Should clubs be borrowing against players?

I know that I am old fashioned kind of guy and that I don't fully understand high finance.  Nevertheless, at a time when many football clubs are technically insolvent, the idea of borrowing against players concerns me.  After all, they can get injured or just lose confidence.

Private credit funds are targeting football’s biggest transfer market with a push to extend loans to English clubs based on the value of their players, as increasingly exotic financing filters into the sport. Discussions over so-called squad-value financing are picking up among English clubs and their lenders, according to several specialist football advisers.

The novel loans are sized according to the value of a club’s playing squad and sometimes involve the lender only taking security over hypothetical receivables from potential player sales, the people said. London-based sports finance firm 23 Capital, which was wound down during the Covid-19 pandemic, has relaunched with squad-value loans as a core part of its offering, according to people familiar with matter.

“We’re definitely seeing more [interest],” one leading football finance adviser told the Financial Times. “People are getting their heads round it.” Club takeovers by private capital firms and US investors have opened the door for lenders to pitch more complex financing options, which already routinely include borrowing against receivables due from players who have been sold.

Clubs in Spain, Portugal, Italy, France and Belgium have already borrowed money via squad-value loans, one of the people said. Along with their stadiums, players are typically a football club’s main asset.

The growing financialisation of football comes as the game’s independent regulator warned this week that widening losses and rising debts were putting English football “on the edge of financial disaster”.

Globally, football clubs spent a record €10.8bn on player transfers this summer, according to sports advisory firm Tifosy, with Premier League clubs accounting for 38 per cent of that spending. Six of the top 10 clubs by squad value are English, according to estimates from Transfermarkt. English clubs outside the top flight spent €453mn this summer, up from €310mn year earlier.

While the exact structure of squad value loans is still being worked out, people close to the talks said a lender with security over hypothetical receivables would not be able to force a club to sell a player. But at the point the club does sell a player, the lender would have first call over some of the future receivables, two of the people who talked to the FT said.

Lenders are comfortable with their position because they believe clubs will be forced to sell players if they run into financial difficulty, the people added. Tifosy and private capital manager Fasanara have pioneered squad-value financing in Europe over the past few years, extending loans equivalent to about a quarter of the value of clubs’ playing squads, said two of the people.

“Football clubs need capital on a timetable that does not always match when revenues arrive. Our sports receivables and squad-backed financing strategy aims to bridge that gap,” Fasanara chief executive officer Francesco Filia told the Pink ‘Un.

One football executive told the leading sports business paper that a club would be more likely to take out such a loan to finance a player acquisition during the January transfer window and then pay it off using funds received from sales in the summer window.

Second-tier side Burnley, owned by American investment firm ALK Capital, is one of the only English clubs to have used structures in which loan sizes are partially determined by player values. The loans are also backed by a broader pool of assets, according to people familiar with the matter.