UK — “Sport and physical activity contributes £39 billion to the UK’s economy,” reads an article from Sport England, “and a significant portion of this comes from grassroots sport: the millions of people who buy trainers, bikes, gym memberships or pay match fees.”
As a business, the world of professional sports is booming. Backed by fans’ loyalty, dedication and commitment, those rooting for their teams dedicate more than their emotional investment: their clubs rely heavily on their finances.
Yet recent trends may be putting some UK clubs into a financially precarious situation. Enter the era of the leveraged buyout.
Leveraged buyouts and asset-poor deals
In recent years, multiple stadium and club buyouts have made news headlines in the UK—usually for the wrong reasons. Take Burnley Football Club.
Hailed in 2019 as the “most sensibly run club in the Premier League financially,” the club was £80 million in the black in mid-2020. Six months later and it was announced that ALK, an American private equity firm, would acquire a major stake. It was later revealed that the private takeover was actually a £170 million leveraged buyout.
More recently in January 2022, the club hit headlines once again, with the revelation that ALK had delayed payments due to the club’s former directors—sums that were required to complete the takeover.
Wasps’ stadium and its £2,000 bond scheme
Premiership Rugby offers a similar story. Going back to 2015, the Wasps searched for a way to raise £25 to £35 million in order to fund their purchase of the Coventry Building Society Arena. The English rugby union club created a seven-year bond, offering a 6.5% gross interest rate per year, fixed until 2022.
With bonds priced at £2,000, the club raised £35 million—enough to successfully purchase the stadium from the operating company, ACL. Fast forward to 2022. The bonds matured on 13 May and the Wasps Finance PLC issued a statement, notifying the London Stock Exchange that the company would be delaying bond repayment due to a refinancing deal with HSBC:
“The Bonds’ final Maturity Date is set to occur on 13 May 2022 and in connection with the proposed refinancing, the redemption of the Bonds at their nominal amount will be delayed pending completion of the refinancing.”
This news comes amid the Wasps Groups’ ongoing revenue losses, with the club losing between £3.7 and £11.1 million per year since its move to Coventry.
Bans on leveraged buyouts
Amid concern over the state of Burnley’s finances, the football Premier League is considering a ban on leveraged buyouts, one that would effectively see debt-ridden takeovers a thing of the past. Questions remain about whether such a decision could be reached and changes to ownership within the Premier League would have to be signed off by a minimum of 14 clubs.
With similar worries surrounding English rugby and in particular, a potential ban in Premier League buyouts could lead to a precedent in Premiership Rugby.
For the buyer, leveraged buyouts offer clear advantages. Take ALK, a firm that used £40 million of the club’s assets to partially buyout shareholders, allowing them to spend less of their own capital and bringing their debt into the bargain. If successful, the firm could see a huge return on investment. If they fail, the fans will pay the ultimate price.
Name: Lewis Humphries