NCF announces a new lender and football loan model, which is exempt from Financial Fair Play Rules.
NCF announces a new lender and football loan model, which is exempt from Financial Fair Play Rules.
New Century Finance is delighted to announce a new lender and borrowing model that does not compromise financial fair play regulations.
What is this new football finance lending model?
In essence, the borrowing is off the balance sheet. The lender purchases season tickets for the 2023 and 2024/25 seasons at a discounted rate of the fixed purchase price for each season.
The Club are then appointed as an undisclosed agent to sell the purchased tickets on behalf of the lender to its fans, selling them alongside all other remaining tickets as the club usually would. The fans would have no knowledge whatsoever that any lender was involved.
As the club’s season tickets are sold, all sales are received in a controlled Bank account with control initially held by the Lender. Once the lender has earned the capital it invested for the season plus a pre-agreed premium, control reverts back to the Club.
All excess proceeds generated from remaining season ticket sales are retained by the Club.
The above process will repeat for the following season.
What are the benefits of this?
The benefits of this type of lending are:-
Immediate liquidity ahead of ticket sales for future seasons.
No security is taken and the structure adopts a true sale concept, without recourse to the Club.
The club remains in full control of the fan relationship and ticket-purchasing experience.
Liquidity is unlocked irrespective of playing performance for the next two seasons.
Beneficial approach for all external financing sources, including lenders who view the financing as locked-in revenues.
Scalable and repetitive model, with a tested financing structure.
A partnership approach with strong alignment from both Club and Lender.
How many season tickets will be bought?
Typically the lender will buy 75% of season 23/24 and 55% of season 24/25. for 2023/24 and 2024/25 seasons at a discount of the fixed purchase price for each season.
What is the purpose of this new lending method?
The new lender and NCF have designed this new way of lending to provide a solution for clubs who are struggling to meet the Financial Fair Play (FFP) regulations set by UEFA. The process allows teams to borrow with no financial impact on their FFP compliance. This means that clubs can acquire additional funds without any detriment to their already precarious financial situation.
We are delighted to announce we already have 1 deal well underway and lots more in the pipeline.
For more information regarding this new lending option, please contact Richard Price at rwp@newcenturyfinance.co.uk.
Increased competition driving down prices for receivables despite decline in transfer activity
While clubs have struggled to offload players, the increased need for cash as a result of the pandemic keeps the market for factoring deals moving.
The almost risk-free business coupled with low deposit rates have attracted financial institutions who need to get their money working.
Despite spending in the two most recent transfer windows declining by almost 50 per cent in total, the market for receivable financing has proven resilient. It has even proven to be attractive.
Over the past year, a number of financiers have increased their exposure to or entered the market viewed as almost risk-free due to the preferential treatment given to football creditors. That, along with low deposit rates, makes it an appealing way to get your money working for you.
Several sources Off The Pitch have spoken with say this has helped increase the competitiveness on the market and driven down prices.
Declining prices
With greater competition, prices on the market have in general either declined or remained stable – in spite of the increased risk from dealing with clubs in more precarious financial situations.
Richard Price, owner of New Century Finance, an intermediary that has been in the market for more than 20 years and works with UK merchant bank Close Brothers, says their prices have remained stable.
“We are not charging any more than before the pandemic. Our deals are 5.5 per cent to eight per cent depending on size and tenure,” he says.
And fewer player transactions haven’t meant a lower business volume due to the increased need for cash.
“We have not noticed a lower value of volume in the transfer market apart from the recent January window. However, we are still closing deals from the summer transfer window,” Price says.
Though Price primarily works with transfer receivables, he recently closed a £36 million media rights deal and has a number of fixed asset loan request on items such as floodlights and advertising boards.
We are delighted to announce a very successful first quarter to 2021.
We have raised finance for our client clubs against £50m of receivables from transfer deals and media rights.
In addition, we also have an active pipeline of deals for the next quarter in both types of receivables, as well as several capital expenditure projects and asset finance requirements for football clubs. Some of our rugby clients have also returned to the market in search of finance.
The use of receivables funding remains a rapidly increasing secure source of Finance for Sports Clubs in 2021.
To date, no deal managed by NCF has ever experienced a default or late payment in 20+ years.
