Bournemouth have an extensive knowledge of financial peril, have twice been almost condemned
to oblivion – once in 1997, when supporters fundraised £35,000 at the Winter Gardens
concert hall to stave off liquidation, and then again in 2008, when chairman Jeff Mostyn’s
blind generosity kept the club afloat.
Ten years ago, Mostyn was told, during a private meeting with administrator Gerald Krasner,
that the club would be liquidated live during a press conference unless the chairman — who
would be stood at the back of the room during the briefing — indicated during it that
he would save the club. He duly nodded in agreement to help the Cherries avoid liquidation
by a matter of minutes and threw another £100,000 of his money into the club’s debt void.
Today, the circumstances at Bournemouth are a world away. The club now boast players on
seven-figure salaries, they fly to matches that are further north than the Midlands,
and are preparing to construct a new training ground at Canford Magna. Their financial footing
not only appears secure, it’s on a whole new plane.
The appearance, then, of two multi-million-pound loans on Companies House last week, may well
have caught some by surprise.
Two days after Bury were expelled from the Football League, Bournemouth registered that
they had agreed to borrow around £16 million from an Australian bank called Macquarie,
who have, in the past, been criticised over their ruthless pursuit of profits. The mere
reference to loans, and the spectre of debt, is one that, unsurprisingly, alarms supporters.
The loans are related to the instalments due for the transfers of Tyrone Mings to Aston
Villa and Lys Mousset to Sheffield United, and they mark the first time Bournemouth have
engaged in something called transfer fee factoring.
In a nutshell, the club has agreed to borrow money they are expecting to receive from future
instalments from those transfers — a cash advance for a small fee.
Defender Mings was sold to Aston Villa for £26.5 million during the summer, of which
£6 million is due in July 2020 and £6 million further in July 2021. Bournemouth have instead
borrowed that money in advance from Macquarie, who will collect the instalment fees themselves.
In the case of Mousset, the club will receive an advance of £4 million.
Bournemouth are not alone in entering agreements with Macquarie to factor transfer fee instalments.
Watford borrowed money from the Australian bank as part of Richarlison’s £50 million
transfer to Everton last year, Middlesbrough have done it on several occasions, such as
with two outstanding instalments of €1.6 million and €1 million for Martin Braithwaite’s
move to Leganes, while Leicester City borrowed money to immediately bolster their coffers
instead of waiting for payments due from Riyad Mahrez’s £60 million move to Manchester
City in 2018.
On the surface, this appears to be a relatively new phenomenon, but as Richard Price explains,
it is actually a far more common practice than many realise. Price is the chief executive
of New Century Finance, who work with Close Brothers banking group exclusively on transfer
agreements in the UK.
“We were the first to do (transfer fee factoring). Literally, the first to do it. We came up
with a structure that was robust from a credit point of view,”
“I would say in the Premier League, a minimum of 75 percent of clubs have done it and in
the Championship, they nearly all do it at some time or other. It’s another form of
lending from a borrower who is not going to take other security.”
The practice does not just involve transfer fees, as some clubs also borrow money ahead
of their instalments for television rights or sponsorship deals. It is more prevalent
in the UK than abroad, according to Price, although it is more popular in Spain and Italy,
and less so in France and Germany.
Factoring is useful for clubs because it helps improve cash flow, offering a clear explanation
as to why Bournemouth may have decided to borrow money against their transfer instalments,
especially with the construction of their new training ground expected to begin in the
next few weeks.
Leicester City did something similar with Mahrez’s transfer ahead of the construction
of their new training ground, which began in April this year and could cost up to £100
million. The Mahrez payments were structured in instalments, with Manchester City due to
pay £36 million in two payments of £18 million, in July 2019 and 2020. The Foxes used a loan
from Macquarie to get hold of that money sooner, with their new facility in mind. Improving
cash flow also explains why they insisted Harry Maguire’s £80 million fee from Manchester
United was to be paid up front.
Any loan will come with a charge. Price, who works for one of Macquarie’s competitors,
estimates loans can cost around seven-and-a-half percent for a one-year deal, and closer to
six percent for a three-year deal.
For most clubs, it is a price worth paying, not only because of cash flow benefits but
also to help pay for an up-front VAT payment, which does not take into consideration the
staggered nature of a transfer fee.
“We are seeing increased interest in the financing of future transfer receivables from
football clubs as a way of managing their working capital,” explains Jerry Korczak,
a managing director for Macquarie’s Commodities and Global Markets division.
“One reason, unknown to most fans, is that the sale of a player incurs a VAT payment.
For example, although a club may sell a player for £10 million, it may be receiving those
funds over two years. So, it may be receiving £5 million now but it also has a VAT bill
of £2 million due, and it may still need to buy a replacement player.
“As the club may need to spend more than the £3 million it has, this form of financing
is an efficient way to bridge the deficit.” Macquarie are unusual in that they publish
the charges on Companies House, potentially as part of its security for their arrangements
with Bournemouth and others. Close Brothers, however, keep the matter entirely confidential
and out of the public eye, with future payment from the buying club acting as their only
security. This perhaps explains why the practice has flown under the radar somewhat.
Price believes publishing on Companies House may allow Macquarie to offer a slightly lower
fee, although he says it could affect the club’s credit rating because anyone can
see the agreement. Bournemouth do not comment on financial matters but the club are happy
that the agreements are transparent. Macquarie did not comment on why they publish agreements
on Companies House.
So, should Bournemouth and other fans be worried about their clubs borrowing money in this
way?
“No, I don’t think so,” says Price. “As far as the fans are concerned they read
in the paper that Tyrone Mings has gone to Aston Villa. They see that he’s gone for
say £25 million. Most fans will think they’ve got the £25 million already. And in fact,
they haven’t.
“It’s all about cash flow. Every company has cash flow ups and downs, and getting money
in that’s already owed to you early, it’s useful. It’s a form of factoring.”
Kieran Maguire, a lecturer in Football Finance at the University of Liverpool who also keeps
a close eye on the financial health of all 92 English football clubs, is also not against
the practice.
“I’m completely agnostic on this,” he says. “There are a variety of ways of clubs
arranging loans. The best and the cheapest is owner’s interest fee loans but sometimes
owners can’t, or decide they don’t want to go down that particular route.
“In terms of transfer fees, this money is ring-fenced, so the banks are effectively
guaranteed those transfer fees being paid to them and they see it as a low risk form
of lending.”
For Bournemouth, then, rather than a case of accumulating the dreaded debts of the past,
transfer fee factoring may well be a means by which the construction of their new future
can begin.