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

It's no deal say Spurs insiders over Taiwanese takeover

Senior figures at Tottenham Hotspur insisted on Friday that they had not been informed of any deal to sell Daniel Levy’s stake in the club. A business group, Eight Sports Capital — which is said to include a billionaire Taiwanese financier — claimed that it had an agreement in place to buy a 24.99 per cent stake in ENIC, the club’s majority owners, from Levy, who owns 29.88 per cent. The Times has been told Ng Wing Fai and Brooklyn Earick form part of the group, having both been linked previously to potential takeovers of the Premier League club. The Taiwanese businessman, Richard Tsai, is also said to be part of the consortium. He is reportedly worth £7 billion.  Last year Earick, the former DJ and tech entrepreneur, was part of an attempted £4.5 billion takeover, which was “unequivocally rejected” by Spurs.  An ENIC spokesperson said: “We can confirm that neither ENIC nor THFC are aware of any sale by Daniel Levy’s Family Trust of its minority stake in ENIC, THFC’...

Reports about Charlton sale exaggerated

Reports have appeared in The Guardian and elsewhere that Charlton has been put up for sale. Richard Cawley is an authoritative local journalist who runs a South London Sport substack site.  He reached out to the club yesterday evening to ask for comment on The Guardian’s article. Early indications from the club have been that nothing has changed since the story about them seeking investment, except that it is now a different company doing it. Charlton have since managed to consolidate their place in the Championship, avoiding an instant return to League One, with their women’s side promoted to the WSL, returning to the top flight for the first time since 2007, although staying there is likely to be costly. It would be counter-intuitive for owners Global Football Partners not to progress the club when looking for investment, that the focus remains on driving it forward, that their spend this summer is in line with long-term planning and will see an increase in wages spent on players...

Hull City's 'strange' loan

When football finance guru Kieran Maguire seems flashing lights in a club's loan deal, I become concerned.  He is the leading football finance expert in the UK. Hull City have borrowed £55m against their stadium and training ground yet they should get £30m from the Premier League before long.  What is going on? https://www.bbc.co.uk/sport/football/articles/cpwel48y51do