In recent days, the Association of European Football Associations (UEFA) has announced a “rescue package” for football clubs in the amount of 6 billion euros. Who runs European football becomes a body that finances loans, that’s why there are banks?
The situation of football clubs is starting to get too complex when it comes to turning to banks. The Corona has shown how fragile the football business is. The teams always live on the edge, the players’ salaries eat up most of the revenue and they live from leverage to leverage. Some of them already know that it will take at least a decade to return to their pre-corona debt level. According to a report by Deloitte, the rich English Premier League dropped in the outbreak season of the virus (2019/20) to its revenue level from five seasons ago and over half of the league teams reported operating losses.
In Barcelona this week, President Joan Laporta revealed in the appendices of the Messi affair that the club’s debts have expanded to 1.35 billion euros. Borussia Dortmund – which is traded on the Frankfurt Stock Exchange and has managed to distribute dividends to shareholders from time to time over the past decade – has announced that it has ended last season with a loss of 72.8 million euros. According to a recent UEFA report summarizing Corona damage, European football clubs have lost a planned revenue of around € 9 billion since March 2020.
The situation the groups found themselves in can be seen through the transfer market. If we put the English Premier League aside for a moment, then the net expenditure of the other four major leagues (Spanish, German, Italian, French) on player acquisitions in the current transfer window amounts to 50 million euros – an average of 600,000 euros per team. Although the window has not yet closed, the trend is clear – in the last window before the Corona season, these four leagues spent 765 million euros net on transfers.
What, then, are the creative ways for groups to get out of debt?
Entry of investment bodies
The situation in which football teams and leagues find themselves is an opportunity identified by several private equity firms. The sheikhs and oligarchs who have acquired ownership in European clubs are now slowly being replaced by investment firms, mostly American ones. This is also a good solution for existing owners who are willing to give up percentages in favor of the entry of companies that will inject capital into an industry that bleeds debts.
In the case of UEFA and the loan it offers to teams, the funding body that will cut its share for the entry into football is the private equity company London Centricus Asset Management, a body that manages, according to its official website, about 32 billion euros. The lending entities, is the one that will be the guarantor of the money, since its condition is much better than that of the clubs.
Two weeks ago, the American private equity fund CVC took the opportunity, which managed to gain a foothold in European football after acquiring 9% of the collapsing Spanish league for 2.1 billion euros.
A few months ago John Woo sold. Henry 11% of his sports holding company, which includes Liverpool, for $ 750 million to the American private equity company RedBird Capital Partners, which already owns a stake in the French Toulouse group. Last December, ALK Capital – another American investment body – acquired the English Premier League team Burnley.
The entry of these investment funds is good for both parties: the leagues and football clubs enjoy an immediate capital injection that is so necessary without contacting the banks, while for private equity companies are building on the return of the entire industry and thus the investment will return.
Virtual money issue
If until a few years ago groups approached the stock market to raise some money there, today the popularity of the blockchain market is leading teams to try their luck at making quick money through the issuance of digital currencies. This move started even before the Corona, but now it is pushing all the teams in. For example, in recent days it has become clear that Paris Saint-Germain will fund part of the Lionel Messi deal using virtual coins issued by the club, called “fan tokens”.
The idea behind the coins is simple – the club is connected to a company that will issue a virtual currency for it. In the case of Paris, it launched the PSG currency, which is traded on the “Socios” platform (Socios.com). The currency allows fans who have purchased it to be more “belonging” to the team, to the point of being involved in minor club decisions. They sometimes benefit in advance from purchasing game tickets or discounts on purchasing club products.
The ability to trade a currency produces value for it that changes, and the club that holds these currencies enjoys profits as the value increases, as well as from the issue itself. In Messi’s case, as mentioned, Paris paid the player, according to reports, “a significant part of his arrival package” using virtual coins. As for Paris, it is not clear how many coins the club left for itself during the IPO, but the value of the coins it issued to the market stands at $ 96 million. And in any case, Paris can produce IPOs every year. Currently, it has released only 15% of the currencies it has committed to.
The Crypto Socios platform, which has issued virtual currencies to dozens of teams, including Milan, Barcelona, Juventus, Manchester City, Atletico Madrid, reported that in 2021 the teams enjoyed margins of $ 200 million.
Earlier this week, the heavily indebted Turkish Fenerbahce turned over a move to issue a virtual currency on the local Paribu crypto exchange. The four major Turkish clubs (Fenerbahce, Galatasaray, Besiktas and Trabzonspor) are in debt of $ 1.89 billion, an increase of almost 600% in eight seasons. Of these, Farnbacha’s debt is the heaviest – $ 714 million.
According to a report in the Turkish media, the issue to fans brought Fenerbahce $ 31.3 million. The Turkish team has announced that it will allocate new coins to the market each year, a move that will bring money into the club on a regular basis, and will be a new source of income that will help fight debt.
Easing of regulation
As the corona crisis lengthens and the crowd does not yet fully return to the pitches, we are seeing more and more requests from leagues and clubs for regulatory relief, which will allow for the flow of funds. The last move approved so far has been in the Spanish league.
At the end of 2020, a law was passed in Spain banning teams from advertising gambling companies on the game shirt. The damage was huge in light of the fact that 11 clubs opened the season with a betting company as the main sponsor on the shirt. In total, 31 contracts have been signed between groups in Spain and gambling companies. However, due to the difficult situation of the groups and direct damage estimated at almost 100 million euros, a regulatory easing and postponement of the law was agreed upon for a year.
UEFA has also agreed to repeal over the past year and a half its financial fair-play regulation, which has banned unlimited capital inflows by owners. Some teams, such as Chelsea and Manchester City, have taken advantage of the window of opportunity for massive acquisitions.