Feature FSM


streams can be income from broadcasting, sponsorship deals, transfer fees, merchandise and other operating income. Securing debt against these revenue streams is referred to as forward funding. The riskiness of forward funding for the


nancing lubs


ovative funding strategies for


base its credit risk analysis on. Sports clubs can however have other assets


related


to the stadium, for example hotels and conference centres where the value can be measured not just in relation to the sports club itself, but more broadly. This makes the credit decision easier for a lender although consideration will be given to the dependency of the related assets on the Club.


Forward Funding on Future Revenue Another option


for sports


clubs is to raise debt financing on the security of future revenue streams. Future revenue


borrower depends on the level of recourse the lender requires over the Club’s assets. For example, if the forecast revenue does not materialise, to what extent does the lender have a legal right to a claim against the Club? The cost of debt funding is heavily influenced by this. Securing a lower cost of debt is usually a priority but the Club needs to be aware that this means the lender will be seeking greater recourse to the Club’s assets.


The cost of debt for forward funding is


currently very attractive. Lending markets are strong, margins are low and interest rates are extremely low (less than 1%). A lender will undertake a high level of financial diligence and


at the county cricket clubs for example, who are using their broader asset base (hotels, leisure and conference centres) to borrow from high street banks. Many county cricket clubs can present a very commercial business plan that reduces the credit risk as it dilutes the influence of the stand-alone sports club revenue. Also racecourses are able to do the same by highlighting their corporate and events income streams -


Ascot racecourse has substantially scrutiny into the future


revenue stream and borrowers should be well prepared with scenario and sensitivity analysis on that revenue stream, for example changes to the payments for broadcasting rights that are related to the performance of the club.


Other forms of capital


More broadly, there are plenty of alternate ways to raise capital in this sector. Looking


upgraded its Village Enclosure for example. The Jockey Club raised a retail bond in 2013, offering investors a 7.75% yield – cash interest at 4.75% and 3% return in royalty points that can be spent on racing, food and drink. This was then extended in 2017, with over 95% of the original investors retaining their positions. A loyal membership base can therefore be tapped for debt capital, and these ‘lenders’ are happy to take their returns in rewards, not just cash. The structure of debt financing for sports


clubs requires a tailored approach as one size does not fit all. Considerations include current assets and cash flows as well as future cash flows and the clubs approach to and ability to take risk. Alternative funding solutions are available and have been used successfully. Above all it is important to work with partners that truly understand the underlying business and can offer a bespoke solution for a successful fund raise.


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