Football lenders benefiting from clubs’ massive cash-flow problems!
Football lenders benefiting from clubs’ massive cash-flow problems: ‘We have never been busier’
As the coronavirus pandemic continues to decimate clubs’ cash flow, football’s financiers see opportunities in a market yet to fulfil its true potential.
New lenders are looking to challenge established banks on the opportunities created by lower interest rates.
Clubs stand to benefit from growing competition on the lending market, but some creditors risk being outpaced if they struggle to stay ahead of the curve.
The final bell has rung on the transfer market in a summer window which will be remembered for the extraordinary circumstances surrounding it. While the coronavirus pandemic has not stopped player transfers entirely, though clubs have spent less money, it did accelerate another tendency.
The use of factoring deals in football has skyrocketed in recent years. Rising broadcast revenues and a growing transfer market has driven the increase as clubs seek to materialise income usually spread out over months or years.
Some fear the coronavirus pandemic is challenging this tendency as clubs continue the struggle of balancing their cash flows. Income streams have become uncertain due to TV rebates and the risk of another lockdown, increasing risk, and making some lenders cautious.
‘I’ve got 17 quotes out at the moment of different deals
But others are looking for opportunities in a market which some see as having unfulfilled potential.
Offthepitch.com spoke to a range of football intermediaries and lenders to examine the impact the crisis is having on the discreet loan market within the beautiful game. Some said they were busier than ever. Others specifically had to close shop due to the crisis but remain confident opportunities remain in the market.
And then there are those seeking to challenge the established lenders with new innovative financing solutions, drawing from experience with other industries.
“Extremely busy transfer window”
Richard Price, owner of New Century Finance, an intermediary that has been in the market for more than 20 years and works with UK merchant bank Close Brothers to provide receivable financing for transfers, among other things, says he’s never been busier than he is now.
“I’ve got 17 quotes out at the moment of different deals. I have never had that many in one go. It’s normally six or seven,” he says.
When viewed in comparison to transfer spending among the top five leagues in Europe, which looks set to decrease significantly from last summer, Price’s comments become a clear sign that clubs have had a much greater need for immediate cash.
Even in the Premier League, he says, “clubs need money”.
“What they’re doing is they’re selling a player and then they want to do a transfer receivable deal to accelerate the income so that they then can buy another player or two more players. So, it’s having a domino effect”.
To give an example of how much need of funds some clubs are in, Richard Price says that one club who were due to pay Close Brothers £1 million pounds in July asked if it could be split over a further two years.
“We have never been asked to do that before,” Price says. Close Brothers agreed to the deal after involving the EFL who also assisted.
Clubs increasingly seek secondary funding
Despite that, it is not only on transfers clubs are looking for immediate financing, according to a new report from accountancy and business advisory firm BDO.
Though leveraging of transfer fee receivables has been utilised by 33 per cent clubs this year compared to 21 per cent in 2019, advances on central funding have become the most popular secondary source with 40 per cent of clubs taking advantage of the method compared to just 15 per cent last year.
“If the football industry had the same number of funders as five years ago it would be an absolute nightmare. Nowadays clubs can obtain financing at relatively competitive pricing,”
Photo:PA Images American MSD Capital was first reported to be interested in purchasing a stake in Sunderland but ultimately ended up providing the club with a £9 million loan, before it extended its business to Derby County and Southampton.
And that is no doubt in part thanks to financiers increasingly seeing the upside of tapping into the loan market in football.
“What Covid-19 has done is reset the button on clubs exploring other revenue streams. They’re all borrowing money against future cash flows and against their assets. Uncertainty creates opportunity for both clubs and for the lenders”.
Debt or equity?
The big argument for investors currently is whether to invest for debt or for equity. On debt, the good news is that government intervention has meant interest rates have gone down and made borrowing has cheaper.
Suppose a club have been put up for sale for £100. If you purchase 100 per cent of the club – the entirety of the equity – and the value of the club rises to £200 in one year you have made double your investment.
But if you buy half the club in debt and half the club in equity and the club’s value rises to £200, you have now made three times your investment. Even if the interest rate is high at about ten per cent the debt option is seemingly preferable.
