Many words have been used to describe the finance sector over the years but ‘creative’ has rarely been among them – except, perhaps, in a pejorative way.
But at the central London headquarters of 23 Capital they take a different view.
“Creativity is an important aspect of so many elements of business so why shouldn’t it be applied to finance as well,” says Stephen Duval, who co-founded the company four years ago and has overseen its stratospheric growth.
“When we talk about creativity, we are talking about creating new IP that we can monetise and about structuring deals in ways which have not been thought of previously.”
That’s important at a time when the fusion of sport and digital technology has left the sector ripe with commercial possibility.
According to Duval it is an area that the traditional finance sector still tends to be wary of. Too often the deals and opportunities fall outside tried and tested frames of reference and, by custom, practice and instinct, many institutions are reluctant to take the path less trodden.
“It’s a world that, by and large, traditional lenders don’t understand,” he said.
And even if they do take the trouble to learn, he believes they are simply not nimble enough to meet the demands of the market.
All of which has helped 23 Capital carve out a position as a leading provider of finance to the sports and entertainment sectors. Since its launch the company has advised and funded $2.7bn of deals with many more in the pipeline as it prepares to celebrate its fifth anniversary. Duval was at university when he wrote a business plan based on monetising athletes’ assets. It was, he explains, based on the idea that, if it is possible to issue bonds on behalf of an artist or a new stadium, why not take the principle to the next stage and look for additional ways of monetising receivables?
Post-university, Duval joined the Sydney 2000 Olympic Games Organising Committee team before going on to work for IMG and others, acquiring the deep insight that has enabled him and co-founder Jason Traub to develop their distinctive offer to the sector.
“Those lenders have never really been in this sector because they like to look at EBITDA, years and years of data and tangible assets that they could sell tomorrow like a mortgage,” Duval said.
“Sports, music and entertainment have never been culturally aligned to finance in the way that we are. To be a lender to the sector you must understand the sector and that allows us to structure deals in ways which may not have been thought about previously,” he said.
It is, he says, a liberating place to be right now.
“People come in here to talk about a deal and their eyes don’t glaze over. They don’t have to go through unnecessary approvals and processes and, in fact, I’m proud of the speed we move at. We signed off a $125m deal in just four weeks which is unheard of.”
So how does it work?
23 Capital, which lists Quantum Partners LP, a private investment fund managed by Soros Fund Management, among its shareholders, has access to a reservoir of capital provided by a range of institutions and will lend against identifiable revenue streams. And that’s where the deep sector knowledge and experience comes into play.
“If a football club is building a new stadium and looking to raise finance from a traditional lender, typically they will look at the value of the property or other fixed assets. At 23, we understand a club’s ability to drive commercial value through other revenue streams such as IP and sponsorship, and these can provide an asset base which we would look to lend against.
“For me, as co-founder, it is exciting to build a brand which opens the door to capital to our clients. We are at the frontier of finance here and although we are not the first (in this space) we are the first to have structured our brand around it.
“We have access to capital from senior debt right through to equity and the ability to offer reasonably priced capital makes it very liberating,” he said.
Some 70 per cent of 23 Capital’s business is in football and, across the board, most is based on transfer fees and broadcast rights.
These are, says Duval, exciting times to be working in sport. The company focuses only on the top end of the market – ‘Premier League or equivalent’ – and has become one of the biggest cross-border lenders in football.
“Sport has changed. Because of Financial Fair Play and the more professional way that people run their businesses there is more ability for investors to come in. While lending in the sector has not become commoditised – like credit cards – there is security and systemic protection in the market now. Revenue from an IP rights deal with, for example, the NBA is locked in at the top level and that’s AA corporate protection,” he said.
There is also a level of resilience in sport and entertainment that isn’t evident in other sectors.
“During the last recession trillions just fell off a cliff but the sports and entertainment industries didn’t,” Duval said.
“Premier League TV rights grew through the last recession and it is often said that, when times are hard, the last thing people get rid of are their football season tickets and TV subscriptions. In hard times people want to escape and sports and entertainment are key to that.”
Duval sees the power of technology and the impact that has on the commercial power of players as an engine driving the sports sector and the company has already completed deals on behalf of the major US leagues’ players associations.
“With the explosion of technology and social media the power is certainly going back to the players who are able to communicate directly with their fans,” he explains.
Duval and 23 Capital have already made a significant move in this area with the launch of Otro, a ’digital fan club’ featuring some of the biggest names in world football including Leo Messi, Neymar and Deli Alli along with the likes of David Beckham, Zinedine Zidane and even Eric Cantona. Its roster of 17 current and former players have almost a billion social media followers and with an app successfully launched and more players due to come on-stream he is confident it is a compelling offer for fans.
“The idea came to me when I was watching a Champions League quarter final in Barcelona. I sat there watching all these great players on the field and wondered what had happened to ‘old school’ fan clubs which took you not just behind the scenes at clubs but into the lives of players.
“Otro delivers highly-created content to provide a shared experience that fans simply won’t get anywhere else and a monthly subscription [currently $3.00] gets you access to all the players,” he explained.
“Technology in all its elements is unbelievably exciting for sport right now and is creating real growth through fan engagement.”