Receivables finance: What football clubs need to know
30th July 2024
What is receivables finance?
Receivables are amounts owed to a club which are regarded as assets and can be used as security for a loan. An example of this would be the proceeds of a player sale. Football receivables finance involves a club either selling a future income stream to a lender at a discounted rate or borrowing against that specific receivable. In exchange, the football club can immediately unlock access to the value of the receivable instead of waiting on periodic instalments. As such, receivables finance can be considered an important cash flow tool for football clubs.
Receivables finance is a growing practice within the footballing industry and can help clubs that may be suffering from short-term cash flow problems. Football clubs are like any other business in that they experience cash flow concerns. This is particularly acute for football clubs due to the way transfer payments (and other large receivables, such as sponsorship monies and distributions from the league) are usually structured.
Transfer fees are paid in instalments. These can be spread across a number of years. Similarly, monies from league-centralised television, radio, and commercial rights deals (Central Funds), as well as club’s own sponsorship deals, are invariably payable across a number of instalments/seasons. The transfer window system in football means that clubs are often under pressure to have immediate access to the cash needed to complete deals that could make or break their season.
How the process works.
- Club A agrees the sale of a player to Club B for £100 million.
- Club B agrees to pay £20 million immediately and then make four annual payments of £20 million.
- Club A enters into an agreement with a lender to have the £80 million advanced immediately at a discounted rate (i.e. the lender will give them an agreed % of the £80 million).
- Club A receives the funds upfront, and the lender is assigned the rights to the four annual payments of £20 million from Club B which it collects when those payments fall due.
How have we seen this undertaken in practice?
Lenders can offer football receivables finance options in relation to transfer fee funding and Central Funds receivables. Usually, the borrower club either sells the specific receivable to a funder, or borrows against Central Funds payments due from the league or transfer fee future receivables. While borrowing against Central Funds is not particularly new, borrowing against transfer receivables is growing quite significantly – we’ve seen an influx of instructions from football clubs over the last 12 months in relation to funding transfer receivables.
The “receivable” is not limited to player transfer fees and Central Funds payments. Parachute payments for relegated clubs, as well as the release fee receivable for releasing a key employee such as a club manager to another club can also be borrowed against to generate cash flow.
Transfer fee receivables financing transactions are entered into on an individual basis and so a lender will have chance to assess the creditworthiness of the buying club who will owe the delayed transfer payments to them.
Who are the key players?
The main UK clearing banks have stayed clear of the football receivable finance space. The American and Australian lenders each of MGG Investment Group and Macquarie Bank are key players. We’ve also seen Close Brothers and Aldermore Bank involved in player transfer fee financing.
What are the Premier League rules around these?
The Premier League approval process differs depending on the receivable involved. Where a club intends to charge, assign, or grant security over its entitlement to Central Funds – the transaction loan documentation must be lodged with Premier League prior to close of the transaction for Premier League sign off. In addition, a tripartite agreement between the Premier League, the club and the lender must be entered into containing certain provisions.
For transfers, the rules are less prescriptive although the funding agreement must preclude further assignment without league consent.
A key point to note, as we have seen on recent transactions, is: when a club is looking to raise cash through receivable financing for Central Funds or transfers, they must ensure that the lender is a ‘Financial Institution’ under the Premier League Rules.
Put simply, a “Financial Institution is a UK-incorporated lender with permission under FSMA 2000 to accept deposits. Building societies and credit unions are expressly excluded from the definition. We understand the Premier League is considering amending guidance as to who can be accepted as a Financial Institution to include lenders incorporated in other regulated jurisdictions but currently such a change has not been made. As such clubs should be aware that lenders which are not Financial Institutions cannot provide specific receivables lending without Premier League Board approval.”
We have not covered EFL clubs in this article for brevity, although EFL clubs should be aware that assigning their entitlement to income of the EFL, results in a player registration embargo for the duration of the assignment.
Receivables finance: How we can support you
We’ve acted on a large number of Central Funds and transfer receivable transactions for a range of clubs and so can provide experience and knowledge of this fast-moving area of finance. We also have experience of fitting such receivables loans into wider finance structures where clubs have given debenture security to different lenders. This is a key point to consider when looking to put into place receivables finance. Get in touch with Philip Scott or our Finance team to find out more about how we can support you.
Explore more updates for football clubs in the pre-season edition of Beyond the Game, here.
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