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FastTrack to sport financing structures

 

The flow of capital into the sports industry has been rapid and unprecedented over the past decade. Football finance, particularly receivables financing, is an attractive asset class for many financiers. This isn’t just for the banks, but also for non-bank financial institutions, such as asset managers and insurance companies, who are looking to enter this continuously growing market. Despite a turbulent 2020 for the sporting industry, the sector is thriving, providing new opportunities for supporting and financing sports’ transactions across the globe.

As the world reboots are you looking to take advantage of new opportunities in this growing market sector and accelerate the possible?

FastTrack: to sport financing structures

Despite the obvious repercussions of the pandemic, the possibility of recessions, tightening credit and less favourable tax environments, the sporting sector is set to thrive, showing no signs of slowing down. It’s likely sporting leagues will increase debt limits to provide more financing and large non-bank financial institutions such as institutional investors and large corporates will start entering this market to take advantage of this new opportunity and help innovate how sports transactions are financed. According to PitchBook data1, 2019 was a record year for private equity investment in Europe’s sports market, with around $911 million injected across 10 deals.

Sporting organisations looking to raise finance, need to consider their options when deciding which financing arrangements are most suitable. Building and fostering a positive relationship with the funder, whether it’s a bank, an institutional investor, supporters or otherwise, is a vital part of the process to ensure that aims and expectations are aligned on both sides.

1 Hard-hit sports world finds new fans: private equity firms, July 2020(SOURCE: https://pitchbook.com/news/articles/sports-private-equity-investments-pandemic)

SPORT SPOTLIGHT:
The evolution of football player transfer funding

Football player transfer funding has been long coming. Whilst some pinpoint the virus as the trigger for this trend, it has in fact been a longer-term complex issue that has seen significant financing evolution.

Back in 2018/19, the “big five” leagues in Europe saw their clubs’ revenue hit record heights. This was bolstered by the new broadcasting arrangements with, for example, BT, Sky and Amazon, which mostly benefitted the top performing clubs. As a natural consequence, clubs inflated wages in their continued race for league and cup titles. However, increasing talent retention and acquisitions within the top-level clubs saw operational pre-tax losses creep in. These unforeseen losses were then vastly accelerated by the global pandemic however, the race for quality and performance – both on and off the pitch – remains.

Third-party player transfer funding has evolved over the years. As players move, financing needs to be raised to pay for the transfer, as clubs are typically cash poor.

This then creates a receivable that’s repayable in instalments over a medium-term, typically three to five years, with a certain percentage payable on the actual transfer. This upfront proportionate repayment enables the selling club to use such capital for other player transfers. The rest of the debt will be repaid on predetermined dates.

Traditionally, it was the banks pushing more debt into the clubs, but now we’re seeing fund managers seek opportunities in this sector. This group of financiers aren’t having to battle with regulatory capital allocation like banks. They saw the gap in the market and realised this more esoteric asset type would make a great investment. The pandemic has since led to major cash flow issues, causing myriad disruption to the upward flow of funds to investors. Some simply got out of the game, while others restructured – which on its own, is an expensive business.

More recently we’ve seen a demand for increased bespoke financing arrangements which continue to use the capital markets route via special purpose vehicles (SPVs).

These are bankruptcy remote lending entities for isolated player transfers, as opposed to balance sheet lending or complex fund-like structures. The key players in this space are the pension funds who, in such a continuously low-interest environment, are seeking enhanced yield and adding transfer debt to their investment portfolios as part of a diverse investment strategy. If carefully selected, the risk on return is low and the cash flow is easily predicted in what’s still a relatively short-term asset. We’ve also noticed a more centralised approach to lending, namely that the leagues are now looking to secure larger pools of funding via pension funds and insurance companies on a (largely) secured basis for onward funnelling down into the respective clubs. However, it appears that these types of lending arrangements are only interesting to investors with a ticket size of a minimum £10mn or above and focusing predominantly on top tier clubs. This leaves a gap for mid-tier clubs who equally require third party funding to part take in a continuously competitive landscape. The inherent corporate restructuring will become the subject of closer scrutiny, bringing desired operational enhancement and cost-efficiency. Thankfully, loyal fans, the majority of who are currently avidly watching closed games in front of empty seats, will be eager to return to the stadiums.

