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,” 

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.

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.