“Now, if the club’s value becomes 90, 80 or even 50 you can be wiped out. But you’ve got to believe that if you buy something, you’re going to make money,” he says.
American MSD Capital was first reported to be interested in purchasing a stake in Sunderland but ultimately ended up providing the club with a £9 million loan, before it extended its business to Derby County and Southampton with a £30 million and £80 million loan, respectively. That could be an example of someone who has seen an attractive market for debt.
Flying too close to the sun
In an uncertain landscape, however, newcomers to the market also risk getting their fingers burned. Prominent lender 23 Capital earlier this year had to wind down its almost €1 billion loan book after the pandemic halted transactions.
Co-founder Jason Traub says the “air of invincibility changed overnight”.
“When everybody is feeling invincible you see the usual dynamic. More funding partners arrive, competition gets strong. Not a bad thing for clubs. Of course, having more competition among financial partners is good for clubs and for the sector. And of course, you challenge what value you can add as a lender,” he says.
Photo:PA Images
The former Investec partner is looking to remain with the 23 name and build a narrower business focused solely on lending to the “blue chip market” in football.
He is currently in discussions with existing shareholders as well as with others about backing the new entity.
“That level of support overnight, I wouldn’t say evaporated, but it certainly was challenged in a material way. And that was part of what I wanted to make sense of immediately,” Traub says.
Though uncertainty is still the key word moving forward, Traub says clubs today understand the potential of innovative, smart financing and the benefits it can bring to their businesses.
“Any stakeholder in football would be lying if they stood in front of you and said we are entirely confident as to how we will execute this strategy over the course of the next 24 months. It makes sense that you need a partner with confidence in the fundamentals and risks such that they don’t get caught up in the red tape of traditional financing,” he says.
Uncertainty is a risk
Some sport executives fear that the continuing suspension of ticket revenues and a hit on sponsorship deals can cut football clubs off from the flow of easy money.
Most lenders agree that the risk has increased but at Close Brothers they see no reason to worry.
“Our risk has increased in the short term. But we have robust due diligence and are in the market for the long term and therefore our view of this market has remained unchanged,” says Martin Stanley, CEO of Specialist Asset Finance at Close Brothers, emphasising their fees have not increased.
Partner Richard Price thinks the most interesting part right now is what happens in the coming months if clubs continue not to be able to have fans at the ground.
“If that continues for a long period, we will see a lot more clubs like Wigan and if that eventually means that funders lose money, then this could end up as a very different story. But since 2000, we’ve probably done over three quarters of a billion pounds funding and no one has lost a penny on any loan,” Price says.
In April last year, 23 Capital chief executive Jason Traub said his boutique lender aimed to provide $20bn in financing across the sport, entertainment and music sectors in the five years from 2019 to 2023, becoming sport’s most aggressive lender in the process.
Traub wanted 23 Capital to be at “the cutting edge” of lending across the sectors, perhaps taking risks others wouldn’t in order to fuel the company’s exponential growth.
And it might have come to pass, if not for Covid-19. Instead, 23 Capital is winding down just a year on from funding nine-figure football transfers.
Traub – along with fellow directors Andrew Bray and Nick Gonella – officially stepped down from the company on July 24. According to Companies House, corporate services and fund management firm Intertrust took the reins on the same day.
Intertrust is now responsible for managing 23 Capital’s hefty loan book, headlined by a €100m-plus credit facility made available to Portuguese giants Benfica, a €96m loan to Atlético Madrid to cover the cost of João Félix’s transfer from Benfica, and a loan to FC Barcelona – thought to be €88m – to fund Antoine Griezmann’s move from Atlético.
Intertrust is already abreast of one of those loans. Back in 2018, the company was appointed as the security trustee (an entity that manages a debt on behalf of multiple parties) for Credit Suisse, Thomas Creek Capital and QBS Holdings – the three lenders from which 23 Capital borrowed in order to provide the €100m-plus non-recourse credit facility to Benfica.
The Financial Times reported that Traub, who headed up the company’s sport financing efforts, had ‘realigned’ 23 Capital’s borrowing arrangement with Credit Suisse and parted ways with his former business partner Stephen Duval, who headed up the lender’s music and entertainment business.
Experts in the football finance sector say that prior to Covid-19, late or missed payments on loans or credit facilities provided to clubs were almost unheard of.
