By Paul Nicholson
February 18 – Financial fair play, low interest rates and football’s ability to secure big money broadcast and sponsor contracts looks likely to attract debt investors back into the football business.
Traditionally seen as vanity or goodwill investments, football clubs have infrequently captured the attention of serious financiers. But an analysis by Fitch Ratings in London suggests that could be about to change with money for the development of stadia being a key area that would attract private lenders.
Julian Dupont, a director at Fitch Ratings, said that the previously held beliefs that football is a risky business for investors are changing. “This shift is a combination of factors. Recent regulations such as UEFA’s Financial Fair Play or the English Premier League’s own Profitability and Sustainable regulation are forcing clubs to manage their businesses in a more structured way,” said Dupont.
“The sports market is starting to look more like the US in that respect where clubs can be very profitable where there is a reliable business profile.”
The reality of the current credit market is creating this potential appetite for debt investors looking for good returns. “Football is one of the few markets where revenues are both growing and increasingly largely contracted,” said Dupont.
It is also a good time for clubs looking to raise finance for big projects. Interest rates that were previously double digit for the football sector could now go closer to 5% over a five year period in the private debt markets.
“For clubs it is less expensive today than it has been before because debt investors are desperately seeking yield which has become very low in other markets,” said Dupont.
Fitch Ratings, which is a leading provider of financial information to the financial markets, sees Europe’s football stadia as ripe for this kind of investment as new business-oriented international owners come into the market, attracted by the increasingly more stable revenue streams and an opportunity through upgrading or taking ownership of their stadia to build revenue.
The company highlights France and Italy in particular where the potential for new stadiums may even be greater as clubs typically do not own their stadiums but lease them from the city or the state.
Fitch research shows that clubs who do not own their stadium generate far less revenues than others. For instance, the 2012-13 match-day revenues generated in the top French and Italian football leagues represented only 11% of their clubs’ revenues compared to 23% for the English and German leagues (source: Deloitte Annual Review of Football Finance, June 2014).
As a model, Fitch highlights Arsenal Football Club’s issuance in 2006 of £260 million of bonds secured against the then new Emirates Stadium (and the club). The revenues generated by the Emirates Stadium considerably boosted Arsenal’s match-day revenues, which grew by around 105% to £90.6 million in its first year of opening whilst seating capacity increased by less than 60%. The match-day revenues generated over 30% of Arsenal’s footballing revenues during the 2013-14 season.
Bayern Munich similarly increased match-day revenues in 2005-06 by more than 50% (estimate) to €52.1 million with its new 70,000-seat Allianz Arena (increasing average attendance by over 25% to 67,000 despite no real increase in seating capacity).
In Italy, Juventus increased its match-day revenues in 2011-12 by around 175% to €31.8 million with its new 41,000-seat stadium, becoming then the only Serie A club to own its stadium.
Fitch points to projects in Italy like the recently announced refinancing of Inter Milan, the potential refinancing of AS Roma and Fiorentina’s plans for a new stadium in Florence as evidence of capital requirement. Similarly English Premier League Tottenham Hotspur have plans for a £400 million new stadium.
But perhaps most potential opportunity could be in France which, despite hosting Euro2016, has only seen one club, Olympic Lyonnais, opt to build and own a new stadium. While the state has refurbished a number of stadia for the clubs, the time might be ripe for clubs to investigate the debt markets to help them take a greater control of their revenue destiny
Football loves money and has an insatiable appetite in this regard. If Fitch analysis is to be believed, it now looks like the economy is such that the credit markets could be on the verge of feeding this beast on the best terms it has ever had.
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