FOOTBALL CLUB FINANCING

Transcription

1 FOOTBALL CLUB FINANCING Presented by Paul Gray and Lewis Gaut 29 November UKG/ November

2 Chair & Presenters Nick Fitzpatrick Partner & Global Co-Chair, Media, Sport & Entertainment Sector T: +44 (0) M: +44 (0) Paul Gray Partner T: +44 (0) M: +44 (0) Lewis Gaut Senior Associate T: +44 (0) M: +44 (0) UKG/ November

3 Introduction our recent European sports finance experience Stadium development deals Spurs new stadium (Tottenham Hotspur FC) (bridging facility completed December 2015, main construction financing completed April 2017) Feyenoord bridging facility for new stadium (completed February 2018) Advising the funder in relation to a new stadium for a top tier English club (on-going) Advising the funder in relation to a new stadium for an iconic European club (ongoing) Media / team deals FC Roma (completed February 2015) FC Internatianale (Inter Milan) (completed December 2017) Advising the funder to a top tier French club (on-going) Advising a top European club on the funding of player transfers (July 2018) UKG/ November

4 Funding football clubs Funding a football club and performance risk Types of funding Identifying assets available for security Structuring considerations Protection for funders vs. operational flexibility for clubs UKG/ November

5 Types of funding for football clubs Types of debt Term debt facilities Working capital facilities Factoring facilities Bond issuance Funding considerations Volatility of revenue streams Ability to repay debt over time Club performance (financial and on-field) Club brand Rating of debt obligations? Security package and corporate structure UKG/ November

6 Simplified Club ownership and financing structure TeamCo Assets TV and Media rights Kit sponsorship Owner(s) Subordinated Debt All asset security Working Capital Letter Existing Stadium Funding New Stadium site Priority/intercreditor arrangements Stadium naming rights Player registrations Ticket sales TeamCo Security over media contracts and receivables Media Rights Funder Season ticket sales Funding Other sponsorship revenues Hospitality Cash in bank acocunts IP rights exploitation (trade marks etc) Subsidiaries eg ladies/youth team companies/ charitable aim/ other investments Funding Security over stadiumrelated assets Development Funder UKG/ November

7 Structuring considerations English focus Possible enforcement routes for funders (often competing interests) Utilise qualifying floating charge (if applicable) to appoint an administrator Enforce share pledge over the Team (if available) Utilise assignments of key sponsorship and other contracts to redirect revenues Lock-up bank accounts Step-in to the development and exercise mortgage over stadium site by appointing a receiver (Development funder only) PL-specific considerations "Events of Insolvency" as defined in the Premier League rules The "football creditors" rule UKG/ November

8 Events of Insolvency what are they? Defined in the Premier League handbook Triggered where the following affects a club playing the league or any parent undertaking of the club: that entity enters into a CVA the shareholders or directors lodge a notice of intention to appoint an administrator an administrative receiver or receiver is appointed over any of its assets which are material to the club's ability to perform its obligations as a member of the English Premier League winding up order is made (or a resolution to voluntarily wind up the entity is passed) it ceases to carry on its business UKG/ November

9 Events of Insolvency consequences In addition to points deductions, the Premier League may suspend the club's licence to play resulting in: The club being unable to play games in the Premier League A prohibition on the acquisition of players The Premier League being able to apply the club's share of the Leagues' media revenues towards paying the club's football creditors Likely breach of sponsorship agreements and loss of revenue No more ticket and hospitality revenues Most common way in which the suspension is lifted is paying the club's football creditors (provided of course the club can continue to trade afterwards!) UKG/ November

10 The "football creditors" rule Not a matter of general English insolvency law and is specific to the Premier League Handbook Rules seek to protect the football creditors in an Event of Insolvency Football creditors include, the FA and other member clubs, the Premier League and other professional leagues in the UK, employees and former employees of the club and pension schemes Practical effect is if a club is to continue playing in the Premier League, it will be required to pay its players' and manager's wages, together with any amounts owing to other clubs (i.e. transfer fees) and the Premier League in full before it distributes any amounts to the other creditors. UKG/ November