The security provided by guaranteed broadcast rights payments, and the threat of sporting sanctions should transfer fees go unpaid, made football finance a golden balance of risk v reward for specialist lenders that could charge between five and ten per cent interest on credit to clubs.
That isn’t to say there wasn’t risk involved for lenders – as 23 Capital will attest.
Kieran Maguire, football finance expert and lecturer at Liverpool University, told SportBusiness: “The sense of security around broadcast payments wasn’t necessarily false. I think there was a false view that it could only head in one direction.
“The business of funding transfers is low volume, but high, high value. You only need one non-payment to cause what is ultimately a boutique institution to be very, very vulnerable.”
Now an English Championship club, Watford borrowed £25m from 23 Capital in December 2018, with the loan secured against the club’s assets. (John Sibley/AFP via Getty Images)
High risk, high reward
Traub is now understood to be in discussions with Credit Suisse over funding for a new football financing venture, implying his faith in the sector remains strong despite the challenges 23 Capital faced. Indeed, 23 Capital has been the only casualty in a sector that immediately kicked back into gear once football leagues and competitions restarted in May, June and July.
On June 29, English Premier League club Southampton struck an agreement with MSD UK Holdings Limited, a subsidiary of technology billionaire Michael Dell’s investment firm MSD Partners and a newcomer to football finance. Industry insiders say MSD is providing a credit facility of roughly £80m to the club at an interest rate of between nine and ten per cent – a rate considered unusually high for the sector, but representative of the risk MSD is taking.
MSD has also taken a debenture over Southampton’s assets as security for the loan, granting MSD the right to put Southampton into administration and recover its losses should the club fail to keep up repayments.
On July 29, fellow Premier League club Wolverhampton Wanderers struck an agreement with Australian investment bank Macquarie – a leading lender in the sector – which provides Wolves with up to £50m in credit. The credit facility is secured against the club’s broadcast income from February 2022 to January 2023 meaning that, should Wolves be unable to pay, Macquarie can reclaim the amount owed from Premier League broadcast rights payments received by Wolves during that period.
In addition, Leicester City (Macquarie), Sheffield United (Macquarie), Everton (Metro Bank; Rights and Media Funding), West Ham United (Rights and Media Funding), Watford (Barclays) and Derby County (MSD UK) have all borrowed against future broadcast rights income since professional football restarted.
This form of ‘receivables finance’ was a common arrangement before Covid-19. Clubs borrow large amounts at the beginning of a season to fund transfers and use broadcast rights payments staggered across the season to repay the loan(s).
23 Capital were also active in this market – the €100m plus loan to Benfica was secured against broadcast rights payments, while a £25m loan provided to Watford in 2018 was repaid with media rights fees received by the club.
For many clubs across Europe, the prevalence of borrowing money against receivables like broadcast rights, future transfer income, commercial income and even season ticket income means that it has almost become a prerequisite for clubs outside of Europe’s financial elite to be competitive in the transfer market.
As evidenced by the Premier League clubs borrowing against receivables this summer, it is mid-table clubs that are keenest to gain access to upfront finance in the top tier of English football. This is either to fund player acquisitions for the upcoming season or, in some cases, to protect against top six clubs taking advantage of tough economic circumstances and poaching players for less than market value.
“If clubs don’t invest in players, they increase the risk of relegation which in turn adds to their risk profile,” says Maguire. “They are between the frying pan and the fire. If they invest, they’re going to have to borrow money unless they have owners prepared to underwrite that investment, and many owners might be asset rich but cash poor following the pandemic.”
Southampton and Sheffield United have both borrowed money to secure positive cash flow without selling players. (Andrew Boyers/Pool via Getty Images)
Approved lenders
This practice has continued unabated post-shutdown, but both clubs and lenders are at greater risk due to the uncertainty surrounding a second wave of Covid-19 in Europe as well as a reduction in overall revenues at clubs.
Paul Tagg, senior director at Shawbrook Bank, has been active in the football finance sector since 2018, primarily funding transfers between English clubs. He told SportBusiness that while club demand for upfront cash has increased, the cost of borrowing has also increased due to increased risk for lenders.
