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Deal or no deal: what motivates an investor to buy a failing football club?

  • Overspending culture of English football makes buying a club risky business
  • Clarity over assets and liabilities key for potential buyers before bidding
  • Bury and Bolton the latest examples of when and when not to buy

More than a third of England’s 92 league clubs have been on the brink of liquidation at some point over the last four decades and, in the last twenty years, insolvency at English football clubs has become an epidemic.

Thirty-three current Premier League or English Football League clubs have either gone into administration or agreed company voluntary agreements (CVA) that enabled them to part-pay their creditors.

Other former league clubs – like Darlington, Chester and Rushden & Diamonds – went out of business altogether. Cambridge United, Boston United and Stockport dropped into non-league after administration or CVAs, finding the cost of doing business in the fifth and sixth tiers more manageable.

Financial problems aren’t just restricted to the lower leagues. Leicester City, Premier League champions in 2015-16, went into administration in 2002 before being rescued by a consortium. Bournemouth went into administration in 2008; their south-coast neighbours Southampton in 2009; and Crystal Palace in 2010.

Premier League revenues may be rising consistently, but seven of the 20 Premier League clubs lost money before tax in 2017-18.

In the three tiers below the Premier League, things look far worse. Of the 72 clubs that played in the English Football League during 2017-18, 52 made pre-tax losses. Collectively, the 72 EFL clubs made a pre-tax loss of £388m, much of which is due to second-tier Championship clubs gambling on promotion and spending well beyond their means.

The potential rewards on offer in English football have never been greater, but the spiralling cost of success has made the pitfalls deeper than ever. A culture of overspending has made life close to impossible for owners seeking to run clubs as sustainable businesses, as the sheer number of clubs gambling their future on success makes conservative spending a risk in and of itself.

Collateral damage

It appears English football clubs are becoming increasingly attractive propositions to vulture capitalists seeking to make quick returns on either the club or its assets. If an owner is unafraid of public backlash and has no concern for the club’s long-term future, there is usually a way to make a return on investment.

Several clubs in financial difficulties have been acquired by individuals or companies intent on either asset stripping or positioning themselves as a creditor of the club, enabling them to cash out on loans they provide to the club, plus interest, either via a sale to a new buyer or a company voluntary agreement.

A secured creditor – an individual or company that loans money to the club’s holding company and secures those loans against a fixed asset of the club, such as its stadium – has a much greater chance of benefitting from that club being sold on to a new individual or company. As part of any sale, they are often entitled to the repayment of that loan plus interest, or would have the right to seize control of the fixed asset the loan was secured upon.

When former Premier League club Bolton Wanderers went into administration in May 2019 after years of financial issues, its sale to a new owner was complicated by its former owner, Ken Anderson, who was also a secured creditor.

“Sadly, Mr. Anderson used his position as a secured creditor to hamper and frustrate any deal that did not benefit him or suit his purposes,” said Paul Appleton, Bolton’s administrator. In the end, Anderson was not made to bear any liability for the £7.5m bridging loan he received when bought the club and received a cash payout of £240,000.

Bury FC – the latest casualty of English football’s boom-or-bust culture – faces liquidation on October 16 after years of financial mismanagement. The club heavily overspent on player wages and was on the brink of administration when its previous owner Stewart Day sold the club and its ever-increasing debts to Steve Dale for £1 in December 2018.

Dale agreed a CVA with the club’s creditors to avoid going into administration. One of those creditors turned out to be the partner of Dale’s daughter, Kris Richards, whose company RCR Holdings paid £70,000 to acquire a £7m debt owed by the club to Mederco, a company owned by Stewart Day that has also gone into administration.

The bare minimum

Whatever an investor intends to do with a club, most prospective owners are looking for the opportunity to take control of fixed assets – such as stadiums or training grounds – that could potentially be sold, repurposed, put up as collateral for loans or that could generate revenues over the long term.

Owners looking for longer-term revenue opportunities would also be happy with a favourable long-term lease on a stadium. As long as an owner has control over use and modification of the asset, the revenue earned from it can potentially be increased.

Multiple experts spoken to by SportBusiness are split on the importance of stadium ownership for new owners, but all of them agree that some degree of control over fixed assets is desirable.

“Does a stadium bolster the value of the balance sheet? On paper. Is it a true value? Rarely,” says Keith Harris, former director of Everton Football Club and broker of several deals to buy Premier League clubs. “You can’t easily borrow against a stadium, the banks had their fingers burned down to the knuckles many times by mortgages.”