The leagues and clubs are certainly going to have to review their wage expenses and how they recalibrate their income stream to match their growing book of debt.

Private debt set to become a big area for diversification

Private debt is fast becoming an exciting area for many firms, and it’s likely that the largest direct lending firms with distressed situation capabilities will be well placed to capitalise.

As the global economy is gearing up to reboot, distressed debt and structured credit have become the two hottest topics in credit with many private capital fund managers planning to diversify into direct lending strategies over the next year.

A lot of those managers have the benefit of surviving a global financial crisis and offer in-house expertise. Others will be raising new capital in anticipation of upcoming opportunities such as sport financing deals.

How we can help you?

We pride ourselves on being one of the leading custodians of this asset class. We appreciate the paramount importance on client confidentiality to help our clients focus on the real job in hand. Our end-to-end service offering means that we compliment group-wide to transaction-specific corporate governance, accounting, loan servicing, cash management, verification agent and trustee services across over 30 jurisdictions to provide a 24/7 service model that puts your needs first.

We take care of your loan administration through to fund administration

Loan administration through to fund administration:

We can take care of your overall administration and cash management requirements, through our fully customised end-to-end service offering. We can support every need a GP, LP, fund or portfolio company may have and can set up and manage entities at the global SPV level, through to administration and investor services at the fund level in the core fund markets in Europe and beyond.

We’ll support you with your corporate secretarial accounting and bank account opening

Corporate secretarial, accounting and bank account opening:

We provide corporate secretarial services, whether it’s incorporating a new company or managing compliance with ever-changing local legislation. And, our proprietary client portal, IRIS, gives you full oversight and control of your global legal entities. We’re also your trusted guide when it comes to covenant monitoring, ensuring compliance with loan documentation and providing accurate reporting to the lenders. We can also assist you with the opening of a bank account or, on behalf of clients, with third party banks.

We offer verification/collateral agent and trustee services

Verification/collateral agent and trustee services:

The provision of an independent verification and or collateral agent within the financing arrangement can add real value to your capital markets loan transaction. As an independent trustee, we’re active across both public and bespoke private transactions. We act in a number of trustee roles, including data, note, security and noteholder representative across debt finance and capital markets.

We provide escrow and information agency services

Escrow and information agent services:

We can assist with escrow services on all types of transactions, including, for example, in the context of the sale of a club or a loan repayment. We’ve teamed up with i2 Capital Markets to provide our clients with additional services such as information agent, tabulation agent or consent solicitations for bond restructurings or other amendments to bond documentation.

Look to us for support with large scale data warehousing

Large scale data warehousing:

Clubs and other sporting organisations are required to hold a vast amount of data on their players, gate and ticket receipts, media right income and more. We offer bespoke services to house this data in a format that can be stratified in the necessary format and held in line with European and global data protection compliance regulations.

We offer large scale outsourcing services for AML and compliance checks

Clearing house services:

We offer large scale bespoke clearing house services to supra sports organisations which cover a wide range of services ranging from risk management, i.e. dealing with third party AML and KYC procedures, invoicing services, settlement and bank account management as well as legal and financial administration services. Through our interactive service delivery, we’re front and centre of the administration, taking away any administrative burden so you can focus on your core work.

What activity are we seeing?

Due to the global pandemic, we’ve seen a growing interest in direct lending opportunities in this sector. For example:

Traditionally, it was the banks that saw merit in this niche space as far back as the mid-90s. With their financing prowess, they continued to push more debt into the clubs, with the Champions League Clubs’ debt ratio growing to 14% during the summer of 2018.

The global pandemic has seen stadiums closed, and games silently progressing behind closed doors resulting in leagues and clubs having their financial virility tested with significant losses and rising cash flow issues.