“There are now greater pressures on financial stability given gate receipts are effectively zero and even broadcast rights income has been impacted,” Tagg said.
He continued: “We have seen an increase in inquiries, particularly since the transfer window has re-opened, and there appears to be plenty of transactions being completed. The shifting risks and fluctuating availability and cost of liquidity, particularly for non-bank lenders, has altered the dynamics of the market, including price. I suspect the range of pricing in the market has widened.”
For Premier League and English Football League-approved lenders like Shawbrook and Close Brothers, the risk has only slightly increased, if at all. To be a Premier League-approved lender, a company must be a deposit-taker in the UK – i.e. it must function as a bank, as opposed to specialist lenders such as 23 Capital, MSD UK or Rights and Media Funding.
Being an approved lender grants that entity a claim to being a ‘football creditor’ – meaning if a club it has loaned money to goes into administration, that entity is at the front of the queue alongside players, staff and other football clubs to claim what they are owed in full.
Richard Price, founder of specialist sports fundraiser New Century Finance, has worked with Close Brothers since the mid-2000s to provide credit to football and rugby clubs. He says that being a Premier League-approved lender added an extra layer of security for Close Brothers, enabling them to continue lending money throughout a crisis period without taking on greater risk.
“We don’t think risk has increased for us because the way we structure deals is quite robust from a credit point of view,” Price says. “Other funders don’t see it that way because they definitely take more risks.”
Close Brothers will lend no more than the value of a Premier League parachute payment – around £40m – to a club in any given season. This ensures the borrowing club has the means to repay the loan even if it is relegated from the league.
“Close Brothers have been great and have stuck with the business,” Price says. “A lot of my competitors pulled out of the market during lockdown, at a time when a lot of clubs were starting to experience cashflow problems.”
New Century Finance and Close Brothers provided over £50m worth of financing to English clubs throughout the shutdown of professional sport, much of which involved providing upfront cash to clubs secured against outstanding transfer instalments.
“Our deals are done at an interest rate of between 5.5 per cent and nine per cent,” Price says. “There are not many deals at nine and not many deals at five and a half, but plenty of deals at six and seven per cent, including our fee. For other lenders, that fee fluctuates depending on risk. Ours doesn’t.”
Everton have borrowed money from Metro Bank and specialist lender Rights and Media Funding, enabling them to fund player purchases ahead of the 2020-21 season. (Alex Pantling/Getty Images)
No sign of decline
Covid-19 may have delivered a sharp, unpleasant jolt to football and its financiers – as evidenced by 23 Capital’s winding down – but the sector looks set to grow in the coming years.
Football financiers remain upbeat about the future of the sector and believe that the part- and non-payment of broadcast rights from rights-holders to clubs this summer shouldn’t overshadow almost two decades of near-perfect performance.
“As a form of lending these structures will remain robust, accessible and relevant to the financial requirements of a football club,” says Tom Sheldon, senior partner at sports advisory firm Keith Harris & Partners and former head of high street bank Santander’s football finance department.
“From a credit perspective, receivables-backed financing structures in football have demonstrated a very strong track record in terms of loan performance. I’m not aware of a single default or impairment on contracted payments due under a player transfer deal.”
Sheldon cited the consistent commercial performance of top level of professional football and the introduction of Financial Fair Play – suspended for the 2020-21 season but otherwise still active – as strong indicators that, Covid-19 aside, football clubs will be good for the money they owe.
“Covid-19 has undoubtedly had an unprecedented impact upon the game, but it represents an exogenous shock to the system rather than market failure within the industry,” Sheldon says.
“Significant short-term challenges lie ahead but as the game returns to stadiums and screens I believe the long-term outlook for the market remains healthy. The availability of capital through relevant funding structures, including receivables financing, will be critical to help clubs navigate the present environment and secure future growth.”
Having been involved in financing transfers since the early 2000s at corporate bank Investec, it’s hard to imagine Traub will remain on the fringes of football finance for long given current market conditions. The FT reported that he will continue as a football financier under the 23 Capital name, focusing purely on providing capital to European football clubs.
As for the investors, banks, funds and holdings that provide capital for boutique lenders to distribute across the football industry, there will always be someone willing to provide credit to an experienced hand in the business.
