Published by Financial Times

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.”