The money game: debt financing in football

Financing the spending boom

With the summer transfer window now open for both English Premier League (“EPL”) and English Football League (“EFL”) clubs, following on from a record-breaking winter transfer window in which EPL clubs alone spent £815m (almost four times the aggregate transfer expenditure of all the top-tier clubs in Italy, Spain, France and Germany combined [1]), the relentless growth of the EPL’s financial power means that, once again, a spotlight is being shone on just how such spending is financed.

At the very top table of English football there is a small, but growing, number of clubs owned or controlled by high-net worth individuals or families (such as Arsenal, Chelsea and Manchester United) or sovereign funds (such as Newcastle United and Manchester City). These clubs have the financial resources to invest in and run football clubs without a heavy reliance on debt financing and an ability to access significant, often relatively low-priced, capital due to the credit support either the club itself or its owners are able to provide (noting Chelsea’s recent £800m debt financing, which is reportedly not secured against any of Chelsea’s assets or revenues [2], and the $650m loan borrowed by the parent company of Manchester City in 2021 [3]).

Other clubs are not so fortunate. In this article, we take a closer look at the debt financing products these clubs rely upon – both those that have formed the core of the football finance market in recent years and those that have more recently gained (or look set to gain) more popularity.

Football’s core debt finance products

In recent years there have been two predominant types of debt financing product prevalent throughout English (and European) football:

Receivables financings

These financings allow clubs to borrow against the value of their future income streams, such as transfer fees (received in instalments from clubs they have sold players to), broadcast revenue or sponsorship income (in the case of EPL clubs, being payments of Central Funds [4]) and season ticket income, to access liquidity upfront. This market is generally dominated by a relatively small number of lenders, especially in the UK where both the EPL’s and EFL’s respective rules state that clubs may only assign their entitlement to transfer fees in relation to the sale of a player to a Financial Institution [5] [6]whilst EPL clubs are also restricted from assigning their rights to Central Funds to non-Financial Institutions [7].

Secured loan facilities

These facilities are made available to clubs for funding a specific purpose, such as a transfer, or for funding general working capital needs, and are typically relatively short-term in nature (often needing to be renewed annually). Lenders generally require security over the entirety of a club’s assets or its highest-value assets, although the nature of the security provided by a club is often dependent on the rules of the league in which the club competes. As mentioned above, in the case of the EPL’s rules, a club is only permitted to grant security over (or assign) its rights to payments of Central Funds to Financial Institutions, unless it grants a fixed and floating charge over the entirety of its assets and undertaking on usual commercial terms to the lender [8].

There are a number of reasons why these types of financing products continue to play such a major role in football financing, namely:

The familiarity clubs have with the products and their availability

More than 40 per cent of EPL clubs surveyed by auditor BDO immediately prior to the pandemic had raised funds against future broadcast revenues (increasing by 21 per cent in three years) whilst a fifth had obtained funding on future transfer income (increasing from 14 per cent in three years) [9].

The ever broadening and deepening pool of revenue streams

• A significant number of the EPL’s deals with broadcasters for live television rights will expire at the end of the 2024-25 season, including its current £5.1bn domestic rights deal with Sky Sports, Amazon Prime and BT Sport / TNT Sports. The EPL has gone to market this year to negotiate new deals, with reports that streaming giants Apple TV, Netflix and DAZN may look to enter the market (with streaming services reportedly set to spend $8.5bn on live sports in 2023, up 64 per cent from last year [10]), potentially pushing the EPL’s broadcast revenue even higher.
• The EFL has recently approved a record broadcasting deal with Sky Sports worth at least £895m over a five-year period, a 50 per cent increase on the value of the current broadcast rights agreement [11]. For reference, at present the EFL’s rules do not permit a club to grant security over (or assign) its rights to payments from the EFL’s Pool Account [12] to Financial Institutions, unlike the equivalent exception in the EPL’s rules, therefore it is worth monitoring whether the EFL looks to introduce a similar exception to provide its clubs with another route to finance in light of the increase in broadcasting revenue.
• The rapid growth of women’s football looks set to continue, with television audiences for the English Women’s Super League for the 2021-22 season (the first year of Sky Sports’ domestic broadcast deal) up by 171 per cent [13].
• Elsewhere in Europe, the value of domestic broadcasting rights in the other major leagues is also on the up, including in Italy and France, which have traditionally had the lowest value broadcast deals of Europe’s “big five” leagues [14].
  
