By Tony Attwood
There is really only one way of securing the future for companies that can’t really tell what the future holds other than the fact that they will need a lot of money, and that is by borrowing money for use now in order to attempt to make this unknown future better.
But of course there is a drawback, because in the end that money always does need paying back.
Anyone who buys a house with a mortgage knows about this. You want the house, you don’t have the money, so you borrow the money and agree to pay it back slowly over time – with interest. Meanwhile you have a house to live in. The future, at least in terms of a roof over your head, is secure.
The trouble with football is that even that sort of certainty is not completely certain. Football clubs borrow money to buy players, and there is never a certainty that these players will deliver the goods. And they are gambling on being able to repay that debt each month. Buying a house really does seem like less of a gamble.
Imagine you own a PL club and want to buy some new players. You don’t have the money, and don’t want to sell any of the players you have got (or at least none of those that are worth something). So you need to borrow the money.
You could mortgage the football ground, but lenders are not keen on that because local fans tend to get very agitated if a mortgage company closes the ground and redevelops the area for housing. So if that is not on, and you don’t own an oil-rich state, you go and find someone else to lend you the money.
Which means you might go to the Macquarie Group or someone like them – companies that might exist in part outside of the UK and therefore do not pay UK tax but who are willing and able to lend money to UK companies that do pay tax in the UK.
Righty-ho says the lender, you want loads of dosh to buy new players – what can you offer us, and don’t say the ground because we’ll never be able to develop it. And the clubs say, “next year’s TV fees.” And when those are promised but are not enough, they say, “plus the year after next’s TV fees.” And that is what is happening.
Which is fine, unless the TV fees drop. Or stop. Which they might do, if fans get fed up with paying so much money to watch football on TV, or if fans suddenly decide that the matches are fixed, or the referees are doing something unreasonable. Or the clubs that have not mortgaged their future vote to set up their own TV channel, which is great for the long term, but not very exciting for years 1 and 2, when the cost of the new channel is brought into the equation and means that income goes down in the short term.
But let’s not worry. The Macquarie Group Limited is doing ok lending money to football clubs, with the repayments guaranteed by next year’s TV money. And the year after and the year after that.
Bournemouth, Crystal Palace, Leicester City, Middlesbrough, Sheffield United, Southampton, Swansea City, Watford and Wolverhampton W are customers. Leicester are said to be starting their sixth loan package with the firm!!!!!
And these clubs will keep on borrowing until one day they find all their income is going on interest and debt repayment and actually there isn’t anything else available to pay for the next round of player purchases.
And Macquarie are actually not the biggest lenders. Barclays Bank are bigger, but Macquarie at not far behind with $1.5bn in loans across Europe. And they have rivals catching up fast People like Vibrac. They are said to be charging twice as much as a bank.
So when the next round of TV payments comes along these clubs don’t get the money that the non-debt clubs get because they have already spent it and it has gone. Vanished. Handed over to the money lenders.
Now I know the story is that it is only Arsenal who pay top dollar to buy rubbish players, but really, every club does it some time or other. The money is spent long before any benefit arrives and often there is no benefit.
Meanwhile those who like to justify this system say that it is all fine because everyone does it. Kieran Maguire, a senior teacher at the University of Liverpool’s Management School specialising in football finance says just this. “There’s an awful lot of clubs doing this and it makes a lot of sense. The broadcasting payments are made three or four times a year but you’ve got all of the overheads going out in between, including the wage bill…. It’s a risk in the same way that if you take out a mortgage and it helps from a cash flow point of view.”
But there is still the fact that much of the time transfers don’t bring benefits.
As we have been reporting throughout this season, for most of this season the six clubs that spent the most on transfers in the summer are all doing worse than they did last year.
And generally, players associated with clubs that are doing less well now than they did in the past tend to become worth less money, because buyers know that those clubs have to sell before the player loses all his value (once he goes much past 30).
And there is the interest rate. I am told that companies like XXIII Capital which lend money to help clubs pay for transfers quote interest rates that are generally three or four times that amount a bank would charge. But clubs are paying that!!!! And if you want to know why Crystal Palace wanted to sell Zaha, to Arsenal, look at the money they owe, and who to.
Now it has been suggested that Macquarie purchased half of the dosh owed to Crystal Palace from the transfer of Aaron Wan-Bissaka to Manchester United – although of course I don’t have the inside knowledge to confirm that.
But to see just how desperate clubs are getting, consider this. WBA were due to get £2.4 million in the summer of 2021 from transfers but WBA could not wait. They needed the money last summer. So in 2019 they took out a loan for the amount they were going to get in 2021.
It is of course a form of out-of-control gambling but done by football clubs rather than addicted individuals. And like all these things there is every chance it will all come crashing down.