Private credit is using football transfer fees as collateral

A battle for talent among Europe’s top football teams is igniting a debt market using the players’ transfer fees as collateral.

With spending on players smashing $5 billion this summer, this business model is becoming so big it’s moving beyond niche financiers to start drawing the largest names in the world of private lending. Apollo Global Management Inc. and Blackstone Inc. are the latest to look at funding deals, according to people with knowledge of the matter.

“Certainly it’s an area we’re involved in, we think is interesting — we think it represents compelling risk reward,” said Tristram Leach, head of Europe credit at Apollo, in a Bloomberg Radio interview on Friday. “The sports world seems to be attracting more and more money all the time.”

These institutions are getting involved because transfer fees — now regularly topping $100 million for a single key player — have ballooned across Europe. A number of them are also starting to get more deeply entrenched in sports financing, with Apollo loaning money to English club Nottingham Forest in July and Oaktree Capital Management taking over Inter Milan last year.

“Traditionally, player transfers were done by a small group of specialized lenders, but over the last two years, a number of large financial institutions have shown interest,” said Sebastian Witte, a managing associate at Linklaters.

Blackstone declined to comment.

Fees for players are becoming some of the main items on the balance sheets of football clubs. While the top teams have easier access to traditional lending, backed by big stadium ticket sales, media rights and global merchandising, using transfers is becoming a lifeline for smaller clubs, given many are operating at a loss.

Sales of players in Europe’s top six leagues have totaled over €5.1 billion ($5.9 billion) so far this summer, according to data from transfermarkt.com. The fees are often paid in installments over several years, creating future cash flows that clubs can monetize. These so-called “transfer receivables” can enable a relatively low-cost source of raising debt.

Funding Lifeline

The spreading out of payments is helping to increase the volume of transactions and is even raising transfer fees, according to Francesco Filia, founder and CEO of Fasanara Capital, a London-based alternative asset manager. It’s also helping narrow the huge funding gap between big and small clubs, he said.

“The receivables market exists to bridge this mismatch, making deals possible without liquidity constraints,” Filia said. Fasanara has lent more than $300 million over three years to teams in Europe, though he declined to name the clubs.

The potential entrance of private credit firms into the action follows a slowdown in their traditional direct lending business, following years of breakneck growth. They have been ramping up investments in asset-based finance, a form of debt traditionally backed by assets such as consumer loans, mortgages and receivables.

Apollo sees player transfer-based debt as part of its asset-backed business.

“Lending against receivables from high-quality counterparties is something we’re happy to do and we think we can do in a competitive way,” Leach said.

Sometimes this may be the only type of financing available to smaller football clubs, said Sasha Ryazantsev, an adviser to Burnley Football Club and a former Everton FC board member.

“The selling club can arbitrage the higher credit rating of say a top six club, leading to a lower cost of funding than their own,” he said.

In England, Nottingham Forest got a £28 million loan ($38 million) at 8.2 per cent from Macquarie Group Ltd. in 2023 backed by future fee income from selling Brennan Johnson to Tottenham Hotspur, according to corporate filings. Leicester City, which has just dropped into the second tier league, did a similar deal for the sale of Harvey Barnes to Newcastle United. Forest did not respond to requests for comment, while Leicester and Macquarie declined to comment.

The likes of Macquarie and Aldermore Group Plc have been active lenders in England, while in continental Europe Germany’s Internationales Bankhaus Bodensee AG and Italy’s Banca Sistema SpA are significant players.

“If you sell a player, with those payments likely to be paid in instalments over one to five years, there are multiple banks and funds who are active in advancing monies upfront,” said Trevor Watkins, global head of sport at law firm Pinsent Masons, who led a supporter takeover of Premier League club AFC Bournemouth and became chairman.

He cited the example of Newcastle United’s potential sale of Alexander Isak to Liverpool Football Club — the hottest transfer saga in English football this summer, ahead of the new season kicking off on Friday.

“The market for financing is strong, so they can actively look to see if taking the money up front, an acceleration of payments — albeit at a discount — from a lender would enable them to do more in the market than simply receiving the instalments as they fall due,” he said.

Solid Collateral

Of course, such debt would come at a cost that depends on the financial profile of the borrower. Pricing can vary widely, with some market participants saying a typical transfer-backed note would have a coupon of about 500 basis points over benchmark rates, translating to a yield of around 8 per cent-9 per cent, while others said it could be lower at 300 basis points.

Ryazantsev said rates can even be as low as 150 basis points for top credits.

The future fee payments are seen as hard collateral by lenders because global football regulator FIFA and its European equivalent UEFA come down hard on clubs that fail to meet transfer obligations.

Still, the volatile nature of the sport — where income can change dramatically year-to-year depending on whether teams win tournaments or come bottom of a league and have to drop down to a lower one — mean many banks will avoid it. That’s creating the opportunity for the big private lenders to step in.

“Traditional banks aren’t very active in the football world,” said Diego Lignana, head of corporate strategy at Banca Sistema, which in June finalized a €1.2 billion securitization vehicle for transfers and media rights across Europe. “The need for liquidity — with cash inflows mostly delayed in time — is best satisfied by specialist lenders.”