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La Liga’s €2.1bn deal with buyout firm CVC Capital Partners shows how a collective approach can secure long-term financing for smaller football clubs that might ordinarily struggle to attract high-profile investors.
Mainstream lenders typically steer clear of smaller teams, deterred by the risk of overspending on players to climb up the ranks and relegation to less lucrative competitions. Instead, clubs rely mostly on ticket and broadcast revenue, and wealthy owners.
But by coordinating a centralised approach, La Liga, which runs Spain’s top two divisions, demonstrated that institutional investors can be tempted to finance smaller clubs when those arrangements form part of a bigger package.
CVC last month agreed a deal to take roughly 11 per cent of La Liga’s television rights over up to 50 years in exchange for €2.1bn funding, most of which will be offered as interest-free loans to clubs, with CVC planning to take an active role in managing media rights.
The tie-up also raises the question of whether other leagues will follow La Liga’s example, even though Real Madrid and FC Barcelona, Spain’s biggest clubs, opposed the deal and opted out.
“On the whole, the pandemic makes it hard for smaller teams to get debt,” said one football banker. “It is a big development, the league-wide deal. Is it going to happen some place else? It might now.”
The CVC deal shows how European football is embracing new ways of raising funds for clubs that have missed out on an estimated €9bn over two pandemic-hit seasons.
Clubs in Europe’s “big five” leagues slashed spending on players in this summer’s transfer market to roughly €3bn, as they have sought to cost cuts as well as raising capital.
Putting leagues at the centre of fundraising efforts shifts some of the responsibility from clubs that on their own struggle to find willing lenders and investors.
Italy’s Serie A and Germany’s Bundesliga had both previously rejected proposed private equity investment, including from CVC. But the Bundesliga left the door open to a future deal by ending talks with buyout firms “for now” in May.
“As a collective, the security within football is a lot stronger than it is on an individual case by case business,” said Ian Clayden, a partner at consultancy BDO, which publishes an annual report on clubs’ financial health. “It is what a number of clubs are telling us; they would welcome the opportunity to access some sort of growth or development fund.”
The pandemic has already spurred clubs to join together to secure borrowing. In the past year, 11 Spanish teams, mostly in La Liga’s second division, collectively borrowed nearly €70m from UK lender Rights and Media, while the English Football League, which runs the three divisions below the Premier League, agreed a £117.5m borrowing facility with MetLife.
“Everything has to evolve to adapt to new ages. Sport also has to evolve and to change,” José Guerra Alvarez, corporate managing director at La Liga, told the Financial Times.
But some executives and bankers are wary of simply hunting down new sources of capital without tackling irresponsible spending by clubs.
Simon Hallett, chair and majority owner of Plymouth Argyle, which plays in League One, the third tier of English football, said the pandemic had led to “a desperate situation” for Championship clubs “because so many of them have spent so much”. He injected £3.5m of equity into the club last year.
Uefa, European football’s governing body, says teams “increasingly rely” on debt and equity injections to stay afloat.
English Premier League clubs’ net debt jumped to £4bn at the end of the 2019-20 season, according to Deloitte, up by about £500m from a year earlier. In Spain, Barcelona’s wages exceeded revenues and debts soared to €1.35bn, forcing the Catalan club to part with star player Lionel Messi this summer.
The sport’s authorities are taking action to tackle the problem. Uefa is devising new regulations on player wages and transfer fees to control clubs’ costs as part of changes to its financial fair play rules.
The UK government has also launched a review into governance and financing of English football. Tracey Crouch, the member of parliament leading the review, has already concluded that too many clubs are overly reliant on wealthy owners.
The Premier League is conducting its own review, while the EFL is calling for reforms so clubs can survive on their revenues.
The EFL has argued that changes to revenue distribution are required in order to narrow the financial gap with the Premier League. It also wants to implement cost controls to address wage inflation in the Championship, where owners allowed clubs to spend 107 per cent of revenues on wages, including players’ salaries, in the 2018/19 season — a mismatch that has led owners to inject roughly £400m a year into EFL clubs.
“It’s very easy to be sustainable,” said Hallett. “You just stop spending so much.”