Commercial Director, Capital Markets
Covid hit the sports sector hard but investors can win a slice of the action as the game looks at new funding tactics
The return of crowds to live sporting events has been a very welcome aspect of the UK’s move out of lockdown. But the financial implications of Covid-19 will leave lasting scars on the country’s sports sector.
Many of these organisations underpin big business – football clubs in particular. The game’s global appeal and devoted fan bases, which draw huge live and remote audiences, make football financing an important market.
Recently UEFA, European football’s governing body, published the latest edition of The European Club Footballing Landscape report. It makes sobering reading for those investing in football, predicting that the pandemic will cost clubs across all tiers of European football €9bn in revenue in the 2019-20 and 2020-21 financial years.
That is a big hole for any market to fill. And worse, it comes at a time when there is no let up in the rising cost of players’ wages, transfer fees – the €222m transfer of Neymar from Barcelona to Paris Saint-Germain (PSG) in August 2017 remains the world record – or the costs of state-of-the-art stadiums and facilities.
Given all these financial pressures, those investing in football can be expected to explore ways to raise additional capital in the months and years ahead. Interested parties include hedge funds, private equity, alternative investment firms, asset managers and insurance companies.
This is attracting a wider portfolio of capital providers into football financing. As a recent Bloomberg report proclaimed: “Football Is the Next Big Thing for Hedge Funds and Private Equity.”
Investing in football brings new investor opportunities
Bloomberg notes that the industry has a “rather ugly business model”, with clubs carrying enormous debt piles and paying high player salaries. However, there are several ways to make lucrative investments, such as buying a club in distress or capitalising on expected finance changes in European football.
Football investment has long been the preserve of lenders such as JP Morgan and Citigroup, but there are a number of reasons why other investors are now keen to get a slice of the action:
- It is a way to diversify their portfolio and enter a sector where they may have little or no exposure. The timeframes are also attractive, with many loans arranged for player transfers carrying a five-year term. Instead of tying up capital for 25 or 30 years, these shorter-term commitments give a quicker return on lenders’ money, helping them manage their own targets.
- The structures of deals are relatively straightforward, whether they are financing a transfer, underwriting the payroll or funding stadium development. They usually have fixed and clear payment schedules, making them attractive for financiers, while management and administration costs are low.
- Blanket media coverage means football investment can bring added value to associated organisations.
UEFA plans centralised funding for football investment
As well as interest from new capital in the football market, there are reports that UEFA is considering a more centralised approach to funding in response to the pandemic.
UEFA is putting together a €7bn funding package to help clubs secure more ready access to capital and offer attractive options for restructuring existing debt.
If, as seems likely, a more centralised and significant funding mechanism is established, it could change the size and number of financial deals clubs seek from the open market. It may also give financial institutions significant opportunities to work with UEFA and become accredited finance providers.
Demand for such funding was shown this year when the English Football League completed a £117.5m deal with MetLife Investment Management to support clubs in the second-tier Championship whose finances have been hit by Covid-19.
However the market evolves, there is little doubt that in the short to medium term investing in football offers attractive and developing opportunities for many capital providers.
How Intertrust Group can help
Our FastTrack to sport financing structures can provide specialist guidance on opportunities for supporting and financing transactions in the sector – in football and other sports – across the globe.
We are leading custodians in this asset class, appreciating the paramount importance of client confidentiality to help our clients focus on the job in hand. Our end-to-end service offers across more than 30 jurisdictions to provides a 24/7 service model that puts your needs first. Our services include:
- Loan and cash administration through to fund administration
- Corporate services, accounting and bank account opening
- Verification and collateral agent/trustee services
- Escrow services on all types of transactions, for example, in the context of the sale of a club or a loan repayment
- Clubs and other sporting organisations have to hold vast amounts of data on players, gate and ticket receipts, media rights income and more. We offer large-scale data warehousing in a format that can be held in line with European and global data protection compliance regulations
- We offer large scale bespoke clearing house services to supra sports organisations, covering a wide range of services from risk management to legal and financial administration services
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