There’s been a burst of activity in the It’s been a busy winter for soccer financing the major European clubs
Real Madrid has secured financing for the long awaited redevelopment of the Santiago Bernabeu with a syndicate of banks taking on a €575 million issue. US lenders Bank of America and JP Morgan led the deal with local banks Santander and CaixaBank also participating. El Confidencial says the financing is for a period of 30 years, with interest capped at a maximum of 2.5%.
Juventus has been busy issuing €200 million in non-convertible bonds to qualified investors across Europe just last week. Use of proceeds is stated by the club as “to provide the Company with financial resources for its general corporate purposes, streamlining the structure and the maturity of the debt.” With the purchase of Cristiano Ronaldo and recruitment of other high-wage stars the emphasis is likely to be on the latter and using the funds to clean up the capital structure. Juventus is also exploring plans to redevelop their Turin home.
And finally, Barcelona also announced €140 million in financing from two US funds, according to El Pais. Pricoa Capital Group and Barings have extended €90 million and €50 million respectively for use in normal operations and transfer funds. El Pais says the club do not have to repay the loans for five years and have agreed an interest rate of 1.8% subject to periodic adjustment. While most reporting is treating this as long-term debt it appears that this is actually a revolving credit facility that Barca will draw on for short-term financing.
An excellent piece by the New York Times details the setup at FC Stumbras Kaunas, a Lithuanian club intently focused on being a transfer waystation to the clubs of Europe. It is a rare glimpse into the for-profit soccer industry and the costs, for both players and owners, involved in chasing part of the transfer market payday.
The story follows Ibrahima Sory Soumah, a player tapped by AS Monaco but who finds himself at Stumbras instead because of visa issues:
[Soumah], signed to a contract that pays him a minimum-wage salary of $470 a month but, bizarrely, includes a multimillion-dollar buyout, he was sharing a bedroom with a teammate in a house owned by F.C. Stumbras,
Similar stories abound throughout the squad, with many players arriving in the past two years hoping to make the step up to a larger club.
Stumbras has been co-owned by Irish financier Richard Walsh and Portuguese coach Mariano Barreto since 2016 with the strategy of using Lithuania’s EU membership as an gateway for free agents to enter the European market. So far the strategy has yielded no high profile transfer coups and met with resistance from players and agents who claim the contracts are unenforceable. Walsh himself has expressed frustration about working with the industry:
“I can’t say I have found more difficult people than people in the football industry,” he said. “I find them anything but truthful and straightforward.”
It is unclear if an experiment like Stumbras can succeed, particularly with an adversarial stance towards agents who hold serious power in the soccer ecosystem.
On August 3rd 2017, Neymar da Silva Santos Júnior joined Paris St. Germain from Barcelona in a $263 million deal that makes him the most expensive player in soccer history. The fee smashes a record set only one year earlier by Paul Pogba’s $116 million transfer to Manchester United.
The Neymar saga proved to be just the tip of the iceberg with players moving throughout the summer of 2017 at valuations which seemed unthinkable just a few years ago. Romelu Lukaku, Alvaro Morata, Alexander Lacazette, Gylfi Sigurdsson, and Leonardo Bonucci are just a few examples of large fee transfers completed this summer. Many are quick to point to PSG owner Qatar Sports Investments, an investment fund directly backed by the Qatari government, as the inflationary spark saying that investment coming from the sovereign fund is distorting the entire market. But did PSG’s big ticket purchase really set everything off?
This is where it’s helpful to have some perspective. Here’s a visualization of the net transfer spending of the top European leagues (Premier League, La Liga, Serie A, Bundesliga, Ligue 1) with the five biggest English clubs + PSG highlighted:
Note that in thepast five years these six clubs have accounted for at least 30% (most years the figure is closer to 50%) of total net spending within the European leagues.
If we include all Premier League clubs the gap becomes even more pronounced, with English clubs spending the vast majority of transfer fees in the past decade barring two years in which Ronaldo and Fabregas respectively were sold outside the league.
Maybe PSG is just catching up to the party that the Premier League started?
Foreign exchange risk is an ever present concern for global businesses with large financial commitments outside their home borders. Whether paying suppliers or bringing back overseas earnings the risk of changes to the final price changes because of currency fluctuation is a risk of operating overseas.
Managing FX risk has not traditionally been a concern for soccer clubs who, despite their global audiences, conduct the majority of operations in their home currencies. This has begun to change as clubs reach further abroad for licensing opportunities with global partners and international player transfers. With the latter presenting the risk of obligations in a foreign currency.
English Premier League clubs have been able to control this risk thanks to strong bargaining power that stems from two factors: being members of the world’s most marketable league and doing business in a stable international reserve currency. Unfortunately, last year’s Brexit vote seems to have thrown at least some doubt about the latter with Cliff Baty, Manchester United CFO saying that the uncertainty added in complexity for player contracting.
“It was a bit difficult last year when we were trying to make signings and you had players questioning the value of being paid in sterling,” he said.
