Banks – GAME OF THE PEOPLE

JUST A couple of months ago, Barcelona were supposedly staring into the abyss, broke, unable to keep their talismanic player and in a deep, deep crisis. Their story was a lesson to every over-ambitious and reckless football club and also, some assumed, an indication of the troubles to come for the industry. The perils of debt and overspending, that was the moral of the tale.

Barca have been in better places and they have certainly lost ground on their rivals at home and abroad. But what’s this we have here, some kindly bankers saving the club? It’s not a Spanish institution that has come to their rescue but Goldman Sachs, the US investment bank who, according to their then CEO in 2009, were very good at doing “God’s work”. Barca probably need celestial help at the moment, so why not hire Goldman to sort out the mess that has built-up at the club? One might suggest the Wall Street firm have provided a big vote of confidence for the Blaugrana.

Joan Laporta, who won the political battle to become president last year, claimed that “Barca are back” after acquiring Manchester City’s Ferran Torres for around € 50 million. With the club’s debts supposedly well over € 1 billion, people are naturally asking how they can suddenly afford such a signing. Laporta, who called Barca “a benchmark club” also insisted a new squad is under construction at the Camp Nou and boasted he will sign Europe’s hottest property, Erling Haaland from Dortmund in the summer. There has been talk of bids for Chelsea central defender Andreas Christensen and Juventus striker Álvaro Morata.

Barca were never going to become football’s Lehman moment precisely because they are Barca. Nobody was going to close them down and even if it did get to the 11^th hour, Spain and Catalonia would never allow the demise of one of its biggest sporting entities and ambassadors. The public relations would be a disaster, the blow to Spanish morale would be ill-timed and the politics would also be very tricky to handle. Barca’s situation was undoubtedly caught up in politics, but it did highlight how badly they had been run for a long time.

Goldman Sachs have agreed a € 595 million loan that will run for 35 years but for the first five years, Barca will only have to deal with the interest. In that period, Goldman will work on the vital task of restructuring the club’s finances. The loan, of which € 100 million was available immediately, will allow Barca to stay afloat and also provide some much-needed breathing space.

Laporta, when he unveiled Torres, said Barca were recovering their status and warned the rest of the football world that “we are back as big players in the market”. Such a statement would appear a little premature and also tasteless given the publicity surrounding the club’s financial crisis in 2021. Borrowing money is not an achievement, but merely underlines the parlous state of their finances. A little humility would have served them better.

However, if a bank is going to lend to any football club, it would ideally be to one that can generate € 1 billion a year when the climate is right. With such a high cost base, the problem was that when conditions turned bad it exposed Barca’s fragile business model.

On top of being able to meet their running costs, the club also has its ambitious Espai Barca project in the pipeline. Barca’s members voted overwhelmingly to continue this scheme, which includes the Camp Nou and a new sports centre. The stadium, when completed, will cost around € 900 million, but Laporta believes additional revenue generation from the project will total € 200 million per year.

Barca suddenly seem to be in a better frame of mind than they were just a few weeks ago. Although they crashed out of the UEFA Champions League at the group stage, which must have been a seismic shock on so many levels, they now have “one of their own” in Xavi as coach, their seventh full-time appointment since Pep Guardiola departed in 2012. Only Luis Enrique has seemed anything like a comfortable hiring during that time. Xavi could be Barca’s Zidane, but he doesn’t have the squad the Frenchman inherited at Real Madrid. Xavi has been in charge for nine games and his win rate is 44%, but he will enjoy the luxury of patience from the Barcelona top brass.

Cynics believe Barca desperately needed some good news and Laporta is doing his best to stir things up in the media. He may well have cash that is burning a hole in his pocket, but competition will be fierce for Europe’s big names. How far can they go when they still have so many issues to solve?

THE CHALLENGES facing top-level football continue to escalate, ranging from macro-economic to political and social concerns on a global scale. The finances of clubs and leagues are coming under considerable pressure. Just as banks, nation states and corporates sought alternative sources of support during the financial crisis of 2008-10, football is now turning to different and less traditional avenues of financing. The recent aborted discussions around a takeover of Bradford City by a group of investors aiming to harness the potential of Non Fungible Tokens (NFTs) demonstrated that change is coming.

Increasingly, hedge funds, private equity firms and family offices are getting involved in football, offering investment where historic lenders may no longer be prepared to tread with comfort. The reputation of alternative investors has always been a sector with a short-term perspective, one that pursues quick returns and has a limited attention span. Given football is an industry that has hordes of stakeholders, the dynamic between supporters and professional investors from London, New York, Asia and the Middle East, is not necessarily comfortable. Invariably, Wall Street and the Square Mile are mistrusted by football fans.

But sport and private equity are not such unnatural bed fellows, in fact, firms have been dipping their toes in the water for some years. The pandemic has arguably accelerated their involvement. While the reception to private equity has not always been positive, but as more people understand the intention of such companies, the fears have subsided. In fact some of the deals being talked of at present have much longer timeframes than those usually associated with the sector.

The growth in American ownership such as the Fenway Sports Group at Liverpool, the Glazers at Manchester United and Stan Kroenke at Arsenal has experienced mixed relationships with fans. Initially, there was resistance, but ultimately, if a club is successful, the mood shifts substantially. It is not inconceivable that private equity will no longer be looked as a two-horned devil in the near future.

Spain’s La Liga has just announced their deal with CVC has now been approved by 37 of its 42 clubs. There was an attempt to head the transaction off by Real Madrid, Barcelona and Athletic Bilbao with a bank-backed consortium, but the € 2 billion package will give CVC an 8.25% stake in La Liga’s media rights for 50 years. Spanish clubs will be able to spend 70% of the proceeds on infrastructure, 15% on servicing debts and 15% in the transfer market. The three clubs are now challenging the deal, so the story could run for a considerable period.

Likewise, there was resistance in Italy when a group of private equity firms were in talks with Italian league Serie A. This transaction involved the provision of a credit line of € 1.2 billion for a 10% stake in the league. Three of Italy’s most influential clubs, Juventus, Inter Milan and Lazio, blocked the deal, so CVC turned its attention to Spain. However, there is still a possibility that one of the firms may resurrect the proposal.

The Bundesliga also flirted with the idea, but the clubs were mostly very opposed to any private equity investment. KKR, Bridgepoint and CVC were all part of discussions with the aim of a 25% stake in the league’s overseas broadcasting rights. In May 2021, the clubs broke off talks, but interestingly the caveat was, “for now”.

While the possibility of a league transaction is not universally welcomed, clubs have been bought – and sold – by private equity companies. Clubs such as AC Milan, Genoa, Bordeaux, Burnley, Nancy and Toulouse all benefitted from some sort of private equity investment.

It would appear that while banks largely steer clear of football that alternative finance will continue to grow among major clubs. In addition to requiring security for any lending, banks are also reluctant to get into a situation where they have to force a club to fold. If, as promised, the game becomes better regulated, some of those concerns may diminish, but in the meantime, clubs are tapping markets that are willing to provide much-needed funds. How this can be aligned with the emotional aspects of football remains to be seen.