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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Episode transcript:
This transcript was generated with AI assistance. Report any material inconsistencies or inaccuracies by emailing podcast@9fin.com.
Bianca Boorer
Scratching your head over the latest complicated restructuring? Wondering whether Europe will continue to follow aggressive US tactics? Well, tune in Distressed Diaries, a podcast where we look into companies that have taken a turn for the worst. I'm Bianca Boorer, Senior Distressed Reporter at 9fin. In this series, we will explore how companies have ended up becoming over-loved, and more importantly, how they plan to right-size their balance sheets.
So today I'm sitting down with one of 9fin's own distressed 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 joining me 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, we thought 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 very distressed. So to give you a sense of where things are at the moment, out of 51 clubs that have participated in the English Premier League since the tournament began in 1992, 32 have been loss-making, according to calculations by Kieran Maguire, a professor at the University of Liverpool. So that is an 80% failure rate, right? And according to a report by Deloitte, the financial consultancy, Premier League clubs' pre-tax losses in the most recent season surged by over 600%. So the sector is heavily distressed and it is more distressed now than it was previously. I think it's fair to say that being a profitable club is now an exception rather than the norm.
Bianca Boorer
So Owen, you have worked on the takeover of a number of Premier League clubs as well as the administration of certain clubs. Can you tell us a bit about some of the deals you've worked on recently?
Owen Ormond
Yeah, afternoon, both of you. Thanks for inviting me to talk to you about this subject. So I guess the nature of the transactions that my experience comes from is there's obviously a lot of M&A work in the football sector, but because of this financial situation that those companies and businesses find themselves in, it's often a distressed M&A. So it's often accelerated because there's a there's an immediate need for cash flow and often deals need to be done with some of the 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 down to simply just an internal restructuring of those debts and then in the worst case scenarios, it might be an insolvent transaction which sometimes can result in the rescue of a club because it finds a purchaser out of insolvency. Or in some unfortunate cases there's no possibility of a rescue and that club never escapes from insolvency and has to effectively start again from the bottom.
Bianca Boorer
So I think if we're going to take a step back and to explain it for those who are less familiar how does 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 whilst they make a lot of money especially at the top end in the Premier League, their outgoings exceed their income. So like any business that puts a financial strain on it. And the main reason for that is because the drive is for short-term on-pitch success. So they're constantly gambling with incurring debt in order to improve on-pitch performance. And if the on-pitch performance does not 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 you take a more organic approach to growing the business, it might mean that on-pitch success takes a bit longere. But actually it's a bit more of a sustainable model because you're not looking at that short-term success. Or there's some well-documented cases of clubs spending a huge amount of money in an attempt to deliver immediate success because that's what their fans and their investors 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 are typically ticket sales. So that's the people who go and watch the live games and buy a ticket for the stadium. It's player sales, merchandise, so things like the replica shirts that the fans would wear. Commercial partnerships or sponsorships, whether that's front of shirts or around the advertising harding on the pitch.
But by far and away, the main source of income is the money which is distributed throughout the season from the TV revenue. So the TV companies, this is worldwide, pay a lot of money to show the Premier League matches on television and that then gets distributed. But the distribution varies depending on where you finish in the league and the prize money that the league give you obviously varies depending on where you're finishing the league. Which is why there's a big impetus on finishing higher in the league, being successful, qualifying for European competitions because the TV money's more and the prize money's more. If you don't achieve that success on the pitch, then your income is greatly reduced and the debt that you incurred in an attempt 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 as the transfer fees. So from doing my research on the most expensive players in Europe, I've seen amongst the male footballers, they've been valued at €200m. That includes Lamine Yamal and Erling 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. This summer, Chelsea paid £117m for Aston Villa's Morgan Rodgers. Man City also paid Nottingham Forest, £116m for Elliot Anderson. And Tottenham spent a club record of £100m on Sandro Tonali, according to BBC Sport. So Owen, how do you think clubs are dealing with the pressure to 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 other sector. But in football, it's just accepted as the norm now that clubs are willing to pay hundreds of millions of pounds so that on-pitch performance is immediately improved. And just to put that in 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 and doesn't even make headlines. That's just considered the standard. And then you also factor into that the salaries that these players are taking away. So remember, it's not just the €100m that they're paying for the player, but it's the £300,000, £400,000 pounds a week that that player is then earning. So at those levels, it's no wonder that the level of income cannot keep up with the level of outgoings and the clubs spending a huge amount of money and simply not getting the same level of income to keep up.
