Macquarie winning in English soccer as player transfer season kicks off
English soccer a new and increasingly lucrative arm of Australian banking’s millionaire’s factory.
Prince William’s favourite soccer player, 27-year-old Aston Villa defender Tyrone Mings, seems at first an unlikely poster boy for a fast-growing and increasingly lucrative arm of banking giant Macquarie Group’s global empire.
Buying Mings for £22.5m ($41m) a year ago from then-English Premier League rival Bournemouth proved to be a good piece of business for Villa, as he helped the Birmingham-based club avoid relegation from the richest soccer league in the world and also made his debut for the English national team.
His transfer also continues to be a tidy piece of business for Macquarie and a prime example of an expanding portfolio of so-called “transfer factoring” deals, where the financial giant lends clubs the entire value of player transfer fees upfront – many transfers are paid in instalments over several years – or provides other loans.
Macquarie is understood to be closing in on 100 such deals with English soccer clubs in recent years, reportedly worth close to $2bn, typically secured against the hundreds of millions of pounds clubs receive in broadcast revenue or assets such as stadiums and training grounds.
The bank is said to charge 6-7.5 per cent interest on the loans and is believed to be the second biggest provider in the market behind only EPL major sponsor Barclays.
Macquarie is set to become even more important as clubs grapple with cash flow issues due to COVID-19 closing stadiums, while also launching bids for players worth tens of millions of pounds in the pursuit of on-field glory during the upcoming transfer “window”.
“Income is volatile from month to month, as the main revenues come from TV – usually about 60 per cent in the summer and the remainder in instalments over the year – and season ticket sales and commercial and sponsor contracts,” Kieran Maguire, a soccer finance expert who lectures at the University of Liverpool, explains. “Costs are more constant throughout the year so loans and borrowing facilities help to plug the cash flow gaps.”
Most of Macquarie’s deals are done from its London office by Jerry Korczak, the managing director of the group’s commodities and global markets division there.
“Macquarie as a business empowers people to innovate, and this part of the business is no exception. The team began looking at opportunities to finance football in the early 2010s, based on a thorough industry analysis and the growing financial power of the sport,” Mr Korczak tells The Weekend Australian.
“Most club owners have a strong business background and want clubs to meet the financial challenge of COVID-19 by being more proactive in managing the cash flow challenges posed by loss of revenue from ticket sales as well as on-site food and drink sales.
“That said, among football’s largest, most financially successful clubs – big transfer deals are still taking place. So there is opportunity at this end of the market too.”
The deals are not without their controversy – Mr Maguire labels them as “essentially glorified payday loans” – but they are gaining in number and volume.
This week, Mr Korczak’s signature appeared on documents lodged by 2015-16 EPL champions Leicester City with the British corporate regulator for a loan from Macquarie – the seventh deal with the club in three years – secured against several years of TV income. He says the influx of employees at soccer clubs from major accounting firms in recent years makes the clubs more comfortable with the transactions.
Sheffield United loan agreements
Sheffield United has struck two loan agreements with Macquarie in the past two weeks, securing loans against its Bramall Lane stadium, training centre, a hotel and other property, and paid off another from a year ago secured to TV income.
A little over three weeks ago, Wolverhampton Wanderers Football Club (1986) Limited – more commonly known as Wolves – lodged a new document with Companies House in London extending its £50m ($91m) facility with Macquarie from February 2022 to January 2023.
The loan is secured against TV income Wolves receives from EPL management, which last year distributed £2.45bn ($4.47bn) to its 18 clubs in the 2018/19 season.
Earlier in July, London’s Crystal Palace confirmed it had paid off a £22.5m loan Macquarie secured against an instalment Manchester United was to pay the south London club for the £45m transfer of defender Aaron Wan-Bissaka last off-season.
There are dozens of other examples, and then there is the Tyrone Mings deal between Bournemouth and Aston Villa struck in July last year for £12m. Aston Villa agreed to pay the fee in two tranches, one due this week and the next payable in August 2021. Macquarie stepped in to provide the entire amount upfront, meaning Bournemouth received the entire fee two years ahead of schedule, albeit probably paying interest of about $1.5m for the privilege.
But as Mr Maguire points out, the ongoing popularity of soccer and the clubs’ need for cash should keep Macquarie in the game for some time yet.
“Macquarie makes a decent return on the loans, which at the same time are relatively low risk – at least in a non-COVID-19 world – as payments from other parties in terms of transfer and broadcast instalments are unlikely to turn into bad debts.”
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