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The World Cup summer is now a fading memory, but with the Premier League back, Cloud 9fin’s Distressed Diaries keeps football in focus while shining a light on the sector’s financial difficulties. Football clubs were traditionally bankrolled by wealthy men. Successful businessmen channelled their buccaneering instincts into their favourite sport, splurging wealth they made elsewhere. The latest in this long line, Jeff Bezos, Amazon’s founder, is set to buy a stake in Liverpool as part of a consortium led by British-Indian millionaire businessman Amit Bhatia.
But rising costs, including eye-watering player salaries and transfer fees, has meant that one man’s opulence, however fabulous, is not enough to save a struggling business. Not least in an industry as money-guzzling as professional football.
As a result, clubs resorted to borrowed money and a great many have struggled to pay that money back.
In this episode of Distressed Diaries, host and senior reporter Bianca Boorer and distressed debt reporter Aditya Anand Kumar speak with Owen Ormond, restructuring partner at Ward Hadaway about the rise of distress in football clubs in Europe, the extent to which regulation can control club owners’ profligacy and the role of alternative types of credit.
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**Bianca Boorer**
Scratching your head over the latest complicated restructuring? Wondering whether Europe willcontinue to follow aggressive US tactics? Well, tune in distress, a podcast where we're going tothe latest, worst. I'm Bianca Borer, Senior Distress Reporter at Ninefin. In this series, we willexplore how companies have ended up becoming over-loved, and more importantly, how theyplan to right-size their balance sheets. So today I'm sitting down with one of Ninefin's owndistressed debt reporters, Aditya Anand Kumar and Owen Ormond, restructuring partner at**Ward** **Hadaway,** to talk about the rise of distress in football clubs in Europe. Thanks for joiningme today, guys.
**Aditya Anand Kumar**
Thank you.
**Owen Ormond**
Thank you very much.
**Bianca Boorer**
So given the distress, as English fans feel about it not coming home yet again this World Cup, wethought we'd take a look at the financial strains football clubs are facing in Europe. So Aditya,you wrote a feature on the sector. Tell us how distressed is the football sector at the moment.
**Aditya Anand Kumar**
Hi, Bianca. Thank you again for having me. So to answer your question, the sector is verydistressed. So to give you a sense of where things are at the moment, out of 51 clubs that haveparticipated in the English Premier League since the tournament began in 1992, 32 have beenloss-making, according to calculations by Kieran Maguire, a professor at the University ofLiverpool. So that is an 80% failure rate, right? And according to a report by Deloitte, thefinancial consultancy, Premier League clubs' pre-tax losses in the most recent season surged byover 600%. So the sector is heavily distressed and it is more distressed now than it waspreviously. I think it's fair to say that being a profitable club is now an exception rather than thenorm.
**Bianca Boorer**
So Owen, you have worked on the takeover of a number of Premier League clubs as well as theadministration of certain clubs. Can you tell us a bit about some of the deals you've worked onrecently?
**Owen Ormond**
Yeah, afternoon, both of you. Thanks for inviting me to talk to you about this subject. So I guessthe nature of the transactions that my experience comes from is there's obviously a lot of M&Awork in the football sector, but because of this financial situation that those companies andbusinesses find themselves in, it's often a distressed M&A. So it's often accelerated becausethere's a there's an immediate need for cash flow and often deals need to be done with some ofthe creditors because they're so leveraged up with debt.
So the range of transactions I've worked on is it goes goes full range from distressed mna downto simply just an internal restructuring of those debts and then in the worst case scenarios, itmight be an insolvent transaction which sometimes can result in the rescue of a club because itfinds a purchaser out of insolvency. Or in some unfortunate cases there's no possibility of arescue and that club never escapes from insolvency and has to effectively start again from thebottom.
**Bianca Boorer**
So I think if we're going to take a step back and to explain it for those who are less familiar howdoes the football club business model work?
**Aditya Anand Kumar**
So one of the main reasons for the financial distress of football clubs is simply because whilstthey make a lot of money especially at the top end in the Premier League, their outgoings exceedtheir income. So like any business that puts a financial strain on it. And the main reason for thatis because the drive is for short-term on-pitch success. So they're constantly gambling withincurring debt in order to improve on-pitch performance. And if the on-pitch performance doesnot meet the requirements, they're then laden with debt, which they're unable to repay.
So there's always a balance, I think, for football clubs and the owners and investors, whether youtake a more organic approach to growing the business, it might mean that on-pitch success takesa bit longere. But actually it's a bit more of a sustainable model because you're not looking at thatshort-term success. Or there's some well-documented cases of clubs spending a huge amount ofmoney in an attempt to deliver immediate success because that's what their fans and theirinvestors expect.
