US banks that have carved out a lucrative niche financing the construction and renovation of sports stadiums are making a push into Europe, signing a major deal with English Premier League soccer club Tottenham Hotspur last month.
Goldman Sachs and Bank of America Merrill Lynch (BAML) dominate the sector, using stock and bond issues, the sale of naming rights, and securitisations of future ticket and TV revenues to fund improvements in infrastructure.
With financial fair play rules curbing the sums deep-pocketed owners can spend, the banks are hoping to capitalise on clubs’ need for new sources of financing.
"We are building on a base in Europe, what we call greenfield. I want to get to 60 stadiums done, I'm on 40 now," said Goldman Sachs' Greg Carey, one of the biggest names in US sports finance, who now comes to Europe once a month.
Goldman and BAML were among banks that lent Tottenham Hotspur, known as Spurs, £400 million (€455 million) in May to help finance a new 61,500-seat stadium in London. The five-year loan is secured on the new stadium and related commercial and match day revenues.
Carey has orchestrated stadium deals worth more than $20 billion for the New York Yankees, San Francisco 49ers and other elite American teams and has arranged private transactions for Italian soccer clubs AS Roma and Inter Milan.
The banks do not disclose how much they make from sports financing but "the margins are very, very attractive" said Chris Wheeler, banking analyst at Atlantic Securities.
“Yes, it’s profitable. It’s not a big people business, you don’t need 500 traders to do it ... You need a small team. And there are only so many stadiums being built, so you don’t need vast resources.”
The margins charged reflect risks including the chance that future revenues might not stack up to pay off the debt taken on.
For Europe’s big soccer clubs there is the annual prospect of a sharp fall in earnings if they fail to qualify for the Europe-wide Champion’s League competition or are relegated to a lower division.
Early this century, English club Leeds United was relegated and had to sell players and its stadium after borrowing heavily to chase a Champions League place but missing out. Investors took heavy losses.
Construction projects can also be subject to cost overruns and delays, as with the rebuilding of London’s Wembley Stadium.
These risks can be offset by ensuring stadium projects can generate additional revenue from hosting concerts or other sporting events. Spurs plan to host two NFL games a year.
Two main rivals
BAML started its sports finance and advisory practice in 1992 and has helped bankroll stadia including a $1.2 billion 80,000 seat arena for the Dallas Cowboys that opened in 2009 and also the Yankees' stadium.
“We decided there was a good business model here. We provide a full platform – investment banking, capital raising, corporate banking,” said managing director Elliott McCabe.
“The US market is highly developed for financings in the sports sector. Our biggest focus growing up has been domestically in the US.
“We have interest in Europe. There are many well-run clubs with strong ownership groups,” he added. “However, every situation is unique, it’s not cookie-cutter.”
The deals can require banks to put in a lot of their own money, one reason US banks have an edge over European rivals with less available balance sheet to put to work. Goldman and BAML often write big cheques – Goldman committed $850 million so construction could start on the San Francisco 49ers’ Levi’s Stadium.
“How do we help the clubs become more competitive?” Carey said. “By building better facilities so they can put more money into the team, so they can be potentially better and play in the Champions League and make more money. So it’s a virtuous cycle.”
With their new stadium, Spurs aim to boost earnings like arch-rivals Arsenal have done since moving into the Emirates Stadium - itself financed by borrowing against future ticket sales - in 2006.
Arsenal's matchday revenues of €134 million in 2015/16 were more than double Spurs' €55 million, according to Deloitte analysis which shows Europe's top clubs made just 18 per cent of revenues from matchday income in the 2015/16 season.
That makes upping capacity or getting fans to spend more with better facilities a main lever for increasing cashflows.
TV and broadcasting rights, which are mostly collectively arranged, generated 39 per cent of revenues, while 43 per cent came from commercial income such as advertising and merchandising.
The Spurs deal and proposals by Dutch team Feyenoord include plans to regenerate the area around their stadiums.
Similar promises of regeneration have seen US city authorities put money into stadium projects in the last decade, often raised via a hotel tax. But the economic benefits are disputed.
Stanford economist Roger Noll is among those who say such public/private partnerships have provided poor value because the additional revenue raised as a result of the development does not cover the funding provided.
Museum of sports
Europe's love affair with soccer means it is seen as the main area of opportunity there. Big-name teams including Feyenoord, Italy's AS Roma and Fiorentina, Chelsea and Everton in England and Spanish team Barcelona all have plans for new or improved stadia seating up to 100,000 people.
The experience of the New England Patriots shows what an impact a new stadium can have.
Since the Boston-based NFL team moved into the Gillette Stadium in 2002, they have won five Superbowls and are now the sixth most valuable sports team in the world, with a franchise worth $3.4 billion, according to Forbes.
Then at Citigroup, Carey made his name with an innovative financing deal for the stadium that allowed owner Robert Kraft to raise $325 million at low interest rates by pledging future revenues from advertising, naming rights and other income.
The sports-mad 56-year-old from Long Island’s office at Goldman is filled with memorabilia.
“My office looks like a sports museum,” Carey said.
– (Bloomberg)
