Football's debt kings

The authoritative Swiss Ramble looks at football club debt, noting that it is a complicated subject becaue of different definitions and standards.  

I would add that it is important to note that many businesses run on debt.  For example, I am familiar with the agricultural sector and most farm businesses have an overdraft and various kinds of loans.   The important consideration with debt is whether it can be serviced.

Tottenham Hotspur had the highest gross debt in England as at end of 2018/19 season with £658m (to fund the new stadium), followed by Manchester United £511m (Glazers’ leveraged buy-out), Arsenal £211m (remaining Emirates stadium mortgage) and Liverpool £129m (Anfield main stand expansion).

Because of cash balances four of the Big Six had net debt below £100m: Liverpool £91m, Chelsea £43m and Arsenal £42m, while Manchester City even had net funds of £57m. That left two clubs with hefty net debt: Tottenham Hotspur £534m and Manchester United £204m. Despite all their refinancings Manchester United gross debt has remained around £500m.

Tottenham Hotspur and Manchester United have the highest net debt in Europe, followed by two Italian clubs at just over £400m: Juventus and Inter.

One way of looking at debt is to express it as a multiple of annual revenue. Using the UEFA definition of net debt, most of the Big Six have very low multiples: Chelsea 0.1, Arsenal 0.2 and Liverpool 0.3 (and Manchester City have net funds). The highest multiples are Tottenham Hotspur 1.3 and Manchester United 0.6.

Another interesting ratio is debt to long-term assets, as these assets are often used as security for debt and funded by that debt. Here, a low multiple is good, so advantage Manchester City (net funds), Arsenal 0.1 and Chelsea 0.1. Tottenham Hotspur look a bit better here, due to the value of the new stadium.

While it is important to be able to ultimately pay off debt, the ability to service interest expenses is absolutely crucial, as seen by interest coverage (cash flow/interest paid). The lowest (worst) ratios here are Tottenham Hotspur 6.5 and Arsenal 6.9, but neither are particularly worrying.

If we add dividends to interest, the ratio worsens at Manchester United to 4.4, as they have to make a total of £42m payments every year (£19m interest plus £23m dividends). Regardless of the club’s ability to cover this expense, the club’s fans would prefer this to be spent on the squad.

Of course, the debt situation will have worsened since these figures were published due to COVID, as clubs have had to take out additional loans, e.g. Spurs have borrowed £175m at 0.5% from the government, while Manchester United have drawn down £140m of their revolving credit facility.