Skip to main content

Shareholder loans face new scrutiny

Shareholder loans are money loaned to a club by their shareholders. They amount to a form of funding, a means for owners to inject cash into the football project without seeking equity in return. Typically these are long-term arrangements, often free of interest payments.   Following the recent legal case involving Manchester City and the Premier League, they are coming under more scrutiny in terms of APT rules.

And clubs are certainly fond of them. Fourteen of the 20 Premier League teams in the 2022-23 season had shareholder loans recorded in their most recent set of accounts and City’s legal team were only too happy to highlight the extent of their use during this case. It was cited that £1.5billion ($1.96bn) out of £4bn total borrowings across the division — 37 per cent — were through shareholder loans.

“The main motivation (behind shareholder loans) is that it’s an easier mechanism for an owner getting their money back,” says Chris Weatherspoon, an accountant and financial analyst at the football website Game State. “If they put in equity, that’s them effectively giving up any right to a return, short of paying out dividends, which hardly any club does or even can do, as most are in a position of accumulated deficits, or making their money back when they sell up.

“It’s also more tax efficient. Interest costs on debt — if owners charge them — are tax-deductible for clubs, so reduce the club’s tax burden; dividend payments aren’t.

Three clubs lead the way by some distance in terms of shareholder loans: Everton, Brighton & Hove Albion and Arsenal. Collectively, those three had £1.08billion of debt owed in shareholder loans recorded in their 2022-23 accounts.

Everton’s profligacy during the reign of Farhad Moshiri sees them top the list with £451million borrowed in interest-free loans from the Iran-born businessman, a sum expected to be written off when The Friedkin Group completes its looming takeover of the club.

Brighton come next with £373million owed to Tony Bloom, their long-standing owner, in another interest-free arrangement. That outstanding sum had been trimmed thanks to a £33m repayment during the 2022-23 season but had previously increased every year since 2013.

Arsenal’s shareholder borrowings are much more recent. A refinancing of existing debt in 2020 saw them draw down a loan from parent company Kroenke Sports & Entertainment and, as of the 2022-23 accounts, that sum now stands at £259million. The precise rates of interest on that shareholder loan have not been disclosed, but Arsenal’s last two sets of accounts showed interest paid on total debts (including £10.2m worth of debentures) to be £4.3m. That is less than half the interest Arsenal had previously paid when holding external debt.

Existing loans can be converted into shares, wiping out the borrowing and placing a club beyond the coming scrutiny. It will not be a concern to half a dozen sides, including City, Tottenham Hotspur, Newcastle and Manchester United, who held no shareholder loans when filing their most recent set of accounts.

 

 

Comments

Popular posts from this blog

Threat of financial calamity removed from Baggies

West Bromwich Albion had effectively been in decline ever since the club was sold to a Chinese consortium in August 2016, paying a figure north of £200m to buy former owner Jeremy Peace’s stake. Controlling shareholder Guochuan Lai’s ownership was fairly disastrous for the club, but his unloved tenure finally came to an end after Bilkul Football WBA, a company ultimately owned by Florida-based entrepreneur Shilen Patel and his father Dr Kiran Patel, acquired an 87.8% shareholding in West Bromwich Albion Group Limited, the parent company of West Bromwich Albion Football Club. This change in ownership was urgently required, due to the numerous financial problems facing West Brom, including growing high-interest debt and serious cash flow concerns, following years of no investment from the former owner. Indeed, West Brom’s auditors had already rung the alarm bell in the 2021/22 accounts when they cast doubt on the club’s ability to continue as a going concern without making player s

Gold standard ground boosts Tottenham's income

The gold standard in European football grounds is the Tottenham Hotspur stadium in north London, a £1bn construction project completed in 2019. Its impact on the club’s finances has become increasingly clear as the effects of the pandemic have faded. Previously, the average fan would spend less than £2 inside the ground on a typical match day, but now that figure is about £16, thanks to new facilities including the longest bar in Europe and an on-site microbrewery. Capacity has gone up from 36,000 at the club’s previous home of White Hart Lane to 62,000.  The new stadium — built on land adjacent to White Hart Lane — has opened the door to a broad range of other events that have helped to push commercial income up from €117mn in 2018 to €215mn in 2022. Last year, Tottenham hosted US singer Beyoncé for five nights on her global Renaissance tour, two NFL matches, as well as rugby games and heavyweight boxing bouts.  Money brought in from football has gone up too. Match day income is

Spurs to sell minority stake

Tottenham Hotspur is in talks to sell a minority stake in a deal that could value it at up to £3.75 billion and pave the way for Joe Lewis and his family to sever ties with the Premier League football club. Tottenham chairman Daniel Levy is seeking an investment that values the club at between £3.5 billion and £3.75 billion, including debt. While the terms of any deal have not been finalised, City sources expect Spurs to sell about 10 per cent. The club is being advised by bankers from Rothschild on the sale. Tottenham wants to raise fresh capital for new player signings and to help fund the development of an academy for its women’s team, as well as a 30-storey hotel next to its north London stadium. The financier Amanda Staveley, who brokered the deal for Saudi Arabia’s Public Investment Fund to take over Newcastle United, is understood to be among the parties to have expressed an interest in Tottenham. Staveley’s fund, PCP Capital Partners, has raised about £500 million to depl