  

The continued upwards trend in transfer spending

This is providing more opportunities for clubs to forward finance transfer receivables (and to do so on a bigger scale). EPL clubs spent a total of £2.8bn during the 2022-23 season, a new all-time high, overtaking the previous record of £1.9bn set in the 2017-18 season by 47 per cent, whilst the total gross transfer expenditure for EFL clubs jumped from £20m to £25m between the January 2022 and the January 2023 transfer windows, an increase of 25 per cent [15].

The appetite for existing lenders to remain in the market and others to enter the market

Although a number of major banks have been traditionally reluctant to enter the football finance market as it is perceived as higher risk and potentially reputationally difficult, there are a number of lenders that are relatively well established in the market. In the UK, such lenders include the Australian lender, Macquarie (which has recently made a facility available to Burnley, newly promoted to the EPL), along with certain challenger banks and, in more recent times, MSD Partners, the personal investment vehicle of technology billionaire Michael Dell. These lenders generally require clubs to provide relatively considerable collateral for their facilities, often including security over all assets of the club, including the club’s stadium and training ground.

Growing appetite for new forms of debt financing

Despite the continued prevalence of the types of debt finance products described above, clubs are showing an increasing appetite for other forms of debt financing, in part driven by the phasing in of UEFA’s new sustainability and financial fair play rules, which Richard Masters, chief executive of the EPL, thinks could significantly alter the financial landscape of European football over the next three years [16].

The need for greater financial sustainability is also a major theme coming out of the UK government’s fan-led review, with the government announcing last year that it intends to implement all of the main recommendations of the review, most notably the establishment of an independent regulator with the primary role of maintaining financial stability within the English game [17].

In view of the move towards more sustainable financing models, there are a number of types of debt products that are gaining increasing popularity in the market, including the following:

Secured facilities with longer maturity periods

Typically these facilities have maturity periods of three to five years and are structured as term loan or revolving credit facilities, often including an accordion facility for additional flexibility. Longer term facilities allow clubs to build stronger relationships with their lenders and provide a more holistic and stable financing option on terms that offer them the flexibility they need to operate efficiently (both from a footballing and commercial perspective respectively), which is particularly important in view of the seasonal and cyclical nature of their revenue streams. Such facilities are often designed to contemplate relegation and promotion (rather than being subject to a renewal on an annual basis), for example, requiring the repayment structure or pricing to be changed, additional collateral to be posted or part prepayment in the event of promotion or relegation, and

Squad-value linked loans

These loans allow a club to borrow against a percentage of the value of its playing squad with specific undertakings governing how receipts from future player sales are controlled and used. Such loans may be secured against all the assets of the club or certain specific assets, such as its rights to the playing squad via the players’ playing contracts or bank accounts into which transfer receivables should be paid, meaning the club retains the ability to borrow additional debt against its rights to receive Central Funds. In both cases, clubs are permitted to grant such security to non-Financial Institutions (noting that all-asset security can be granted to Financial Institutions and non-Financial Institutions pursuant to both the EPL’s and the EFL’s respective rules [18]), widening the potential lender pool for clubs and in turn potentially reducing the cost of the debt and allowing clubs to borrow on less restrictive terms. In any financing linked to a playing squad’s value, care needs to be taken to avoid breaching the rules and regulations imposed by the relevant league and / or FIFA regarding third party influence, ownership and control, particularly those preventing third parties exercising undue influence of player selections and transfers.

