements, employment and safeguarding risks, and wider reputation issues. Each plays a critical role in shaping valuation, deal structure and long-term strategy.

This is the second article in our 'Investment in Sport' series. Read the first article here: Funding investments: strategic capital in sport.

Why diligence in sport is different

Although diligence principles are broadly consistent across sectors, sport has characteristics that make the exercise uniquely sensitive and commercially significant.

Clubs and sports organisations operate under multiple layers of regulation, often across domestic leagues, international federations and competition organisers. Revenue streams are also unusually concentrated, with broadcasting and sponsorship typically accounting for the majority of a club’s income. As a result, events such as relegation, loss of key sponsors or failure to qualify for competitions can have a pronounced financial impact.

Sport is also reputation driven. Decisions by owners, players and management are scrutinised more intensely than in almost any other sector, and fan sentiment can directly influence commercial partnerships, staffing decisions and even ownership outcomes. The collapse of the European Super League proposal in 2021, following widespread fan protest, is a reminder that sporting organisations operate with stakeholders who are often emotionally, as well as financially, invested.

These regulatory, commercial and cultural dynamics mean that diligence must be approached with an appreciation of the unique pressures and expectations that shape the sector.

Five core areas every investor must review during due diligence

Regulatory and governance framework

Regulation is often the most decisive factor in determining whether an investment is viable. Key considerations include:

• Ownership and directors' tests
  Investors acquiring significant or controlling stakes in English football clubs are subject to league-specific ownership tests, which assess disqualifying events such as criminal convictions, prior regulatory breaches, insolvency issues and conflicts of interest. These rules continue to evolve, with recent changes including broader disqualifying criteria and increased oversight of changes in control.
• Multi-club ownership (MCO) restrictions
  As MCO structures proliferate, regulators have strengthened rules to protect competition integrity. UEFA prohibits entities from exercising control or influence over multiple clubs competing in the same competition. Potential solutions such as temporary blind trusts have emerged, but the regulatory landscape remains fluid and requires careful assessment.
• Non-football regulatory considerations
  Outside football, investors also need to navigate the regulatory frameworks governing other sports. Many national governing bodies and international federations impose their own ownership, governance and integrity requirements, including approval processes for changes in control, eligibility criteria for investors, and rules governing influence or decision-making within a club or franchise. In some sports, commercial rights are owned or distributed centrally, meaning investors must understand the associated governance models and how they shape revenue, autonomy and strategic decision-making. These frameworks vary widely across sports such as rugby, cricket, motorsport and basketball, and can materially affect the structure and viability of an investment.

Key commercial rights and revenue visibility

Intellectual property (IP) rights are central to the value of any sports organisation. Key areas include trade marks for team names, logos, and merchandise, broadcasting rights, and digital content. The diligence process aims to confirm ownership and identify any pending disputes or infringement claims.

Commercial considerations extend to sponsorship agreements, licensing deals, and revenue streams from media rights and merchandising. Investors need to assess the stability and duration of these contracts, termination clauses, and any exclusivity obligations. These assessments sit alongside compliance with any league regulations and restrictions on commercial activities. Robust IP protection and commercially sound agreements are essential to safeguarding brand integrity and maximising return on investment.

Existing debt and change-of-control triggers

Investors must review the debt and financing arrangements of the sports club or organisation they are investing in, including any loan facilities, bonds and receivables factorings and any related security and guarantees. This is relevant in the context of deciding:

• whether such debt and financing arrangements need to be repaid or redeemed on or after completion of the investment or maintained; and
• to the extent an acquisition is leveraged, what assets may be available to be used as collateral.

As part of this review, if the intention is to maintain existing debt, investors must be comfortable:

• with the commercial terms of such debt, such as pricing;
• that they will not be subject to unduly onerous restrictions going forward that may impede their strategic investment objectives; and
• that any specific rules applying to the club or organisation have been complied with in accessing the relevant funding (for example, in the context of a football club that has factored transfer receivables, the rules of its domestic league and, if applicable, FIFA).

In the context of an equity investment, it's also important to ensure the investment will not trigger any breaches of representations or undertakings, change of control provisions or events of default (and, if so, ensuring time to seek the consent of external funders is built into the transaction timeline).

Employment, talent and safeguarding risk

People sit at the heart of every sports organisation, which makes employment and safeguarding issues a critical part of the diligence process. Investors will want to understand the structure and terms of key player, coaching and executive contracts, including any termination, buy-out or change-of-control provisions that may affect stability or future costs. Assessing key-person risk is also essential, particularly where commercial value is closely tied to the visibility or performance of individuals.

Safeguarding should remain a priority across all sports. Diligence should therefore include a review of safeguarding policies and procedures, reporting frameworks, training programmes and any historic or ongoing investigations. Failures in this area can create significant regulatory exposure and long-term reputational harm and may materially affect an investor’s risk appetite or valuation. Ensuring that robust safeguarding procedures are in place is fundamental to assessing the organisation’s readiness for investment.

Reputation and litigation exposure

Effective diligence for litigation risk requires looking beyond publicly available court records to check for pending actions in specific sports tribunals and (where possible) private arbitral proceedings. This can be difficult: whilst some governing/disciplinary bodies are increasingly transparent and may publish lists of pending cases or hearings, many arbitral proceedings take place behind closed doors. Their existence may only become known after the event, if at all.

Investors must also assess contractual risks, including pending breaches, outstanding debt or in-scope break or termination clauses in commercial and property contracts. This review should extend to broader reputational factors, including environmental, social and governance (ESG) considerations, supply chain risks, community relations and the status of any internal or regulatory investigations that could devalue the brand. Other publicly available information (such as media coverage, social media and other online content) should also be reviewed to check for any less visible reputation or legal risks.

It may not be possible to uncover hidden liabilities not yet formally documented. Direct questioning and investigation of management are therefore an essential part of the diligence process. For example, it is prudent to ask management to identify any threatened or pending actions, potential breaches or liabilities, and previous notifications to insurers. Investors should ensure that any identified risks are underpinned by suitable warranties or indemnities provided by the seller(s) or target entity.

Supporting diligence areas

In addition to the core areas above, investors should consider a small number of supporting diligence themes that can materially affect an investment. These typically include:

• property: stadium ownership or leases, redevelopment obligations and long-term occupancy arrangements;
• data and technology: ownership and use of fan and performance data, data-protection compliance and cybersecurity; and
• tax: group structure, image-rights arrangements and cross-border tax considerations relevant to players, commercial rights or corporate vehicles.

These areas often require specialist input, to supplement the overall scope of the diligence exercise.

Bringing it together: how diligence shapes the deal

Diligence findings shape valuation, investment structure and transaction terms. For example, regulatory constraints may influence whether majority control is viable, commercial risks may determine the governance rights required, and reputational considerations may drive enhanced warranties or indemnities.

Diligence is therefore integral not only to pricing the investment, but also to designing the transaction structure and protections that support long-term value creation.

The next briefing in our Investment in Sport series will explore these structuring considerations in detail, focusing on key provisions contained in the investment documents that govern the transaction.

Thank you to Lapo Rocco di Torrepadula, David Morgan, Graham Dunn, Charles Fursdon and Siobhan Murray, for contributing to this article.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2025