11 Limiting the impact of the football creditors rule Events of Insolvency apply to the Club or its parent undertaking. Possible to advance loans and take security from one or more subsidiaries or (better still) sister companies of the Club which is set up to own the relevant assets being funded by (or offered as security to) a lender. StadCo will own the stadium and all revenues related to the stadium. MediaCo will have the right to receive TV and key sponsorship revenues and may also own material IP. TeamCo will retain player registrations, employees and operating bank accounts. Though not tested, it is possible that appointing a receiver over the specific assets charged by these entities or enforcing share pledges over the shares in these entities can be achieved without triggering an Event of Insolvency. Funders of football clubs therefore look to ring-fence assets and interpolate holding companies into the structure. UKG/ November

12 Structuring Football Club Financing Subordinated Debt Owner(s) Subordinated Debt Subordinated Debt Working Capital Lender TeamCo HoldCo StadCo HoldCo MediaCo HoldCo Subordinated Debt Subordinated Debt Subordinated Debt Media Rights Funder Priority/intercreditor arrangements TeamCo StadCo MediaCo Development Funder Subsidiaries eg ladies/ youth team companies/charitable aim/other investments TeamCo Assets Other sponsorship Cash in bank accounts Player registrations StadCo Assets Stadium/new stadium site Stadium naming rights Ticket sales Season ticket sales Hospitality Cash in bank accounts MediaCo Assets Media rights Kit and other sponsorship Cash in bank accounts IP rights exploitation (trade marks etc) UKG/ November

13 Structuring Football Club Financing: typical security packages (regulated pursuant to intercreditor arrangements) Development funding security package First-ranking share pledge from TeamCo HoldCo over shares in TeamCo First-ranking share pledge from StadCo HoldCo over shares in StadCo First-ranking legal mortgage over New Stadium site Assignment of Stadium naming right receivables Assignment of all ticket, season ticket and hospitality receivables ("StadCo Receivables") First-ranking security over account(s) in to which StadCo Receivables are paid First-ranking security over development account Assignment of construction contracts and collateral warranties Guarantee from TeamCo Media funding security package First-ranking share pledge from MediaCo HoldCo over shares in MediaCo Assignment of material IP Assignment of media and sponsorship receivables (to the extent possible) ("MediaCo Receivables") First-ranking security over account(s) into which MediaCo Receivables are paid Guarantee from TeamCo Working capital funding security package Assignment of TeamCo receivables under key contracts ("TeamCo Receivables") First-ranking security over account(s) in to which TeamCo Receivables are paid Fixed and floating security over all other assets of TeamCo Possibly second-ranking security over certain assets pledged to the Media funder UKG/ November

14 Structuring Football Club Financing: intercreditor arrangements Shared goals of funders and clubs: Ensure financial success of the club Avoiding minor defaults resulting in Events of insolvency Competing interests: Freedom for the club to incur additional indebtedness Priority and ranking of security Control of revenues Enforcement maintaining liquidity in the financing vs. placing the club in insolvency and losing rights to participate in the league UKG/ November

15 Football club financing risks for funders vs. club's ability to operate Specific covenants in the finance agreement: Diligence of key sponsorship agreements Club will have complete freedom to trade players and finance transfers on a non-recourse basis Club will have freedom to negotiate key sponsorship arrangements (in line with budget) but they may only be entered into by the Obligors to ensure revenue is within the lenders' security net Monitoring of club performance Restrictions on distributions based on club position for the last third of a season Note: other sports finance transactions have included specific relegation (and relegation risk event) provisions which enhance protections for the lenders where there is a specific risk of relegation UKG/ November

16 Stadium Development Finance

17 Stadium developments: risks Construction phase Construction procurement route Cost certainty Monitoring and controlling delivery and cost overruns Post construction Sports stadium has a very specific purpose - possibly an alternative use value in the land depending on location but not in the case of a number of UK stadiums Stadium-specific revenue streams (tickets and hospitality) are reliant on the team performing and playing its games at the stadium UKG/ November