He continues: “If you have a good landlord and satisfactory lease, that does the job. The training ground is more important to have control over. The players spend 80 per cent of their working life there, but they turn out at the stadium every other week. Having a training ground with ownership or a favourable lease is much more important. In terms of value, quite often training grounds are situated on the edge of a town or city, where housing needs are great and planning permission is more likely to be granted.”

At the very least, potential owners need to know what they’re buying and the value of those assets. If a club has experienced long-term financial issues and has multiple generations of creditors, loans and mortgages, this can make proper due diligence an impossible task.

“One important issue is the degree of clarity and transparency in terms of what you’re acquiring,” says Kieran Maguire, football finance expert and lecturer at Liverpool University. “Anybody committing themselves to buying a football club will be wanting to do their due diligence to identify exactly what they are acquiring. For that, you need good quality records and an existing board of directors or administrators that are able to identify what they are selling, and are willing to indemnify a new owner if that proves not to be the case.”

Bury’s Gigg Lane stadium. (Alex Livesey/Getty Images)

Dead and buried

Buying an insolvent company – in this case a football club – is already a risk. Being unable to identify which assets are included in the sale compounds that risk many times over. Add these conditions to a restrictive, three-day period to complete due diligence, and an owner unwilling to sell? Such a purchase would be tantamount to a commercial suicide.

These were the challenges facing any potential new owner of Bury this summer. C&N Sporting Risk, which explored the possibility of buying the club, said that Bury’s tangled web of liabilities and the 72-hour due diligence window made the club unfit for purchase. It was also unclear whether any new owner would be able to acquire the stadium and its adjoining car park.

“Having looked at Bury’s finances, they’re in a ridiculous amount of debt,” Maguire says. “I’ve had some involvement with some of the interested buying parties over the course of the summer and the sticking point was the fact there was an outstanding mortgage on Bury’s stadium, as well as part of the car park. You didn’t actually know what you were buying.”

Bury’s stadium, Gigg Lane, had an outstanding mortgage of about £4m (€4.4m/$4.8m). It was also unclear who held the mortgage – the debt had been sold by the original lender to a Maltese company, itself funded by companies in the British Virgin Islands.

The sheer number of issues facing the club means that liquidation now seems certain. A winding-up petition, filed by UK tax authority HMRC, will be heard at the High Court on October 16.

Sharon Brittan (centre) owner of Bolton Wanderers looks on during the Sky Bet League One match between Bolton Wanderers and Oxford United (Nathan Stirk/Getty Images)

Favourable conditions

With debts rising to £42m in March this year, Bolton looked just as doomed as Bury. Loan repayments had been missed. A £1.2m tax bill had gone unpaid, leaving the club at risk of liquidation. Wages to staff and players went unpaid and by the beginning of the 2019-20 season, Bolton had no senior players. Without a new owner stepping in to settle debts and rebuild the club, liquidation was near-certain.

Eventually, the club was saved by the Football Ventures consortium, led by Sharon Brittan and Mike James. The consortium bought the football club, its stadium, its training ground and a hotel which adjoins onto the stadium for a fee in the region of £15m. It is understood the deal also cleared the club’s debts.

The consortium saw significant revenue potential in the club’s fixed assets. The opportunity to control the stadium and its conjoined hotel gives the new owners an opportunity to develop non-football revenue streams.

Bolton’s fanbase also provides a huge upside. Despite its financial troubles in 2018-19, the club’s average attendance was just over 14,000 per home match. Its matchday revenue was one of the largest in League One, England’s third tier, and its overall income was the highest in League One three seasons ago, during 2016-17.

In order to complete the deal, Brittan and her partners agreed two separate deals with two separate administrators; one to buy Bolton Wanderers Football Club along with its wholly-owned stadium, and another to buy the Bolton Whites hotel.

While this may have complicated the purchase, the opportunity to buy the club and its hotel from diligent administrators was a huge advantage to Football Ventures. The club’s administrators, David Rubin & Partners, had identified all of the club’s assets, as well as its secured and unsecured creditors and the amount they were owed.

In addition, the individual administrator in charge of Bolton’s accounts, Paul Appleton, had extensive experience with football clubs and worked to reduce the amount of debt owed to creditors.

Football Ventures has taken a calculated risk in taking over Bolton. It had visibility over the club’s assets and liabilities, which ended up being significantly reduced. The new owners will now be able to develop four potential revenue streams – matchday, media rights, sponsorship and the hotel.

Brittan, James and her other consortium partners were in their right mind when buying Bolton. Purchasing conditions were good and there is potential for success.

Bury, on the other hand, has no such upside. No transparency, no clarity over ownership of fixed assets and, perhaps crucially, no administrator to provide prospective buyers with that information or assist with the sale of the club.

On October 16, Bury Football Club will almost certainly be no more. Bolton Wanderers live to fight another day.

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