Premier League Ownership Investment: Love, profit, vanity or insanity?
Premier League Funding
Football clubs can broadly arrange their finances in one of three ways, bank lending, owner loans or shares.
In terms of the Premier League all three methods have been used. The following analysis is from the most recent documents filed by clubs at Companies House.
League leaders Liverpool are owned by the American Fenway Sports Group (FSG), who also own baseball team Boston Red Sox.
FSG acquired Liverpool in October 2010 for an estimated £300 million. The club paid off existing loans due to the previous owners of £105 million.
Since then FSG have lent the club almost £100 million as well as borrowing £56 million from banks to help fund stadium expansion at Anfield.
Liverpool have a borrowing facility of £150 million from the bank but sales of the likes of Suarez, Sterling and Coutinho have allowed Liverpool to stay significantly below that sum.
If the club goes ahead with further expansion to take Anfield up to 60,000 capacity then they may need to borrow more.
The loans are at very low interest rates (1.24% from FSG and 2.24% from the banks).
Manchester City were acquired by Sheik Mansour’s Abu Dhabi United Group in 2008. The owners initially lent money to the club at an interest rate of 10% but these loans were quickly converted into shares, upon which no interest is payable.
Abu Dhabi United accelerated City’s growth by underwriting large losses as the club invested heavily in players, manager and infrastructure. These losses peaked at £197 million in 2011.
Manchester City are part of City Football Group, which owns clubs in the USA, Australia, China, Japan, India and Uruguay. The success of the multi club model was evidenced recently when American tech company SilverLake bought 10% of City Football Group for £389 million.
Spurs historically have been cautious in terms of issuing shares and borrowing, but the decision to build a new stadium at White Hart Lane necessitated change. Spurs have mainly taken the bank borrowing route with a £537 million loan facility arranged with a consortium of Bank of America, HSBC and Goldman Sachs. In addition majority shareholder ENIC, controlled by Joe Lewis in the Bahamas, have provided a further £50 million.
The interest rate on the loan is modest so Spurs will be paying about £15 million a year, which will be more than covered by the additional matchday, hospitality and commercial income generated by the 62,000 multi-function stadium, which has already been used for hosting NFL fixtures.
The Chelsea company structure resembles that of a matryoshka doll, which is befitting given that Roman Abramovich is from Russia.
Chelsea Football Club Limited is owned by Chelsea FC plc, which in turn is owned by Fordstam Limited, which is funded by Camberley International Investments Limited, (CII) controlled by Mr Abramovich.
In 2018/19 Abramovich lent £247 million to the club, which seems at odds with the stories that he had lost interest in Chelsea following the refusal of the British government to renew his investor visa. He had historically rented an executive box at Stamford Bridge for £1 million a year but has not been seen at the stadium now since 2017.
In total Abramovich has lent the club £1.38 billion interest free since acquiring it in 2003. The club’s stadium expansion/move has been put on hold indefinitely though, which does mean that Chelsea are some way behind its peer group in the ‘Big Six’ in terms of capacity, which in term impacts upon its ability to generate revenues.
Manchester United were acquired by Malcolm Glazer in 2005 via a Leveraged Buy Out (LBO), at a time when the club had zero debt and cash in the bank. An LBO arises when an investor borrows a substantial sum to buy a company and uses the cash generated by the business to pay the loans.
Initially banks were wary of lending to a business they were not convinced was risk free and this was reflected in very high interest rates and some of the loans being Payment In Kind (PIK) where the borrower pays neither capital nor interest, and the interest cost is added to the value of the loan.
Manchester United are another example of a complex ownership structure, involving a myriad of companies registered in both the UK and Cayman Islands. The club had a share listing in New York in 2012, part of which was used to pay off £200 million of loans. United have approximately £500 million of loans outstanding but these have been renegotiated at much lower interest rates.
The Glazer family have not invested sums into the club themselves. Manchester United is the only Premier League club that regularly pays a dividend to shareholders, and this returns about £22 million to them each year.
Arsenal’s owner Stan Kroenke controls the club via US company KSE UK Inc. Kroenke has come under criticism from Arsenal fans for his perceived reluctance to invest money in the playing squad, instead concentrating on reducing the club’s debt levels.
Arsenal moved from Highbury to The Emirates stadium in 2006, with loans peaking shortly thereafter at £415 million. Since then the debt has halved as the club has made regular repayments to lenders.
Kroenke bought out the other shareholders of Arsenal for £600 million to take the club private in 2018. His critics have used this to accuse him of having money to fund share purchases but being reluctant to spend on players to help win trophies.
Research indicates that on field success in terms of trophies is closely correlated to wage levels and here Arsenal have fallen behind their peer group. Kroenke’s critics have accused him of being content to sacrifice on pitch performance for a better looking balance sheet.
Under Arsene Wenger the club finished either 3rd or 4th in the Premier League for ten seasons from 2005-6 onwards, sufficient to qualify for the Champions League but in the eyes of fans not investing enough in players to challenge for major trophies.
Everton recently announced record losses of £112 million as new owner Farhad Moshiri has underwritten an attempt to break into the regular group of clubs who compete for Champions League places.
The losses are a result of paying higher transfer fees and wages than in previous years. Moshiri was previously a shareholder at Arsenal, but sold his shares and used the proceeds to buy 49.9% of Everton for an estimated £175 million in 2016.
Since then Moshiri has increased his shareholding to give him greater control, but more importantly for the club has lent £350 million interest free via an Isle of Man company. In addition Moshiri’s business partner Alisher Usmanov has paid £48 million for innovative naming rights schemes for the training ground and a potential future stadium at Bramley-Moore Dock.
West Ham have been owned by David Sullivan and David Gold since 2010. The club’s previous owners, an Icelandic bank consortium, had financial trouble following the global economic crash.
Under Gold and Sullivan West Ham have moved to the London Stadium after selling the Boleyn Ground. They lent the club money upon which interest of £18 million was charged over the years. The loan balance of £45 million is still outstanding. This has angered some West Ham fans who feel that the interest charges would have been better spent on the playing squad. The owners argue that the interest rates they have charged, of between 4-6%, are lower than would have been charged by a bank and so the club has saved money.
Brighton owner and lifelong fan Tony Bloom acquired the club when it was in League One and playing at a local athletic track. He then underwrote the move to a new stadium at Falmer as well as new training facilities in a combination of shares and interest free loans. Despite promotion to the Premier League in 2017 Bloom has continued to bankroll the club, with a total commitment of £362 million by the end of 2019.