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Can Anyone Save AC Milan?

With the team in seventh place, manager Vincenzo Montella was shown the door and replaced with Gennaro Gattuso, a club legend with no high-level managerial experience. But the real problems go way deeper than who’s on the sideline: After new ownership spent the summer spending on exciting new talent, the future of the club might be in the hands of an American hedge fund.

Getty Images/Ringer illustration

Shortly after his introductory press conference on Tuesday, new AC Milan manager Gennaro Gattuso made an appearance on the controversial Italian sketch-comedy show La lene.

Milan currently sit in seventh place in Serie A, 18 points back of first-place Napoli. So, the La Iene presenters handed Gattuso a pair of binoculars, some rock-climbing gear, and a winter coat. The binoculars were to help him see all the way up to the top of the table. And the coat and carabiners were to aid him on his long trip toward the summit.

“If you really do give me these,” Gattuso said, “I’ll take them with me on to the bench, you know. … I was born ready. In fact, I was born two months premature.”

As The Guardian’s Barry Glendenning put it, Gattuso was “the kind of footballing hard man other footballing hard men kneel before in supplication.” Nicknamed Rino—or “Rhino”—Gattuso made more than 400 appearances for Milan and more than 70 for the Italian national team despite a lack of discernible foot skills. La Gazzetta dello Sport called him “the one who runs for all the Ballon d'Or winners”; his face always set to “snarl,” Gattuso made a career at the highest level by running hard, tackling harder, and just generally scaring the shit out of his opponents and his teammates. He infamously choked Tottenham assistant coach Joe Jordan during a Champions League match, and he was also known to stab his Italy teammates with a fork if they ever made fun of him during a meal.

With almost no success at any managerial level on his résumé, Gattuso is the guy you hire specifically for his bluster—not in spite of it. Maybe he’ll have the binoculars and the coat on the sideline with him for Sunday’s game against 14-losses-in-14-tries Benevento, but he’s gonna need more than just some climbing gear to get Milan where they need to go. Even if he, improbably, leads Milan to the top of the mountain, that won’t be enough—unless there’s some kind of hidden treasure buried at the peak.

It looks like AC Milan is screwed.

The team itself isn’t a debacle. They finished last year in sixth, and now they’re in seventh, and their underlying numbers suggest that this is about where they belong. Based on the value of the team, though, they’re underachieving. According to Transfermarkt, Milan are the 15th-most valuable club in the world—one spot behind Serie A leaders Napoli and six behind six-time defending champions Juventus—and the third-most valuable team in Italy. According to FiveThirtyEight’s global club rankings, Milan are currently the 31st-best club in the world. While the on-field product isn’t commensurate with the brand’s value, it could be worse. After all, Everton are one spot behind Milan in the club-value rankings … and they’re 101st in FiveThirtyEight’s estimation.

Yet while Everton scuffs about, getting turned down by an increasingly incoherent collection of unrelated managers as they slipped toward the relegation zone until ultimately settling for whatever option came out of the Generic British Manager hat, their majority owner could at least theoretically afford to buy the club. Milan’s owner Li Yonghong was able to purchase the team this past April only after taking out a high-interest $354 million loan from American hedge fund Elliott Management. He has until next October to repay it, and there’s very little to suggest he’ll be able to.

Earlier this month, The New York Times published a report on Li’s financial resources, and the lede summed it up best:

When the Chinese businessman Li Yonghong bought A.C. Milan, the world-famous Italian soccer club, virtually nobody in Italy had heard of him.

Virtually nobody in China had, either.

During the purchasing process, Li missed numerous deadlines and was forced to resort to an agreement with Elliott to get the deal done. At the time of the deal, little was known about Li—he’s nowhere to be found on the Forbes list of the 400 wealthiest people in China—but with the help of that loan, he figured out a way to get enough money to purchase the team from former Italian prime minister Silvio Berlusconi for $860 million. During the transaction process, Li told Italian officials that much of his wealth came from his ownership of a phosphate mining company. However, according to the Times, the mines aren’t owned by him. It was unclear how wealthy Li was when he purchased the team, and the picture has only gotten blurrier since.

