Football’s emerging investment market
Author: Tom Maturi
According to Bloomberg, football is the most popular sport in the world. Lenders and other investors, however, may take a more cautious view with respect to lending to or investing in football clubs due to the unpredictability of their cash flows. As a result, football clubs have had to up their game when arranging their financing.
Earlier this year, Norwich City F.C. successfully issued a £5 million bond through sports investment platform Tifosy, which was created by ex-Chelsea player and manager Gianluca Vialli. The five-year, fixed-term bond issue targeted proceeds of £3.5 million but, due to popular demand, the subscription reached its maximum size of £5 million. Over 700 supporters and investors subscribed, in large part due to the 8 per cent coupon, comprised of 5 per cent cash interest and 3 per cent interest in “club credit” to be spent on regular individual match day tickets, hospitality, food and drink, merchandise and events. A one-off “promotion bonus” of 25 per cent is also payable if the club reaches the Premier League during the life of the bonds.
This followed a similar bond issuance by Stevenage F.C. and offers a contrast in approach to clubs such as Portsmouth F.C. and Parma Calcio 1913, who raised funds on crowdfunding platforms in 2014 and 2015 respectively.
This trend in sport finance, however, is not entirely new. As far back as 1999, U.C. Sampdoria issued a bond to its supporters for a total of €3.3 million with a variable coupon based on the club’s league position. Similarly, FC Köln financed €30.5 million in three bond issuances since 2005.
Equally, it would be mistaken to suggest that these schemes are always successful. In the wake of the Hillsborough disaster in 1989 and the Taylor Report’s recommendation to impose all-seater stadia on football clubs in England, several clubs attempted to transfer the cost of renovating their grounds onto fans. West Ham United F.C., for example, asked supporters to purchase bonds in three price bands – £500, £750 or £950 – which would confer the right to buy a match day or season ticket for a designated seat for 150 years. Only 808 fans invested in the bonds and, following pitch invasions in protest, the club dropped the scheme.
Nevertheless, there appears to have been a noticeable shift recently, with clubs outwardly more willing to ask supporters to invest in, rather than donate to, their clubs. It certainly seems to be mutually beneficial. For instance, fans can support their clubs and expect a return on their investment, with high coupons on offer in the form of club credit. On the other hand, clubs receive much needed capital, can attract fans to the stadium with club credit and are able to marry their interest payments on borrowings to future cash flows by linking coupons to the team’s performance on the pitch.
Unsurprisingly, these investment schemes are gathering momentum. On 12 September 2018, an Italian football club, Delfino Pescara 1936, became the latest club to announce its own bond issuance. Investors will receive 5 per cent cash interest and 3 per cent club credit interest per annum, as well as a day at the Delfino Pescara Training Centre and an all-inclusive trip to an away league game. As with Norwich City F.C.’s bond issuance, a one-off promotion bonus of 25 per cent is also payable if Pescara reaches Serie A during the life of the bonds and, at the time of writing, the club is currently unbeaten in Serie B this season.
Perhaps even more significantly, there is evidence that these schemes are starting to appear on a much larger scale too, both in terms of finances and club stature. On 11 September 2018, Paris Saint-Germain F.C., one of the wealthiest football clubs in the world, announced the launch of its own cryptocurrency. Under the proposed scheme, PSG fans will be able to buy tokens, which confer voting rights on decisions such as the club’s shirt colour, stadium music, logo and reportedly even the club’s starting line-up in charity matches. The club also plans to release rewards and exclusive content through its cryptocurrency, which will be launched with Socios.com, a blockchain company based in Malta.
Therefore, whilst the investment schemes described above may not be completely new in football, they certainly seem to be on the rise as the football industry continues to search for innovative ways to raise finance.