“A lot of European players will want to be paid in euros, understandably to a degree. But we are a sterling company . . . [and] managing that is quite tricky.”
The biggest clubs are hedged against currency movements, earning euros from playing in European competition and dollars from international sponsorship deals. Even so, Mr Baty said his club does not have enough euros in hand to accede to the request, insisting players be paid in pounds instead.
Players looking to be paid in euro rather than sterling is not an earth-shattering change but still a reminder that the industry is subject to the same concerns as normal business.
The English Premier League has locked up a distribution deal with PPTV which allows the digital broadcaster to show matches in the Chinese market for three years starting with the 2019-20 season. The deal reportedly has PPTV paying $700m over the course of three seasons, an amount which absolutely dwarfs the $60m cost of the current Chinese rights package held by Super Sport Media Group.
The Chinese deal pushes the Premier League’s booked revenue for the 2019-22 rights period up to $1.2b with US rights already sold to NBC in a six year deal worth $167m annually. International revenue has been a major source of commercial expansion for the English top flight with American and Asian markets in particular seeing strong growth; for comparison the total value of all international rights in the 2013-16 period was ~$2.7b, while the league has been able to realize nearly 50% of that with its growing dominance of just two markets.
On the other side of the deal PPTV has guaranteed itself a spot in a Chinese pay-TV market hungry for sports content. The jump in rights value is likely influenced by two factors in the Chinese market, a shift in focus away from share towards revenue and a rapidly developing market for paid content. Chinese rights have been heavily discounted over the past several years as Scudamore and the Premier League have pursued a strategy of spreading the league’s reach in the country, with eyes and ears properly piqued they now seem ready to begin monetizing that foothold.
Similarly PPTV, a subsidiary of Suning Holdings the retail group which owns Italian club Inter Milan, has made a significant bet on the value of the Chinese market that brings the world’s favorite soccer content to one of the world’s largest markets for sports media. PPTV’s landmark deal continues a trend of frenetic Chinese investment in the soccer world, this time with another player entering the media portion of the supply chain.
The Premier League has got a whole new look and the changes are much more than just a fresh coat of paint. The 2016-17 season debuts the league’s first new logo in a decade as well as a bold new visual identity to be used in all other branding. The changes are a massive revamp of the EPL brand and are clearly aimed at modernizing an iconic presence for the demands of a digital age.
Out with the old…
The Premier League has only held two sponsors in its 24 year history, Carling and Barclays Bank, with the latter in place from 2001 – 04 as the Barclaycard Premiership and since then as the Barclays Premiership. After the 2005 redesign the Premier League branding remained unchanged through the spread of global EPL mania. Despite the growing popularity the limitations of the visual style could be clearly felt as new viewing formats and different digital media sprang up.
The English Football Association announced that the league had begun work on the rebranding after ending its partnership with Barclays in the 2014-15 season with the league planning to forgo any name sponsorship indefinitely. Additionally the FA stated that it would no longer be offering title sponsorship as a branding opportunity, preferring to keep the competition only as “The Premier League” for the forseeable future. Bringing it in line with the other major leagues Bundesliga and Ligue 1 who also eschew title sponsors, La Liga remains the only competition with an official title sponsor, the Spanish bank BBVA.
In with the (digital) new…
In their new design DesignStudio retained the iconic crowned lion while discarding the outmoded badge elements to update the logo for the world of flat design. The rest of the visual style has also been upgraded with a duotone claw/stripe pattern being featured prominently in other marketing collateral.
The changes are more than just a visual refresh, they are the league’s solution for a sports market that is pioneering new digital experiences alongside its traditional broadcast formats. Whether mobile/tablet streaming, highlights embedded in digital content or just an enhanced TV experience the flexibility required of the brand has changed remarkably over just the past 5 years.
With color, size, and placement more easily modified the new style logo is more easily adjustable to different contexts regardless if that is on a 30ft screen in a digital theater or a mobile app with just inches of screen available. It’s a sure thing that we’ll be seeing more of the Premier League’s new look as the league continues spread around the world.
The British referendum stunned Europe and the world as the results revealed a majority opinion in favor of leaving the European Union. The vote carried with 52% in favor of departure while sharp divides in opinion were seen between age, economic and geographic demographics.
While the referendum is only a gauge of sentiment it is a strong signal that England’s departure from the European Union will happen in the near future as political parties find themselves obligated to follow through on public opinion. With Britain set to lose easy trade access and labor movement within the common market the economic implications for the country are large, so what effect will a Brexit have on the English Premier League?
The Brexit Blowback
Let’s break down the effects between economic and regulatory. As a result of the near term uncertainty around the exit specifics and projected drop in economic growth it would be expected to see:
devaluation in the British pound
drop in GBP denominated asset prices
slowdown in economic growth (potentially even a recession)
The market effects have already appeared with both the GBP/EUR and UK stock indices dropping by roughly 5% and 4% respectively on Friday. The broader economic effects stemming from investment uncertainty and strategic shifts in foreign investment will only appear in the next few years.