**Bianca Boorer**
And so what do you think the main source of distress is then?
**Aditya Anand Kumar**
So if we break it down into where a football club's income comes from. So the main streams aretypically ticket sales. So that's the people who go and watch the live games and buy a ticket forthe stadium. It's player sales, merchandise, so things like the replica shirts that the fans wouldwear. Commercial partnerships or sponsorships, whether that's front of shirts or around theadvertising harding on the pitch.
But by far and away, the main source of income is the money which is distributed throughout theseason from the TV revenue. So the TV companies, this is worldwide, pay a lot of money toshow the Premier League matches on television and that then gets distributed. But thedistribution varies depending on where you finish in the league and the prize money that theleague give you obviously varies depending on where you're finishing the league. Which is whythere's a big impetus on finishing higher in the league, being successful, qualifying for Europeancompetitions because the TV money's more and the prize money's more. If you don't achieve thatsuccess on the pitch, then your income is greatly reduced and the debt that you incurred in anattempt to get there then becomes much more difficult to service.
**Bianca Boorer**
So the main outgoing is the cost of players. We've seen huge inflation in the salaries as well asthe transfer fees. So from doing my research on the most expensive players in Europe, I've seenamongst the male footballers, they've been valued at €200m. That includes Lamine Yamal andErling Haaland, followed by Kylian Mbappe at €180m. And further down the list at number six,we have are Jude Belliam at €130m.
And then we move on to the transfer fees, which are to entice players to change teams. Thissummer, Chelsea paid £117m for Aston Villa's Morgan Rodgers. Man City also paid NottinghamForest, £116m for Elliot Anderson. And Tottenham spent a club record of £100m on SandroTonali, according to *BBC* *Sport.* So Owen, how do you think clubs are dealing with the pressureto attract the best players whilst also managing these costs?
**Aditya Anand Kumar**
Yeah, and I think some of the figures you've mentioned there are mind-blowing in any othersector. But in football, it's just accepted as the norm now that clubs are willing to pay hundredsof millions of pounds so that on-pitch performance is immediately improved. And just to put thatin context as well, that's 100 million for not just superstar plays. Yeah, of course, they're all good.They're all at the elite level of what they do. But clubs are still spending €50m, €60m anddoesn't even make headlines. That's just considered the standard. And then you also factor intothat the salaries that these players are taking away. So remember, it's not just the €100m thatthey're paying for the player, but it's the £300,000, £400,000 pounds a week that that player isthen earning. So at those levels, it's no wonder that the level of income cannot keep up with thelevel of outgoings and the clubs spending a huge amount of money and simply not getting thesame level of income to keep up.
**Bianca Boorer**
Another thing that I noticed in the coverage in *BBC* *Sport* about the transfer fees was theamortisation of the fees. It looks like a lot of the clubs are kind of spreading the cost over thelength of the contract of the player for sort of accounting purposes.
**Owen Ormond**
Correct, yeah.
**Bianca Boorer**
It seems to me that this is like a way to mask the the true cost in the short term. What are yourthoughts on that?
**Owen Ormond**
I think that's exactly right. If a club pays £100m for a player, it's not £100m they need to find dayone. Typically, they might only be paying a small proportion of that day one. But as you say, theypay it in installments over time. The theory of that is over the five years that you pay that, you'realso getting in the equivalent amount of money from player sales going out the door so that intheory they balance out.
And then whilst I'm not an accountant, I think you're right, that allows them to represent thepicture differently in their accountancies, sorry, in their accounts because it's not immediateliability or immediate expenditure. It's amortised, as you say, over the length of the contract.
**Bianca Boorer**
And I mean, there's a lot of regulation around how these clubs report their finances So the UKgovernment set up the first football regulatory body last year, which is constraining the level thatthese clubs can spend. Aditya, can you tell us a bit more about that?
**Aditya Anand Kumar**
Yes, of course. So the independent football regulator was established last year to try and ensurethat English football is financially sustainable. And it imposes rules limiting the amount clubscan spend on their teams and it risks, as in the club's risk punishment, if they exceed the amountthat has been set by the regulator.
One example is the Squad Cost Ratio, which limits on-pitch spending in the Premier League to aproportion of the club's football-related revenue. So for domestic clubs, it is capped at 85%. Andclubs are also expected to meet certain financial obligations in order to be able to obtain a licenseso they can continue playing in the league. However, there is scepticism as to how much theregulator can do to keep club spending in check. Isn't there, Owen?
