The suspension of live sport was among the many sacrifices made in the name of Covid-19 this year in efforts to limit the spread of infection. Amidst national lockdowns football bosses across Europe opted to postpone matches and competitions, and stadiums shut their doors to fans for what was at the time an unknown period. 
Whilst recent announcements permitting limited spectators at sporting events are showing a light at the end of the tunnel, it has been a long year for sports fans with many games postponed during the height of the Covid pandemic. However, the social and economic implications of suspending professional football over the long-term saw the re-emergence of the great game on our television over the summer, albeit as a quieter affair. This has offered at least some respite and entertainment for the millions told to ‘stay home’ both here in the UK and across the world.
It was also a recognition of the economic clout the ‘beautiful game’ holds. The Premier League contributes around £7.6bn to UK GDP, and some £3.3bn in taxes to HM Treasury in a season, and supports, directly and indirectly, around 100,000 jobs. This economic contribution paired with fierce appetite from spectators, has driven the leagues to find creative ways to manage a safe return for players.
Football is a multi-billion pound sector not only in the UK, but also across Europe. The 32 ‘elite’ European clubs had a combined total value of €32.5bn in 2018. Salaries for players across the major leagues are similarly vast, with wage costs in the Premier League amounting to £3.1bn in the 2018/19 season alone.
Football clubs themselves have, like countless other businesses and organisations, struggled with the financial implications of lockdowns. With fans banned from the grounds, ticket sales are non-existent, as are the revenues brought in by the usual beer, snacks and merchandise bought on match days. Add into this the demands for season ticket refunds, and many clubs are facing a tricky time trying to balance the books.
Stepping in to fill this void are specialist football finance providers. Clubs are in need of finance, often through no fault of their own in these unprecedented times, in order to continue to pay wages and manage the upkeep and security of stadiums. Lenders with the ability to offer an injection of capital into a club to help them see out pandemic restrictions, are in return offered an attractive, secure return and given the increase in demand, are able to work with parties such as the GCP Asset Backed Income Fund to provide structured loans within the sector. Having spent around 18 months researching the sector, we’ve found that the reduction in available revenue sources for clubs caused by Covid have moved yields to a level at which we’re able to fund.
This year, we entered our first such agreement as part of a lender group with a football club in La Liga – Spain’s top tier of clubs. This €10m loan is backed by the revenues the club will receive from its broadcasting rights, and will return an annualised 6 per cent return for the portfolio.
Another is soon to be completed with an English Premier League club to provide additional liquidity, secured against contracted revenue over the next three years.
The key underlying attraction of these deals is in the ability to secure against revenue from the club’s broadcasting rights that will ensure these loans are paid on time and offer an attractive yield. By way of example, the broadcasting rights payments due to clubs participating in La Liga are set out in Spanish law by way of a royal decree made in May 2015. The law provides a set formula for determining the proportion of the overall revenue which each club will receive dependent on a number of factors, including sporting performance, public following and league position. Included within this formula is provision for parachute payments to clubs who are relegated from the league at the end of a season.
In looking to structure these loans, lenders are able to determine cashflows under the agreed broadcasting contracts by looking at worst case scenario relegations and sizing debt appropriately, agreeing repayment schedules to match the timing and magnitude of league payments. In addition, lenders are able to re-direct broadcasting revenue due to clubs for the league to ensure scheduled interest and capital repayments are met directly, without flowing through clubs.
Clearly, any non-payment of the domestic and international broadcasting deals held by the league are a key risk and, as fans will be aware, the Premier League has negotiated a rebate to broadcasters for a number of matches played outside of the agreed contract due to Covid delays. In this instance, rebates due from clubs have been deferred until next year and are included in the calculations made by lenders when sizing debt. Further game cancellations are deemed extremely unlikely, given the methods clubs now have in place to continue playing, even in the strictest lockdowns. However, the conservative loan to revenue ratio of circa 50 per cent on these loans provides headroom for even aggressive rebate or re-negotiation.
Amid the ongoing upheaval of Covid-19, these deals mark a strong alternative source of yield for an investor exploring the asset-backed loan sector. Not only do these loans help support the long-term futures of football clubs, but they also offer investors a source of income at a time when traditional assets, such as bonds, are offering low or even negative yields. In the ongoing and increasingly difficult ‘hunt for yield’, this alternative is secure, long-term and backed by regulated revenues.
It is a prime example of the role private investment can take in financing assets that may struggle to secure capital by more traditional means, helping to ensure the game loved around the world can continue to entertain long-after the current crisis passes.
Joanne Fisk is an associate director on the GCP Asset Backed Income Fund. The views expressed above are he own and should not be taken as investment advice.