In terms of regulatory/legal changes the most immediate effects are:
loss of EU citizenship for British players
loss of automatically permitted movement of EU players
uncertain terms of access to the EU common market
So what effect will these changes have on the Premier League? Let’s look at them grouped thematically:
1. Reduced transfer power and investor attractiveness
Devaluation of the GBP makes continental players (and likely all foreign players) more expensive in pound terms as European clubs will likely demand the same Euro transfer fees to satisfy their costs. Similarly, wage demands are likely to increase as players compensate for the reduced buying power of the British pound, both effects which could be apparent as early as this summer’s transfer window.
Additionally, Brexit impacts the overall attractiveness of British assets, mainly due to the drop in currency value but also because of the increased uncertainty about the long term health of the British economy. The effects of this are more intangible but would be seen in lower prices for clubs and a reduced willingness by foreign owners to invest in players and domestic infrastructure. While this is possible it seems less likely given the myriad reasons that investors buy Premier League clubs, from capital preservation and diversification to international prestige, as well as the league’s continuing status as one of the most popular in the world.
2. Weakness in local revenues
A British economic slowdown would likely be accompanied by a stagnation in average wages as businesses reduce workforces and competition weakens for existing labor. We can do a simple estimate of the impact to an average supporter by taking median, after-tax British income (£18,700) and applying the lowest estimated wage drop (1.1%) giving us a drop of £206 in discretionary income.
Less spendable income directly impacts Premier League clubs in three main revenue streams:
Matchday revenue (ticket sales and in-stadium purchases) is probably most under threat with Premier League ticket prices clocking in as some of the highest in Europe and as less disposable income forestalls season ticket renewals and ad-hoc game attendance.
Merchandising revenue (sale of products through direct and distribution partners) is similarly impacted by softness in consumer spending, our estimated drop of 206 easily covers a decision to not buy a new shirt or two.
Licensing revenue (partnerships leveraging club image and players) is less immediately affected but could be impacted as businesses reduce advertising spending in an uncertain consumer environment. The reduced licensing effect is likely to be felt more unevenly among the league as clubs which have more global appeal will still be able to leverage their cachet with global partners, whereas smaller clubs will rely on British/local market partners for a higher percentage of their revenue. Stoke City will not be able to balance lower local earnings by signing a lucrative Asian noodle partnership anytime soon.
3. Restricted movement of players
The potential loss of streamlined player movement within the European Union is the change with the least near term consequences but perhaps the greatest long run implications for player development and overall player quality in the Premier League. Britain’s EU exit would imply that all UK citizens would be subject to the same travel and work restrictions as citizens from any other ‘outside’ nation, potentially slowing or restricting the movement of players around the major European leagues. But there are a lot of forces at work here which make the implications much less clear, including player preferences, perceptions of the long term stability of the EU and overall club strategies.
Incoming players are foreign nationals brought in on loan or transfer. Much has been made about the list of 100 current senior players who wouldn’t be work eligible because of the stringent English FA rules applied to non-EU players. The list means little other than illustrating the type of talent English soccer could miss out on because of the exit, but it’s hard to believe that such regulations would be allowed to remain in force. Making it harder for clubs to import outstanding senior talent benefits neither players nor leagues and it would take an extraordinary amount of xenophobia to see that avenue closed off.
The bigger impact is likely to stem from the loss of access to the huge youth pool within the European Union since Britain will no longer be able to benefit from Article 19 of the FIFA Regulations, which permits the ‘transfers of minors between the age of 16 and 18 within the EU or EEA.’ Additionally, players may see England as less attractive if they are seeking easier access to a larger number of clubs or long term EU citizenship (the effects of these types of preferences are arguably mixed).
Outgoing players are foreign or domestic players loaned out or sold abroad. Britain notoriously exports little of its domestic talent with only the biggest names leaving for continental experience…and transfers of British megastars are unlikely to be stopped by legal terms. The most impacted areas are loans and sales of marginally-international level players as heightened permit requirements are likely to prevent things like Chelsea’s buy-loan strategy from operating as efficiently or with as much scale.
Overall, Brexit certainly has negative near and long term consequences for the Premier League but it’s difficult to say how significant those are compared with the phenomenal growth of the league’s popularity across the world. Do marginally increased transfer costs matter when domestic and international TV rights continue growing with every renewal and will easily surpass £2bn annually by 2018? Will players even think twice about EU access if they’re already playing on the defining international (commercial) stage of soccer?
Perhaps the only effect would be on the youth level as clubs face a decision on whether to invest more heavily in youth development in light of the lost access to elite European youth or continue buying ready made senior players from abroad. But even that decision is decision is likely to be determined more by the FA than Brexit rules given the emphasis on things like the homegrown player rules and demands of the national team.
It’s certainly up for debate whether Brexit actually will be anything more than a footnote in the meteoric rise of the Premier League as a global product.