European football’s return to the pitch will salvage some income this season, but there is mounting concern at clubs that easy borrowing is under threat just as they need cash more than ever.
The obvious hit from the sport’s suspension has been to broadcast, sponsorship and ticket revenues. Yet this is, in turn, having an effect on an area of football financing that has attracted lenders such as Macquarie and Close Brothers, but which is threatening to unravel in the coronavirus crisis.
Clubs across the continent use so-called factoring deals to secure funding against future income. Teams including Italy’s Juventus, Portugal’s Benfica and England’s Leicester City have used such transactions in recent years, though they are more common among clubs outside of the moneyed elite.
But now sports executives fear being cut off from the flow of easy money.
“If clubs start going under, banks will just consider [other] clubs more risky and stop lending,” said one executive who led an English Premier League club until recently.
For many, the funding crisis is urgent. Phil Hodgkinson, owner of Huddersfield Town, has warned that “50 or 60” teams throughout English professional football could go under if fans cannot return to stadiums next season.
Lenders are mindful of the threat. Neil Davies, head of asset finance and leasing at Close Brothers, said: “We consider it possible mass gatherings may not happen for some time and that some clubs will face financial difficulties . . . we will continue to view each case on its merits.”
Factoring deals have been fuelled by the boom in broadcast revenues and a transfer market in which Europe’s “big five” leagues — England, Germany, Spain, Italy and France — spent a record €5.5bn in the summer of 2019, according to Deloitte. The financialisation of transfer fees, broadcast revenues and even season ticket income allows clubs to secure funding through relatively short-term facilities secured on payments due months or even years later.
Australian lender Macquarie, for example, in 2018 provided a borrowing facility to Leicester City, secured against £36m of remaining payments due from the £60m sale of Riyad Mahrez to Manchester City. Juventus, owned by Italy’s Agnelli family, owed €130m through factoring deals in 2019, with lenders including UniCredit, one of Italy’s largest banks.
Last year, auditor BDO found that 42 per cent of 12 Premier League clubs that answered its survey had raised funds against broadcast revenues, up from 21 per cent in 2017. A fifth had secured funding on future transfer income, up from 14 per cent three years earlier.
The need for factoring arises because broadcast revenue is paid in instalments over the year. A portion is determined by final standings in the table. It is also common practice to stagger transfer payments.
Competition among lenders lowered borrowing costs according to BDO. UK challenger bank Aldermore had built a £148.8m exposure to football finance by mid-2019 after launching in the area in 2017. Shawbrook, a rival lender, also entered the market in 2017, though it has since scaled back its ambitions.
Now the unfolding funding crisis at clubs is making some lenders more cautious, according to people who have worked on factoring deals.
“There will potentially be more nervousness in the market about lending against income streams that would have been seen as relatively certain,” said Mal Brannigan, a consultant and former executive at several clubs including Sheffield United and Derby County.
Richard Price, owner of New Century Finance, an intermediary that works with Close Brothers, recently completed a transfer receivables deal with a Premier League club he had not worked with for seven years, which he attributes to other lenders stepping back. “Those other funders aren’t around now,” he said.
Club executives say the transfer market is likely to seize up as teams have less cash to spend on big signings. “It’s likely clubs would rather hold on to players until their values recover,” said Michael Weaver, head of valuation advisory for Europe, the Middle East and Africa at consultancy Duff & Phelps. “This results in payment taking longer, naturally causing a domino effect.”
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Premier League clubs are also on the hook for a broadcasting rebate of up to £330m. One banker said this was the biggest risk in factoring because of the potential “financial vacuum” in cases where clubs have borrowed upfront on the income.
Manchester United expects to repay £20m to broadcasters, though few others share its options of £90m in cash and a £150m revolving credit facility. The biggest clubs also have easier access to traditional lenders and longer-term finance.
But the problems are greater further down the leagues. Smaller teams often struggle to secure long-term financing as the potential for relegation — and its effect on revenue — scares off mainstream banks. Already struggling with cash flows, many clubs could face more acute problems if factoring companies limit lending.
Charlie Marshall, chief executive of the European Club Association, said: “We’re still looking at a 20 per cent minimum revenue loss from what was expected this season and next season. And, in the worst case, it’s going to be double that and could even be more.”