Accessing funding in the debt capital markets is another financing option utilised by clubs through corporate and retail bond issuances and private placements. A number of EFL clubs have issued mini-retail bonds (which are similar to retail bonds but are unregulated, unlisted and not tradeable) in recent years, including Norwich City and Queens Park Rangers (which issued five-year retail bonds in 2018 and 2021 respectively). More recently, Bolton Wanderers issued a five-year mini-retail bond with an 8.5 per cent coupon and has reportedly raised £3.5m at the time of writing. Bonds are often unsecured, attract lower interest rates than other sources of borrowing and allow clubs to access capital on less restrictive terms.  

What does the future hold for football finance?

Football clubs and lenders alike are constantly faced with an array of factors to consider when participating in the debt finance market – predominantly pricing, maturities, the potential impact of relegation or promotion, the assets available to provide or take as security and the myriad of rules and regulations applicable to them and their activities.

Whilst these factors will remain central to the market, it’s clear that there is (or will be in the coming years) a move towards more sustainable, and most likely longer-term, financing options, which is likely to re-shape, and change the perception towards, certain of the industry’s core debt financing products and drive demand for new products. These products will still be structured in a way that protects lenders’ interests but going forward should be better designed to meet the strategic aims of clubs and align with all of the game’s stakeholders’ desire to create a more sustainable model for running clubs, which are often at the heart of their local community, town or city, to safeguard them for future generations.

Farrer & Co Sports Practice

Farrer & Co has a leading sports law practice representing a range of clubs, governing bodies, sponsors, investors and individual athletes. We offer a range of specialist services, including commercial, financing, property, planning and disputes expertise, meaning we are perfectly placed to help our clients in the sporting sector with all of their needs.

Our sports financing team advises clients on a wide spectrum of matters, including corporate loans, receivables financings, squad-linked financings and capital pooling arrangements, reflecting the increasingly dynamic and interconnected nature of the sporting world.

Footnotes

[1] Deloitte Press Release: “Records tumble as Premier League clubs spend £815m in January transfer window” (1 February 2023)

[2] Financial Times: “New Chelsea FC owners raise £800mn of debt to reshape club” (21 July 2022)

[3] Financial Times: “Manchester City owner raises $650m in one of football’s biggest debt deals” (16 July 2021)

[4] Central Funds are the distributions clubs receive from the Premier League of television and radio broadcast revenue and other commercial revenue, including sponsorship revenue

[5] See Rule U.38.10 of the Premier League Rules and Rule 51.1.10 of the EFL Regulations 2022/23

[6] Financial Institutions are defined as, essentially, UK regulated, deposit-taking banks (see Rule A.1.88 of the Premier League Rules and section 1.1 of the EFL Regulations 2022/23 respectively)

[7] See Rule D.31 of the Premier League Rules

[8] See Rule D.30 of the Premier League Rules and Rule 19.2 of the EFL Regulations 2022/23

[9] Financial Times: “European football clubs’ route to easy borrowing under threat” (12 June 2020)

[10] Financial Times: “Wall St tightens grip on football” (4 March 2023)

[11] EFL Official Statement: “EFL announces landmark broadcasting deal with Sky Sports” (5 May 2023)

[12] All of the EFL’s income (including broadcast, commercial and sponsorship revenue) is paid into the Pool Account, which is maintained by The Football League Limited, and then distributed to clubs in accordance with the EFL’s rules

[13] SportsPro: “Sky Sports sees 70% increase in TV audiences for Women’s Super League” (1 December 2022)

[14] Financial Times: “Wall St tightens grip on football” (4 March 2023)

[15] Deloitte Press Release: “Records tumble as Premier League clubs spend £815m in January transfer window” (1 February 2023)

[16] Financial Times: “Wall St tightens grip on football” (4 March 2023)

[17] Government Response to the Fan Led Review of Football Governance (April 2022)

[18] See footnote 8

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2023