**Owen Ormond**
Yeah, so I guess just to be clear, those financial restrictions and not new, they've been in place forsome time. What is new is the independent football regulator. And so it's the policing andenforcement of the, of the preexisting rules that is new, because I think some of the clubs felt itwas unfair that the football authority, whether that's the Premier league or the football league gotto impose and interpret their own rules and it should have been independently interpreted andimposed. So it's that independent regulator that's new rather than the actual financial constraints.
And the theory behind it is makes sense. It's that they were designed to make sure football as abusiness was sustainable. So don't spend more than you can actually afford. What typicallyhappens is creative accounting. We discussed the transfer fees, for example, being amortisedover a period of time. So it never is reflective of the true position of a financial business. And Ithink that's where there's been some inconsistency in what one club has been able to do and whatone club hasn't been able to do. And a lot of that is down to the way the accounts are reported.And I think that's why it needed an independent body to oversee that, to make sure all the clubsare getting treated the same.
**Bianca Boorer**
So I also wanted to talk about the rise in women's football. So if you compare the fees that arepaid for the male footballers and for the women, the most expensive transfer fee was last year forfemale footballer Grace Gioro, who was paid €1.7m to transfer to London City Lionesses fromPSG.
**Aditya Anand Kumar**
I'm surprised it's as high as that as well.
**Bianca Boorer**
When you compare that to the most expensive transfer fee ever for men's football, which was forNeymar in 2017 to go to PSG from Barcelona, that was €222m. So you can see there's quite abig gap between the two. So surely maybe we should just invest in women's football. What doyou think, Owen?
**Aditya Anand Kumar**
So women's football is a is a really good example of one of those breakthrough sports whichwhich if if football as a business have the chance to start again this is an opportunity to see whatit could have looked like and what it could be I think and there's there's other sports that forminto that category. I think netball in particular in this country. Ice hockey, for example. They'rejust breaking through and suddenly realizing their commercial potential and I think that's what'shappened with women's football.
What it does mean is because the cost of players, the salaries that those players attract is so muchlower, the businesses are naturally more sustainable. So yes, the commercial revenue is alsolower, but it's much closer to where it needs to be. And I think the potential growth of women'sfootball, because it's still only in its relative infancy as far as professional sports go, is attractinga lot of investment. Firstly from the male professional football clubs, but also the other investorsbecause they can see you can get a lot more value for a much lower commercial arrangement.
So I think it'll be interesting to watch the growth. I think there is a lot of investment in it becauseit's sustainable.
And then as a consumer as well, so as a football fan, it's much more accessible. So you can gettickets for games. The tickets are affordable. And as a result, actually, the exposure to consumersin turn attracts more sponsorship because there's more people, or rather an increasing number ofpeople actually watching the women's game. So, yeah, it's certainly in its infancy. And I justhope that it can continue to be more organic, natural growth, and it doesn't suddenly escalate andinflate the way men's football has.
**Bianca Boorer**
Yeah, women's football just doing it right. So you mentioned investors. I think it's interestinghow we've seen historically football clubs have been owned by wealthy individuals. We've gotSir Jim Radcliffe, owner of both the chemicals business **Ineos** and Manchester United, SheikhMansour from Man City. There's also been news this week about British Indian millionairebusinessman Amit Bhatia expressing an interest by minority stake in Liverpool. Apparently JeffBezos might join him in his consortium as well. So I think it's interesting in terms of how muchcan these individuals step in to help the distress within football? What are your thoughts on that,Owen?
**Owen Ormond**
So if we look at professional football going back 20, 30 years, the way the businesses used to beoperated was by a rich individual, the businessman who'd made money in whatever his originalbusiness was, investing in his local football club. And he was able, almost as a hobby, to bankrollthe clubs.
We obviously saw the growth then of some offshore owners, Rupert Abramovich of Chelseabeing the main one. But that became unsustainable for one individual to keep funding it becausethe deficits became bigger and bigger over time. So actually all the individuals you've mentionedit's it's rarely their own personal money that's going into these clubs. What they typically are is afrontman for a consortium where actually there's a there's a fund a pool of money that is going inbecause, yeah, no one man either can or is prepared to, because of the risk of not getting it back.So as a result, it's much more an American sports model now, which is where clubs are ownedand funded by consortiums and funds rather than one or two individuals.
**Bianca Boorer**
Yeah, I think that leads nicely into my next question, to how we've seen a lot more private creditfunding in the space. Aditya, can you tell us a bit more about this?
**Aditya Anand Kumar**
Yeah, for sure. So in recent years, there has been a proliferation of private credit funds cominginto football and other sports as well. And traditional banks setting up sports financing arms aswell well when it comes to private credit they can offer flexibility and support long-term plansfor developing a club's multiple revenue streams. But views are also mixed about theconsequences for the sustainability of clubs because private credit funds their fundamental goalis to make profit and some argue that they may not have the patience to stick with the club if theydo not yield profit as soon as they would like to see.
