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.
Manchester United has announced a refinancing of the club’s debt, the notes were issued by MU Finance plc, a subsidiary which houses the clubs financing. All outstanding 8.375% senior secured notes due 2017 to be redeemed with funding provided by issuance of new 3.79% senior secured notes due 2027.
The original 8.375% notes were issued as part of the clubs 2010 refinancing, in which the club refinanced approximately $675m of which the notes represented approximately $425m. The Glazers’ contentious leveraged buyout of the club layered an estimated £600m in debt onto the club in 2005, with the interest rate peaking in 2010 at 16.25% due to a default. Since then the Glazers have been able to take advantage of the loose credit environment and gradually refinance the debt to much more manageable rates.
Redemption of the old notes is contingent upon the completion of the new note issuance. The club expects the transaction to close around June 26, 2015 and reduce net interest payments by ~$10m a year.
There is no doubt which country currently sits on top of the iron throne of soccer. Spain. All foes have fallen at the hands feet of the Spanish national team for the past four years and La Furia Roja go into the summer as favorites to defend their European Championship title of 2008. Those odds are likely to carry over to the their bid to retain the World Cup in 2014. Domestically, La Liga attendance is high with the twin giants Barcelona and Real Madrid locked in a battle for the league title and on course to meet in this year’s Champions League final. The Spanish brand is also the strongest it has ever been with the rivalry of Messi v Ronaldo pulling in eyeballs from all over the globe and Spanish players in high demand across the continent for their technical brilliance.
“Systemic risk” is a concept which has come to the forefront in the past couple of years as people have searched for the cause of the financial crisis. Post-mortems have focused on the unbelievable level of risk taken on by institutions and the speed with which it was transmitted to others when conditions started to sour. Contrary to theory diversification, rather than mitigating risk, actually contributed to the contagion and amplified the damage. The broader consequences of the crisis have been far too familiar for the past three years and they could have been prevented if regulators were vigilant for the right signs. A similar level of regulatory passiveness currently exists in the soccer economy and it is encouraging the rise of financial risks that pose a serious threat to clubs and their supporters.
Some Manchester United supporters maybe watching the troubles at Liverpool with a grin, but the mess at Anfield is no smiling matter because the contagion could spread to Old Trafford much more easily than many are ready to admit.
1. Both Liverpool and Manchester United were bought by ownership groups who used a leveraged buy out, a transaction in which the target being acquired is used to fund its own purchase by taking out debt against its value.
2. Each of those ownership groups is the sole owner of the club. Should external conditions render the owners financially unstable it would be disastrous for the club (see Sacha Gaydamak’s exit at Portsmouth). While many other clubs bear the risk of having a single owner, the consequences are magnified in a highly leveraged situation. A debt laden balance sheet hinders the ability to find reasonably priced financing and quickly amplifies the damage an unstable owner can inflict. Continue reading “Liverpool Is No Laughing Matter For ManUtd Supporters”→
In total top flight clubs paid out 150m in interest charges, with Manchester United paying out 41.9m of that alone. That means that the Red Devils account for a whopping 28% of the financing costs paid out by the league.
Liverpool Football Club is on the hunt for investors to inject fresh capital into the Merseyside outfit. Owners Tom Hicks and George Gillett are open to either a partial sale or complete takeover of the club depending on the terms. But there is a particular urgency to the search as the clubs’ refinancing hinges upon a reduction in the current debt levels,
“Liverpool soccer club will have to cut debt by 100 million pounds ($160 million) before its bankers consider refinancing the Premier League team’s loans, managing director Christian Purslow said.
The 18-time English champion has 237 million pounds in debt,”
Source: Bloomberg News
Weakest of the Top 4
Although the Liverpool’s 237 million pounds debt pales in comparison to Manchester United’s 700 million pound debt (champions even in debt…), it is still substantial relative to Liverpool’s particular economic situation.
Liverpool’s reported revenue for the 2007/2008 period was 159 million pounds, this was composed of 41% Broadcast Revenue, 32% Commercial Sources, and 27% Match Day Revenues. The mix may have changed slightly in the past two years, but not likely by much as Match Day revenues are largely capped by the lack of a new stadium. This means that among the Top 4, Liverpool are the most reliant on Broadcast Revenue for their survival, with a large share of that coming from participation in the Champions League.
Outstanding debt was 237 million pounds as last reported, given this yearly financing costs are likely in the 30 million pound range assuming that Liverpool have the unfavorable rates that football clubs usually pay. Debts at a level almost 150% of club turnover are likely to result in higher fees as a penalty for the declining credit quality of the club.
With a spot in Europe under threat, a substantial portion of the club’s broadcast revenue, it is no wonder that the club’s bankers are requiring a draw down in the debt levels before releasing new financing.