EPL European transfers complicated by Brexit pound worries

Paul Pogba after his world record transfer to Manchester United. Credit: SkySports

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.

From the FT:

“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.

EPL European transfers complicated by Brexit pound worries

Manchester United account refinancing of senior secured debt

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.

Manchester United account refinancing of senior secured debt

Manchester United kit deal depends on Champions League

Earlier this month Manchester United announced the largest kit supplier contract in history, with the club receiving a massive £75m (~$125m) annually from soccer giant Adidas.

Today Mark Ogden of The Telegraph reports on some of the more intricate details of the partnership related to the club’s UEFA Champions League status. United must find their way back to the Champions League by the end of the 2016-17 season or face a 30% reduction in the Adidas payments. Specifically, the clause will be triggered if the club fail to qualify for the CL in two consecutive seasons beginning from the 2015-16 season.

In a situation where the club is unable to secure a spot in the competition Adidas’ annual payments would be reduced from £75m to  £52.5m. Other clauses contained in the contract include a £4m payout for any win of the Premier League, FA Cup or Champions League and a 50% reduction in the contract should relegation occur.

The lucrative contract shows the extent to which Adidas is willing to pay for a global brand like United, but also how it does so in a way that controls for volatile league and tournament performances from its club partners. Given the increasing sophistication of branding partners it seems likely that performance based contingencies are going to be increasingly common in licensing agreements.

Manchester United kit deal depends on Champions League

Manchester United’s New Deal Era

Manchester United have announced a new kit partnership with soccer sportswear behemoth Adidas, ending their association with Nike. The new relationship will see United receive a staggering £75m (~$125m) annually, a sum that far eclipses the £23.5m per annum from the previous deal. In exchange Adidas will hold the exclusive right to distribute United branded products worldwide.

To put the economic impact of United’s new shirt deal into perspective consider that  Wigan Athletic’s gross revenues in the 2012/13 season were £58m. Manchester United’s shirt brings in considerably more money than an entire club playing (at the time) in the same tier. The figure is still stunning compared to the £126m in revenue made by an average EPL club.

Kit Deal ComparisonSo how does the shirt deal stack up to other clubs with comparable branding?

The new kit more than doubles the next closest deal, Real Madrid’s  £31m a year kit (also Adidas). Arsenal’s newly minted Puma agreement hints at higher values to be had in the coming years but the gulf between United and the rest of the pack  speaks to the depth of the club’s support around the world.

The Adidas deal is the perfect capstone for a year in which United have demonstrated their commercial might, announcing numerous partnerships with companies around the world in product categories from snacks to diesel motors. With the club losing its place in the 2014/15 UEFA Champions League and the resulting TV revenues, the Devils’ sponsorship platform is a vital source of revenue growth that the club will rely on to strengthen a weakened squad and build what it hopes will be another golden generation.

Manchester United’s New Deal Era