La Liga CVC deal shows power of collective approach for small football clubs
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La Liga’s € 2.1 billion deal with buyout firm CVC Capital Partners shows how a collective approach can secure long-term funding for smaller football clubs that might normally struggle to attract investors leading.
Traditional lenders generally avoid small teams, deterred by the risk of overspending players to climb the ladder and relegation to less lucrative competitions. Instead, clubs mostly depend on ticket and broadcast income, and wealthy owners.
But by coordinating a centralized approach, La Liga, who run Spain’s top two divisions, have shown that institutional investors may be tempted to fund smaller clubs when those arrangements are part of a larger package.
Last month, CVC struck a deal to take around 11% of La Liga’s television rights over a period of up to 50 years in exchange for funding of € 2.1 billion, most of which will be offered as interest-free loans to clubs, with CVC planning to take an active role in media rights management.
The tie-up also raises the question of whether other leagues will follow La Liga’s lead, even though Spain’s biggest clubs Real Madrid and FC Barcelona have opposed the deal and have pulled out.
“Overall, the pandemic is making it difficult for small teams to get into debt,” said a football banker. “It’s a big development, the league-wide deal. Is it going to happen elsewhere? It might be now.
The CVC deal shows how European football is embracing new ways of raising funds for clubs that have missed around € 9 billion over two pandemic seasons.
Clubs in Europe’s ‘big five’ leagues have cut spending on players in this summer’s transfer market to around € 3 billion as they have sought to cut costs and raise capital.
Placing leagues at the center of fundraising efforts shifts some of the responsibility of the clubs who, by themselves, struggle to find willing lenders and investors.
Both Italian Serie A and German Bundesliga had previously rejected a private equity investment plan, including CVC. But the Bundesliga left the door open to a future deal by ending negotiations with the buyout companies “for now” in May.
“As a collective, security in football is much stronger than it is on a case-by-case basis,” said Ian Clayden, partner at consultancy BDO, which publishes an annual report on the financial health of footballers. clubs. “That’s what a number of clubs tell us; they would welcome the possibility of accessing some sort of growth or development fund.
The pandemic has already prompted clubs to come together to secure loans. Over the past year, 11 Spanish teams, mostly in La Liga second division, have collectively borrowed nearly € 70million from UK lender Rights and Media, while the English Football League, which manages the three lower divisions to the Premier League, accepted a loan of £ 117.5million. installation with MetLife.
“Everything must evolve to adapt to the new ages. Sport must also evolve and change, ”José Guerra Alvarez, general manager of La Liga, told the Financial Times.
But some executives and bankers are reluctant to simply seek new sources of capital without tackling irresponsible club spending.
Simon Hallett, chairman and majority owner of Plymouth Argyle, which plays in League One, the third tier of English football, said the pandemic had led to “dire straits” for league clubs “because so many of them have spent so much ”. He injected £ 3.5million in equity into the club last year.
UEFA, the governing body of European football, says teams “increasingly rely” on injections of debt and equity to stay afloat.
English Premier League club net debt jumped to £ 4bn at the end of the 2019-20 season, according to Deloitte, up around £ 500m from the previous year. In Spain, Barcelona wages exceeded income and debts climbed to € 1.35 billion, forcing the Catalan club to part ways with star player Lionel Messi this summer.
Sports authorities are taking action to tackle the problem. UEFA is developing new regulations on player salaries and transfer fees to control club costs as part of changes to its financial fair play rules.
The UK government has also launched a review of the governance and funding of English football. Tracey Crouch, the MP leading the review, has already concluded that too many clubs are too dependent on wealthy owners.
The Premier League is leading its own review, while the EFL is calling for reforms so that clubs can survive on their income.
The EFL has argued that changes in income distribution are needed in order to narrow the financial gap with the Premier League. He also wants to implement cost controls to combat wage inflation in the league, where owners have allowed clubs to spend 107% of income on wages, including player salaries, during the season. 2018/19 – a lag that has led owners to pump around £ 400million per year into EFL clubs.
“It’s very easy to be sustainable,” Hallett said. “You stop spending so much. “