Bianca Boorer
Another thing that I noticed in the coverage in BBC Sport about the transfer fees was the amortisation of the fees. It looks like a lot of the clubs are kind of spreading the cost over the length 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 your thoughts 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 day one. Typically, they might only be paying a small proportion of that day one. But as you say, they pay it in installments over time. The theory of that is over the five years that you pay that, you're also getting in the equivalent amount of money from player sales going out the door so that in theory they balance out.
And then whilst I'm not an accountant, I think you're right, that allows them to represent the picture differently in their accountancies, sorry, in their accounts because it's not immediate liability 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 UK government set up the first football regulatory body last year, which is constraining the level that these 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 ensure that English football is financially sustainable. And it imposes rules limiting the amount clubs can spend on their teams and it risks, as in the club's risk punishment, if they exceed the amount that has been set by the regulator.
One example is the Squad Cost Ratio, which limits on-pitch spending in the Premier League to a proportion of the club's football-related revenue. So for domestic clubs, it is capped at 85%. And clubs are also expected to meet certain financial obligations in order to be able to obtain a license so they can continue playing in the league. However, there is scepticism as to how much the regulator 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 for some time. What is new is the independent football regulator. And so it's the policing and enforcement of the, of the preexisting rules that is new, because I think some of the clubs felt it was unfair that the football authority, whether that's the Premier league or the football league got to impose and interpret their own rules and it should have been independently interpreted and imposed. 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 a business was sustainable. So don't spend more than you can actually afford. What typically happens is creative accounting. We discussed the transfer fees, for example, being amortised over a period of time. So it never is reflective of the true position of a financial business. And I think that's where there's been some inconsistency in what one club has been able to do and what one 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 clubs are 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 are paid for the male footballers and for the women, the most expensive transfer fee was last year for female footballer Grace Gioro, who was paid €1.7m to transfer to London City Lionesses from PSG.
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 for Neymar in 2017 to go to PSG from Barcelona, that was €222m. So you can see there's quite a big gap between the two. So surely maybe we should just invest in women's football. What do you think, Owen?
Aditya Anand Kumar
So women's football is a is a really good example of one of those breakthrough sports which which if if football as a business have the chance to start again this is an opportunity to see what it could have looked like and what it could be I think and there's there's other sports that form into that category. I think netball in particular in this country. Ice hockey, for example. They're just breaking through and suddenly realizing their commercial potential and I think that's what's happened with women's football.
What it does mean is because the cost of players, the salaries that those players attract is so much lower, the businesses are naturally more sustainable. So yes, the commercial revenue is also lower, but it's much closer to where it needs to be. And I think the potential growth of women's football, because it's still only in its relative infancy as far as professional sports go, is attracting a lot of investment. Firstly from the male professional football clubs, but also the other investors because 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 because it's sustainable.
And then as a consumer as well, so as a football fan, it's much more accessible. So you can get tickets for games. The tickets are affordable. And as a result, actually, the exposure to consumers in turn attracts more sponsorship because there's more people, or rather an increasing number of people actually watching the women's game. So, yeah, it's certainly in its infancy. And I just hope that it can continue to be more organic, natural growth, and it doesn't suddenly escalate and inflate the way men's football has.