Private equity investment in sport is only expected to grow. The world’s many pandemic-plagued sports leagues are now forging new links to private equity backers. After playing out most noticeably in Europe, the trend has also taken hold globally as the coronavirus ravages finances of teams and leagues everywhere. 

Digital innovation has spurred owners to tap new revenue streams, via streaming platform providers and engaging with fans are increasingly consuming media on mobile devices. New capital is needed to take advantage of these opportunities.

Case studies

Our track record on the sports industry, particularly football (including assisting on player transfer deals), is market leading. We’re extremely well connected to the funding partners, the intermediary agents, the clubs and leagues and even supranational governing bodies. The following case studies provide examples of how we’ve assisted clients in this space.

Case one

New transaction creating a funding infrastructure for a broker

This year, we’ve seen new financing transactions being brought to us via brokers in the football finance arena. Each transaction has seen new loan facilities being extended from insurers to underlying clubs or leagues to assist with wider financing arrangements of football player transfers.

The lender: one of the UK largest pension funds with over €65mn assets under management. As with most non-bank lenders, their challenge was low interest rates. They were looking at lending into a market which is medium term from a risk perspective with a higher return on investment as well as access to a more diverse portfolio as part of their investment strategy.

The broker: an entity with advisors who have over 20 years’ experience in football finance, covering every aspect of player transfer financing. They have deep and long-standing connections to funders (bank and non-bank lenders) who have their own respective experience with lending into this space. Together, they’re bridging the gap between borrowers and lenders for tailormade transactions.

The solution

  • SPV administration and accounting (including corporate governance, share trustee and directorships)
  • Security trustee services
  • Loan administration (ranging from straight forward loan agency support to full on loan servicing, cash management and reporting)

Our advantages

  • A holistic approach to transactions of this type rather that isolated individual service offering
  • Top to bottom customer service approach, with complete oversight of the entire transaction
  • Wide ranging customer support to their deals with an expert, specialist team dedicated to a client-centric service delivery

Case two

Large corporate restructuring focused on sport and music industry, managing around €900mn in loan assets

In May 2020, we accompanied one of our long-standing SME finance clients through a major restructuring. This client is a bespoke financier to the sports and music industry with around €900mn in assets under management, primarily bilateral loans and loan participation notes.

The client was looking for an experienced and knowledgeable partner to assist with the realignment of 12 companies in 4 jurisdictions through corporate consolidation together with trustee, loan servicing, cash management as well as ESMA reporting services on their existing loan portfolio.

The solution

  • Corporate governance, directors and accounting for 14 entities (12 of which being in the UK)
  • Loan administration services across a large portfolio of bilateral loans
  • Facility agent services into the existing loan portfolio
  • Cash management and reporting services
  • ESMA reporting services

Our advantages

  • We’re supporting this transaction from five of our global jurisdictions: UK, Ireland, Netherlands, Spain and Delaware
  • We have a dedicated team of experts who can provide flexible and tailored services
  • Clear governance, single point of contact and a global offering to suit the client’s needs no matter how complex
  • Advanced loan administration software technology

What makes us different?

As a market leader in the sports finance sector, we’re experts in administering these transactions, ranging from managed structures to one-off single deal financings with funds, insurance companies and brokers. We have the expertise in-house of the pitfalls in financing structures as well as understanding the privacy and confidentiality requirements of underlying names.

Our market-leading platform means that we can provide seamless administration and a global team based in all major jurisdictions, working together to remove any burdens so you can focus on the real task at hand.

We service clients from 30+ jurisdictions

Over 4,000 experts in more than 30 key financial markets around the world.

Over $2bn of loans administered in this space.

We work with 67% of the banks within the Fortune Global 500. Bespoke and tailored solutions to suit our clients’ needs. We’re non-conflicted and are listed Euronext Amsterdam stock exchange.

A market leader in administering sports finance transactions.

The latest loan administration platform technology enabling a high degree of control and visibility.

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To find out how Intertrust Group can help fast track your opportunities in the sport financing sector, talk to our experts today.

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