NCF had another record year ending 31st August 2019.
Additionally we closed several deals for Premiership Rugby clubs.This was secured on either transfer or broadcasting monies receivables. So far in this current financial year we have completed £52m with £120m of TV media rights in the pipeline ahead of the 20-21season. We celebrated our 20th anniversary in January 2020 and we continue to be the No. 1 choice for the majority of top football and Premiership Rugby Clubs for providing receivables and asset finance.
In the Football market we have put together some funding structures with a small panel of Banks. We offer finance for the transfer fees of Premiership, Championship and top European clubs as well as discounting future Broadcasting monies. We have completed a considerable number of deals in our 20 year of operating. We are also able to source finance secured on season
When you’re watching your favourite winger (football or rugby) terrorising opposition defences, uppermost in your mind is unlikely to be the thought ‘I wonder what the structure of the deal was that brought them to the club?’.
Yet, despite football, in particular, having grown into very big business, with countless millions spent every football transfer window and many clubs worth billions of pounds, player transfers still need to be funded. Not every club has a wealthy benefactor.
For the last two decades Richard Price, owner of New Century Finance has been working with Close Brothers Leasing on funding player transfers in football and rugby, and he occupies an almost unique space in sports finance.
“A typical deal could be, for example, Club A selling a player to Club B for a top line figure of £15m,” explains Richard. “It works on an instalment basis; on day one of the deal, Club B pays Club A £5m, with the remaining £10m paid back over two years (£5m / year).
“Club A will want that remaining money to buy players during the transfer window so we give them a discounted figure and we get our money back from Club B on the due dates.”
According to Richard, doing business on this basis means neither company has ever lost money or even chased a late payment on a deal because the documentation ties in Club A to pursue the football creditor in the unlikely event Club B doesn’t pay.
“Football runs a tighter ship than many people realise,” said Richard. “We’ve managed over 350 transactions representing £750m in financing and have completed transactions with over 60 different clubs in football across the UK, Europe and South America.”
“We like to keep deals confidential and don’t register any charges at Companies House unlike many other lenders because this alerts the media.”
A typical transfer deal may be worth between £500k and £40 million.
Setting a high bar
The bar has been set deliberately high for funders who want to enter the football transfer market, with a number of key criteria needing to be satisfied.
“Before Close Brothers Leasing could start lending back in 2007, they had to win approval from the English Premier League, the English Football League and the Football Association,” said Richard. “They had to be approved as a lender first, which wasn’t straightforward.
“In addition, the documentation for every deal also has to be approved by all parties.”
Exclusive relationship
NCF works with Close Brothers Leasing on an exclusive basis, giving the bank first refusal, and, if a club or their representative approaches Close Brothers Leasing directly, they’re referred to NCF.
“The reason we work this way is, foremost, because of trust,” said Richard. “We’ve been working together for many years and have an established relationship and way of working that suits everyone.
“And the reason our clients keep coming back to us is because we’re nice to deal with; our documentation is relatively simple; we’re very well known in the market and we’re able to sort out problems with other clubs because we know them and have done business with them.
“Also, we work quickly – we can get a quote, credit cleared, and paid out in 10 working days.”
To find out more about sport finance, please contact Richard here for a chat or follow us on LinkedIn.
The ease with which the biggest two football signings of the summer were funded could hardly have been more different.
In early July, Atletico Madrid paid Portuguese club Benfica €126m (£116m) for 19-year-old forward Joao Felix – the third-biggest upfront fee ever paid for a footballer; and the fifth biggest deal of all time.
The Griezmann transfer caused a right ruckus, according to reports in the Spanish media. Barcelona had hoped that local lenders such as Santander, Caixabank and Sabadell, would stump up the transfer fee to Atletico. They refused, it is said.
Traub is resolutely tight-lipped on the Griezmann deal but the inference seems clear. Barcelona were running around like headless chickens for someone to provide the financing for the deal, reports suggest.
Michael Savva, a specialist sports finance lawyer at Watson Farley & Williams, points out that clubs which are looking to sell a player use the deadline as leverage over those that are buying.
“The frenzy on deadline day is the result of a knock-on or domino effect of one long-running transfer deal feeding into two or three other ones… So there will inevitably always be a mad rush in one way or another. Would we really want it any other way?”