So **Apollo,** the asset manager launched a $5b investment vehicle last year focused on sportslending. And **Iris** created a bespoke sports fund in 2022 worth $3.7b and **Oak** **Tree** also tookover Inter Milan, a major club in italy in 2024 following a default. And the club has done ratherwell since. They emerged champions in the most recent Series A edition which is the highestlevel of football in Italy. And the Australian bank, **Macquarie,** has a specialist sports finance armas well. But as I say, there is good and bad with private credit. Do you have any thoughts on that,Owen?
**Owen Ormond**
Yeah, I think private credit is a good opportunity for all businesses, to be honest. So especiallyone which is considered high risk, such as professional sports and football in particular. Themain banks, the financial institutions, beyond providing an overdraft on their trading currentaccount, they're less likely to support them with any debt. So there is an opportunity for privatecredit to fill that gap.
As you touched on there, Aditya, I guess the consequence is that, much like the clubsthemselves, is private credit also want a relatively quick return on their money. So they're notnecessarily in it as a long-term credit partner for that business to help it grow over time.
Where I'm seeing it used more successfully, though, is for specific projects within the business.So rather than offering general working capital, private credit is particularly good at funding aparticular project. So, for example, the development of the stadium or the development of theacademy, because the stadium and academy improving the infrastructure helps the club naturallythen increase its own profit and revenue streams. So where private credit is particularly useful isin those isolated projects rather than as a general working capital fund.
**Bianca Boorer**
So Owen, you've worked on a number of takeover deals in Premier League clubs as well as theadministration of certain clubs. Could you tell us about some of those deals?
**Owen Ormond**
Yes, certainly. So the nature of the transactions that I've got experience in range from distressedM&A, where the club as a business is under financial distress, but it is able to move to a newownership structure to provide that investment. So in the last five to 10 years, I've worked on thetakeover of Reading and of Huddersfield, both which involved quite a bit of negotiation with thecreditors in order for the new owners to take that club forward.
Then you've got transactions which are just internal restructurings. So the ownership doesn'tchange, but they're looking to come to settlements or restructure with their creditors. So that's thelikes of Votes and Wanderers, which I've worked on historically.
And then you've got the worst case scenario is where clubs fall into an insolvency process.Typically, administrators continue to operate that club until they can find a buyer. So I washeavily involved in Wigan Athletic, which we were able to sell to new investors. And that's comeout as a better company and business since. There's a very recent example, which I wasn'tinvolved in, of Sheffield Wednesday as well. That was in the news about that falling intoadministration. And that recently sold as well.
And then there's sad stories of the ones who go into an insolvency process and don't get rescuedas well. So they've been unable to find a future investment and they've been expelled from theleague and those clubs have had to start again. So that's the likes of Bury and Macclesfield, quiteregional clubs where there's not a huge immediate fan base and they were unable to secureinvestment.
**Bianca Boorer**
Okay, so in conclusion, what do you think these clubs need to do to avoid distress?
**Owen Ormond**
It's difficult. Football is such a passionate thing for so many people. So it's very difficult tobalance the financial and commercial needs of the club and its investors with those of the fans.Obviously, the fans want immediate on-pitch success. I think most fans and therefore in turnpatient investors get their best returns with with a mid to longer term strategy. So what that lookslike is instead of spending a hundred million in one go on a on a player who may or may notimprove on-pitch performance it's about investing whether through private credit or otherwise inthings like the academy so that you can develop your own players. You might not get immediateresults, but over time, they turn into assets, which number one, you can sell for profit. And overtime, they improve on-pitch performance.
So developing the academy, developing your own training ground so that the players and assetsyou do currently have can all fulfill their own potential. And at the same time, there's a lot ofclubs who have very sustainable business models via a scouting network. So a worldwidescouting network where identifying players with the potential to become the superstars of thefuture. And again, they don't cost as much to acquire. They don't cost as much in terms of salary,but again, given the right time and nurturing, they can improve the on-pitch performance.
So as a football fan myself, I think most football fans are now willing to be patient with on-pitchperformance if it means a more sustainable financial future for that club.
**Bianca Boorer**
Yeah, you're not in it for the short term. You're in it for the long haul. So I think that's all we'vegot time for today. Thanks both for joining me.
**Owen Ormond**
Thank you very much. It's been really interesting to talk to you.
**Aditya Anand Kumar**
Thank you.
**Bianca Boorer**
And thank you to our listeners. If you want to share any feedback on this week's episode, pleasereach out to us at *podcast@9fin.com* *and* *we'll* see you next time. Thank you.