How do loans work in professional football

Guest PostProfessional football needs funding - and regulation

The recent spectacular player changes in Europe's leagues demonstrate that European football has become big business. The rumored transfer fee of around 222 million euros for the transfer of the Brazilian Neymar Junior from FC Barcelona to Paris Saint-Germain is supposedly the most expensive player transfer of all time. He drew other player changes such as that of Ousmane Dembélé from Borussia Dortmund to FC Barcelona for 105 million euros as well as numerous others. According to, players in the 1st Bundesliga alone changed clubs in the summer transfer window with a total spending volume of around EUR 640 million.

At the same time, the revenues of the European clubs are increasing with double-digit growth rates. In the 2015/16 season, for example, the 18 German top division clubs exceeded the turnover threshold of 3 billion euros for the first time. There is currently no end in sight to growth. At least now it is becoming clear to everyone that football has become an important economic factor. The ever new transfer records are triggered by the strongly increasing income of the clubs, in particular from television marketing and, to a lesser extent, from advertising and the income from gaming operations. In individual cases, financial contributions from companies or sovereign wealth funds are also responsible for significant increases in funds - such as Qatar Sports Investments at Paris Saint-Germain.

There is no growth without financing and equity

As in any other industry, the need for financing and intelligent solutions to financing problems increases as it grows. Player transfers have to be financed, at the same time there is a high need for investment in infrastructure such as stadiums, training centers and digitization. However, banks and capital markets are still treating the economic sector of football with caution. Clubs traditionally finance themselves through the large sports marketing agencies with their combination offers of marketing and pre-financing. Credit lines from predominantly regional banks and savings banks also play a role in liquidity management.

Fan bonds or pre-financing of accounts receivable, for example in the form of transfer financing, are, on the other hand, of minor importance on the outside capital side of German clubs. On the equity side, the possibilities of German clubs are also limited: Here the so-called “50 + 1” rule is seen as an obstacle. The rule stipulates that clubs in their outsourced companies must hold the majority of the voting rights in order to operate professional football. However, the German Football League (DFL) can allow exceptions in certain cases if an investor has supported a club continuously and significantly for a period of at least 20 years. Exceptions to “50 + 1” traditionally exist for the factory clubs in Leverkusen and Wolfsburg, for some time now for Hoffenheim and, thanks to an “innovative” design, recently also for the Leipzig club.

The current discussion about the approval of such an exception in Hanover and the commitment of a group of investors shows how difficult and emotionally charged this topic is. Consequently, equity investors have to be content with minority stakes. Successful examples of this are Bayern Munich (Allianz, Audi, Adidas), Hertha BSC Berlin (KKR) and most recently VfB Stuttgart (Daimler). Only Borussia Dortmund has so far dared to go public and made its shares tradable.

The role of marketing contracts

Hybrid equity instruments such as subordinated loans or participation loans are mainly used by sponsors and patrons close to individual clubs - for example at Hamburger SV by Klaus-Michael Kühne. Here, too, there are regulatory hurdles for institutional investors to enter this rather “gray” capital market, with the FIFA ban on third party participation in club transfer rights - so-called third party ownership - or the UEFA rules on financial fair play. Why is it that the football industry has so far been neglected by the financial markets and that innovative financing structures such as securitisations, project financing or so-called crowdfunding are not establishing themselves?

Smart debt financing requires either existing free income or the development of new income through clubs, i.e. investments. The problem with many clubs, however, is that there is comparatively little free cash flow available for new financing. Responsible for this are very often marketing contracts with agencies that use advertising income, income from gaming operations and from merchandising to secure the pre-financing granted with the conclusion of such contracts. However, a number of marketing contracts will expire in the next few years. Clubs are well advised to carefully examine whether marketing services should be combined with financing functions or whether a separate purchase of marketing and financing could be more advantageous and, above all, more flexible.

Jörg Wulfken is a lawyer and partner in the consulting firm PwC Legal in Frankfurt. Among other things, he is an expert in structured finance

Wulfken is also one of the speakers at the 4th Football Economy Conference of the Hamburg World Economic Institute (HWWI) and of on November 14th in Hamburg. Capital is the media partner at the conference. The full program of the event can be found here.