18 Construction procurement: Design & Build (1) Most commonly-used method in the U.K Borrower engages a single contractor Contractor assumes design, build and co-ordination risk Fixed costs contract Contractor engages sub-contractors and appoints professionals Main construction contract (and collateral warranty) with Contractor will be a condition precedent to funding the development. Collateral warranties from other key professionals will also be provided as a condition precedent to funding. UKG/ November

19 Construction procurement: Design & Build (2) Loans StadCo HoldCo Project Monitor Lender Lender Provision of information and regular access to site Provision of information Initial reporting and on-going monitoring services StadCo security package* Security Trustee StadCo D&B Contract Contractor Funder warranties Directly engages construction team Stadium Subcontractors Professionals UKG/ November

20 Construction procurement - Construction Management (1) Used in more bespoke projects or certain elements of multidimensional projects more commonly used for at least some aspects of stadium developments Borrower engages construction manager to advise on appointment of trade contractors and professional team Construction manager co-ordinates the construction team on site No overall fixed price each contract negotiated directly by Borrower Design risk assumed by each individual professional and contractor and as a result overall design may not be finalised at the outset Unlikely that all contracts will be placed prior to financial close funders will therefore have to agree on a percentage of cost certainty as a condition precedent to funding the development (circa %). UKG/ November

21 Construction procurement - Construction Management (2) Loans StadCo HoldCo Project Monitor Lender Lender Provision of information and regular access to site Provision of information Initial reporting and on-going monitoring services StadCo security package* Security Trustee StadCo CM engagement Contractor Funder warranties Co-ordinates construction team and advises StadCo on initial appointments Directly engages all contractors and design team Stadium Subcontractors Professionals UKG/ November

22 Stadium developments: managing the risks (1) Delivery of project on time Enhanced rights for project monitor to access site and production of a monthly report on programme (with particular focus on contractors on site) Soft longstop date for completion of the project after which date the lenders become entitled to all ticket revenue from home matches played at current home (or alternative) stadium No cost certainty in the project on day one Restriction on use of certain proceeds naming rights proceeds, shirt sponsorship and other key sponsorship revenues can be held in a blocked account until practical completion. Provision for these proceeds to be used towards funding the development (up to a cap) Project Monitor/lawyers have rights to review future contracts and key appointments/deviation from agreed form contract are subject to the consent of the lenders UKG/ November

23 Stadium developments: managing the risks (2) No cost certainty in the project on day one (continued) Funding Shortfall mechanics: Project Monitor performs a funding shortfall calculation every month Measures Available Funding less costs to complete the development "Available Funding" is the aggregate of: Undrawn available commitments under development funding Balance of the construction account (equity + any restricted revenue up to the cap) Any committed grant funding Other committed funding Any identified shortfall must be topped up within 20 BDs to avoid a default. UKG/ November

24 Stadium developments: managing the risks (3) Playing and Staging Agreement: Agreement between TeamCo and StadCo. TeamCo agrees to procure that the Team will play all of its home matches at the New Stadium. Contains a licence from StadCo to TeamCo to use the New Stadium (alternative is a standalone lease). Also covers other events (i.e. concerts), the sale of tickets and StadCo's entitlement to ticket proceeds. Structuring security package: Ring-fencing of stadium assets Share pledge over TeamCo allowing lenders to take control of the Team and ensure it continues to play at the New Stadium UKG/ November

25 Questions? UKG/ November

26 Contacts Nick Fitzpatrick Partner & Global Co-Chair, Media, Sport & Entertainment Sector T: +44 (0) M: +44 (0) Paul Gray Partner T: +44 (0) M: +44 (0) Lewis Gaut Senior Associate T: +44 (0) M: +44 (0) UKG/ November

27 DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as "Lawyer Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Copyright 2018 DLA Piper. All rights reserved. UKG/ November