“Given the lack of transparency, it’s really hard to know, but the question doesn’t seem to be whether Mr. Li goes, but under what conditions he gives up some or all of the control,” said Chris Anderson, author of The Numbers Game and a football industry strategy and investment consultant based in London.

This past summer, Milan spent more on transfers than every club in the world other than PSG, Manchester City, and Chelsea. Under UEFA’s Financial Fair Play regulations, clubs that compete in the Champions League and the Europa League basically cannot spend more money than they bring in. With the club currently 11 points back of Italy’s fourth and final Champions League spot—FiveThirtyEight gives them a 5 percent chance of finishing top four—it’s unlikely Milan will get the much-needed cash infusion that comes with a berth in Europe’s top competition. And even if they did, winning the tournament would probably not be enough to offset their spending.

“Attendances are up significantly this year after the investment in the summer, and the Milan brand is still strong commercially,” Anderson said. “In the short run, they’ll be fine, but if they don’t qualify for the Champions League, the chickens will probably come home to roost because that’s a really sizable chunk of money they’ve presumably counted on in their financial projections.”

Thanks to Li’s possibly-actually-just-not-real wealth, the club, which has been operating at a loss for a while now, doesn’t have another clear source of revenue. When a new owner takes over a club, UEFA will sometimes allow them to defer FFP judgment by a year if they submit a clear break-even business plan. But given that Li had to take out a loan from a hedge fund just a couple of months ago, it’s unlikely that UEFA buys whatever Milan tries to sell them. Penalties could include the withholding of prize money, transfer sanctions, or a ban from European competition—none of which the club is in a position to weather. The governing body is expected to hand down a ruling by December 8.

Oh, and then there’s the matter of that loan. As ESPN’s Gabriele Marcotti wrote, there are only two reasons you’d take a loan from an aggressive hedge fund like Elliott: “One is if you're 100 percent certain you're going to be able to repay or refinance the loan; the other is if you're desperate and nobody else will give you money.” If they refinance the loan—and reportedly they’re trying to—it will presumably be on even less favorable terms than the current agreement, meaning the club will be kicking the can as far down the road as it can. Li could also find new investors, but who knows (1) what kind of ambition they’ll have for the club, and (2) how much they’ll be able to invest in the club after paying off the loan. Or Li can just default on the loan, and Elliott would take control of the club.

As for what that means, well, the head of the fund is a guy named Paul Singer, who Bloomberg called maybe “the most feared activist investor in the world” and who, as CNBC reported, Steve Bannon was “going 'off the chain' to destroy.” Singer is one of former presidential candidate Marco Rubio’s biggest supporters and donors and once, as Marcotti wrote, “persuaded the Ghanaian government to seize an Argentine navy vessel.”

Four months ago, I was writing about how it seemed like Milan had turned a corner. Now we’re less than a year away from a hedge fund best known for its 15-year-long battle with the second-largest country in South America taking control of the club. Before Neymar turned the transfer market into a snow globe, Leonardo Bonucci’s move from Juventus to Milan was the shock swap of the summer. The best Italian player on the best Italian team moving to the club that once deserved that designation sure felt like it signaled a turn toward something. But Bonucci has since struggled to fit into Milan’s defense, and the team as a whole has spent most of the season in second gear as the mismatched collection of talent has failed to click.

That, of course, is a problem for a manager to fix. And although Gattuso's track record suggests otherwise—his most recent full-time stint was with Pisa, who he got promoted from Italy’s third division, only to be relegated back down the following season—who knows? Maybe a feisty club legend from not too long ago is just what they need to get the team in order on the field. Unfortunately, no amount of screaming or studs-up tackles will save the club from everything that’s happening off of it.