Traub’s fund is just one piece of a financing jigsaw that has evolved in recent years. As the money in the game has rocketed, so has the way clubs are funded.
“In the early days obviously less capital was required, so local owners were able to fund moves personally and normally via their other business relationships with the bank,” says one former Premier League chief executive. “It then all started to change when the Premier League emerged in 1992.”
With transfer fees soaring “normal lenders disappeared, leaving the financing to owners and specialists”, he says.
Football transfers are generally reported by way of a headline figure. How much money changes hands on day one is much more complicated than that, however. Often fees are paid in instalments; if this is the case, the selling club is often unwilling to wait; it wants the money upfront.
A specialist bank will therefore loan the club the money, with the selling team repaying the debt as it receives staged payments from the buyer. Beyond transfers, loans can be advanced for future TV rights money or sponsorship earnings.
Savva says that the rise of football banking specialists does not necessarily fan the flames of transfer fee inflation – it’s something of a chicken and egg scenario. “There are examples where actually the reverse is the case. In other words, because of the transfer fee inflation, new liquidity is required to come on tap,” he says.
There is concern about a growing divide between the haves and the have-nots in English football that a new wall of finance could create.
“The knock on effect of the growth in the Premier League has been devastating for lower league clubs as they try and keep up but [struggle] without the revenues,” says the ex-Premier League chief.
Richard Price of New Century Finance, a self-styled “packager and arranger”, brokers loans from merchant bank Close Brothers and football clubs. Since 2000, he’s been involved in transfer deals totalling £750m. He says the financing of transfers has changed in England in recent years as a result of the increasing amount of TV money that has poured into the game.
“The Premier League clubs are so wealthy, the top 10 don’t really need help,” he says. “You will rarely see Liverpool or Manchester City go into market.”
So instead Price is rushing to seal a £7m deal between two club’s from the Championship, English football’s second tier. “The Premier League clubs borrow less and less. And the Championship clubs borrow more and more.”
Does this mean the market is saturated with lenders? “There is still not a queue,” says Price. “Traditionally, banks do not like football clubs.”
Leicester City Football Club, the team which won the Premier League against all the odds in 2016, uploaded a new filing to Companies House on Friday.
The document highlights a trend in the upper echelons of football: transfer fee factoring. A common practice at industrial companies, factoring is where a bank effectively helps a supplier to get paid early, by lending against payments due from a customer.
In this case, the product being sold was Riyad Mahrez, in a £60m transfer of the player from Leicester City to Manchester City in August. Australian investment bank Macquarie, provided the factoring.
It was a lot of money for Leicester, who in the financial year to May 2017 recorded £80m of profit, according to their most recent accounts. As that year included Leicester’s sole foray into the Uefa Champions League, which along with operatic theme music brings higher television revenues, it is likely 2018 profits were lower.
The club wasn’t due to get all the of the £60m up front, however. The deal was structured in instalments, with Manchester City due to pay £36m in two £18m tranches, on 31 July 2019 and 2020, respectively.
Cue Macquarie, who have provided a secured borrowing facility against the £36m of receivables. Leicester gets access to the money up front, and Macquarie will receive the transfer fees directly from Man City.
Typically in factoring the money received by a club is at a discount to the receivables due, so the funding party receives some compensation from taking on the repayment risk. Macquarie declined to comment, and no one at Leicester was available to comment. According to Richard Price of sports financiers New Century Finance, the discount is often in the 4 per cent to 5 per cent range.
In Man City’s case, the risk of non-payment (and hence the fee) is likely to be lower than for many clubs due to the backing of Sheikh Mansour, the Abu Dhabi royal.
Transfer factoring has been commonplace in English football since the early 2000s, according to Price. Since then, transfer fees in English football have exploded, with rising television revenues and ticket prices often cited as reasons.
Yet arguably, factoring has also played a part. Stretching payments into the future has perhaps encouraged clubs to think they can pay more for players, and those selling to accept longer instalment plans in the knowledge an investor will turn the deal into an immediate payday.
So with television revenues set to rise for the foreseeable future, according to Deloitte, it seems a drop in transfer fees is a still a long way off.
