James Paul, head of sport at Blackstar Capital, discusses how structured finance is playing a pivotal role in sport's recovery post-coronavirus

Q: Which sports are you seeing structured financing in?
A: In Europe, football is the most mature sport commercially and hence attracts most of the opportunities for structured debt financing. That isn’t to say that there aren’t things done in other sports, particularly on the equity side, but it’s certainly much more opportunistic.

The impact of the pandemic has essentially created three tiers in sport financing. The first tier is football, where most top-tier clubs and leagues make enough money to sort themselves out one way or another.

The second tier is comprised of sports which require assistance from the government to cover losses but which have sufficient financial resources to be able to repay that assistance over time, such as Rugby Union. Finally, the third tier consists of sports that don’t have the financial ability to recover the revenue they have lost and hence require outright government grant funding in order to continue. 

Q: Why is structured financing predominantly private in sports deals?
A: The majority of sport deals are private, as for the most part sporting clubs - especially football - don’t like to be a headline, particularly on the subject of something financial. Football and sport are topics which provoke emotional reactions from fans and outside observers and the general tendency is to believe that basic concepts, such as debt, are either bad or to be feared.

Q: How are the deals typically structured and executed?
A: The most common method of financing in European sport is to purchase future contracted cashflows due to a club or league - for example, broadcast receivables - via an SPV, which then collects the receipts over time in its own bank account and distributes the proceeds to repay the lender.

Q: Do you expect issuance in this sector to pick up?
A: I think historically sports deals are kept as quiet as possible for the reasons discussed previously, so I don’t see that intention changing any time soon. That said, I think especially now - when the deals are becoming higher profile, for example - there’s a lot more noise about league-wide financings than I can ever remember in the past, due to a natural curiosity about how clubs and leagues are going to cover the cost of the pandemic. There’s more digging being done from the outside, which may result in more public announcements.

Q: What is driving activity in the sector?
A: In football, in particular, there are two types of financing: transfer financing and general financing. I think there is a focus on general financing right now, as a result of the pandemic, as obviously clubs and leagues want to shore up their balance sheets following the hits they’ve taken over the past 18 months or so.

As we return to normality, I’d expect to see a shift back toward transfer financing, as the vast majority of clubs require a healthy transfer market in order to execute their preferred financial strategies. For example, training young players through academies and selling at higher valuations later, or buying more established players for larger sums and using those places to win titles.

Angela Sharda