Top English clubs are calling on the Premier League to create a central fund of over £ 1billion to solve their cash flow problems and exclude lenders who charge high fees.
Club executives with direct knowledge of the talks said the world’s largest national football competition was under pressure to create a new funding facility by increasing debt or securing a large line of credit. One suggested the fund should be worth at least £ 1bn, while another said clubs need access between £ 1bn and £ 1.5bn.
A centralized fund would seek to replace factoring agreements with private lenders. Factoring allows clubs to borrow against future income, such as future installments of transfer fees or broadcast contracts. The upfront money helps pay for more immediate costs, such as taking over the multi-million pound payrolls of star players or signing new footballers.
Such deals have been used regularly by big European teams such as Juventus in Italy, Benfica in Portugal and Leicester City in England in recent years, although they tend to be more common in smaller clubs.
The calls reveal tensions between the teams. Big teams have reliable sources of income that allow them to access cheap funding, while small clubs in constant threat of relegation are offered more unfavorable terms as they are seen as riskier to lend.
The clubs have relied on companies like Australia’s Macquarie bank and UK firm Close Brothers to conduct such transactions in recent years, although the major global banks have tended to shy away from such transactions.
Some club leaders complain about having to pay high interest rates and fees. A Premier League club owner said a potential lender offered an interest rate of over 7% to secure a recent factoring deal.
MSD Partners, an American company that invests part of the fortune of technology pioneer Michael Dell, has made loans to English clubs, including Southampton, which carry an annual interest rate of more than 9%, according to financial documents and people familiar with its transactions.
Many clubs argue the Premier League is in a better position to raise funds at much lower rates as any debt would be secured against the competition’s £ 9bn in multi-year broadcast deals.
One club chief said the world’s major banks would view the Premier League as an ‘investment class’ and that’ obviously any central fund would be secure at low cost to the media. [contracts]”.
Another club owner suggested that accessing a fund at lower interest rates would save him tens of millions of pounds, adding that “several clubs [are] ok and I hope so ”.
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This move would primarily benefit small businesses that rely on factoring arrangements to facilitate cash flow. In contrast, the biggest clubs, such as Manchester United and Liverpool, have access to revolving credit facilities.
However, people close to the Premier League have said they have no plans to go into debt anytime soon, having avoided doing so at the worst of the pandemic when its clubs lost £ 2bn sterling of collective revenue due to the lack of box office revenue and discounts paid to broadcasters.
Richard Masters, general manager, said in August that the league’s strategy “is to continue to strive for growth” rather than borrowing.
Other European leagues have sought to sell stakes in their business to deal with football’s financial crisis. In August, Spain’s La Liga struck a € 2.1 billion investment deal with private equity firm CVC Capital Partners.
The Premier League declined to comment.