Bianca Boorer
Yeah, women's football just doing it right. So you mentioned investors. I think it's interesting how we've seen historically football clubs have been owned by wealthy individuals. We've got Sir Jim Radcliffe, owner of both the chemicals business Ineos and Manchester United, Sheikh Mansour from Man City. There's also been news this week about British Indian millionaire businessman Amit Bhatia expressing an interest by minority stake in Liverpool. Apparently Jeff Bezos might join him in his consortium as well. So I think it's interesting in terms of how much can 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 be operated was by a rich individual, the businessman who'd made money in whatever his original business was, investing in his local football club. And he was able, almost as a hobby, to bankroll the clubs.
We obviously saw the growth then of some offshore owners, Rupert Abramovich of Chelsea being the main one. But that became unsustainable for one individual to keep funding it because the deficits became bigger and bigger over time. So actually all the individuals you've mentioned it's it's rarely their own personal money that's going into these clubs. What they typically are is a frontman for a consortium where actually there's a there's a fund a pool of money that is going in because, 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 owned and 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 credit funding 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 coming into football and other sports as well. And traditional banks setting up sports financing arms as well well when it comes to private credit they can offer flexibility and support long-term plans for developing a club's multiple revenue streams. But views are also mixed about the consequences for the sustainability of clubs because private credit funds their fundamental goal is to make profit and some argue that they may not have the patience to stick with the club if they do 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 sports lending. And Iris created a bespoke sports fund in 2022 worth $3.7b and Oak Tree also took over Inter Milan, a major club in italy in 2024 following a default. And the club has done rather well since. They emerged champions in the most recent Series A edition which is the highest level of football in Italy. And the Australian bank, Macquarie, has a specialist sports finance arm as 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 especially one which is considered high risk, such as professional sports and football in particular. The main banks, the financial institutions, beyond providing an overdraft on their trading current account, they're less likely to support them with any debt. So there is an opportunity for private credit to fill that gap.
As you touched on there, Aditya, I guess the consequence is that, much like the clubs themselves, is private credit also want a relatively quick return on their money. So they're not necessarily 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 a particular project. So, for example, the development of the stadium or the development of the academy, because the stadium and academy improving the infrastructure helps the club naturally then increase its own profit and revenue streams. So where private credit is particularly useful is in 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 the administration 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 distressed M&A, where the club as a business is under financial distress, but it is able to move to a new ownership structure to provide that investment. So in the last five to 10 years, I've worked on the takeover of Reading and of Huddersfield, both which involved quite a bit of negotiation with the creditors 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't change, but they're looking to come to settlements or restructure with their creditors. So that's the likes 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 was heavily involved in Wigan Athletic, which we were able to sell to new investors. And that's come out as a better company and business since. There's a very recent example, which I wasn't involved in, of Sheffield Wednesday as well. That was in the news about that falling into administration. 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 rescued as well. So they've been unable to find a future investment and they've been expelled from the league and those clubs have had to start again. So that's the likes of Bury and Macclesfield, quite regional clubs where there's not a huge immediate fan base and they were unable to secure investment.
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 to balance 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 turn patient investors get their best returns with with a mid to longer term strategy. So what that looks like is instead of spending a hundred million in one go on a on a player who may or may not improve on-pitch performance it's about investing whether through private credit or otherwise in things like the academy so that you can develop your own players. You might not get immediate results, but over time, they turn into assets, which number one, you can sell for profit. And over time, they improve on-pitch performance.
So developing the academy, developing your own training ground so that the players and assets you do currently have can all fulfill their own potential. And at the same time, there's a lot of clubs who have very sustainable business models via a scouting network. So a worldwide scouting network where identifying players with the potential to become the superstars of the future. 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-pitch performance 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've got time for today. Thanks both for joining me.
Aditya Anand Kumar
Thank you very much. It's been really interesting to talk to you. Thank you.
Bianca Boorer
And thank you to our listeners. If you want to share any feedback on this week's episode, please reach out to us at podcast@9fin.com and we'll see you next time. Thank you.
