As players compete in empty stadiums, clubs shun flashy signings and once-fat TV revenues shrink, an unlikely new force has emerged in English football: a US firm that invests some of PC pioneer Michael Dell’s fortune.
Over the past year, MSD Partners has lent almost £80m to Premier League team Southampton, provided funding for the £200m takeover of rival Burnley and made a loan to Derby County, a historic English club.
MSD’s first foray into English football predated the pandemic, but the crisis has helped forge an opportunity for the investment firm as the sport confronts an unprecedented financial crisis and other lenders retreat. The Premier League, the world’s richest football competition, estimates that every month without fans in stadiums collectively costs English teams £100m.
“Clubs need cash and MSD has cash,” said Kieran Maguire, a football finance academic at the University of Liverpool and author of The Price of Football. “Commercial banks won’t touch football clubs. It’s perceived as high risk.”
MSD, which recently hired senior Goldman Sachs banker Gregg Lemkau to lead the firm, is not the only financial institution barrelling into the sport. Private equity firms are trying to buy into Serie A, Italy’s top football division.
Founded in 2009, MSD manages about $15bn, with investments spanning public equities, real estate, private equity and credit. As well as investing some of Dell’s wealth — and working alongside the tech entrepreneur’s family office — it also manages substantial amounts for other investors.
Helping bankroll the owners of sports teams is not new to MSD. The firm counts US National Hockey League clubs the St Louis Blues and the Dallas Stars among its borrowers. In 2017, it was part of the financing for the $1.2bn purchase of baseball team the Miami Marlins by a consortium including Derek Jeter, one of the sport’s most celebrated players.
The fresh source of funding for English football has been embraced by an industry that high street lenders had largely steered clear of even before Covid-19.
Since the crisis, Arsenal and Tottenham Hotspur, two of the “Big Six” teams in the Premier League, have borrowed nearly £300m at ultra-low interest rates from an emergency lending scheme run by the Bank of England. But smaller Premier League clubs and those in lower leagues have complained about the struggle to secure financing.
MSD’s willingness to extend loans for longer periods has increased their appeal. Historically, loans to clubs have often been relatively short-term or subject to annual renewal, especially for those outside the upper echelons of the Premier League. The firm has lent about £170m in total to English clubs, according to a person familiar with the matter.
“Typically banks provide short-term working capital cash flow. These guys are longer term strategic money,” said a banker with knowledge of MSD’s operations. “For the most part they don’t finance purchases, they just provide long-term stable funding . . . they provide something that doesn’t exist.”
That, however, comes at a price. The latest accounts for St Mary’s Football Group, the holding company for Southampton, showed that the £78.8m loan, which is due for repayment in 2025, carries an annual interest rate of 9.14 per cent. That interest rate is in line with what MSD has charged other clubs, according to people familiar with the matter.
While MSD is writing cheques during a historic crisis for the sport, there are fears that the steep costs attached could prove punishing for the borrowers.
Confidence in English football
The English Football League, which runs the professional divisions below the Premier League and was last year seeking funds to help stricken clubs, explored financing from MSD, among others, but ultimately borrowed £75m through the BoE’s facility.
“We’re not paying 9 per cent”, said one of the EFL’s top executives.
MSD’s push into English football has been spearheaded by Robert Platek, a former fixed-income portfolio manager and the firm’s global head of credit, and managing director John Licciardello. It began with Newcastle United, the team owned by UK retail billionaire Mike Ashley.
When the possibility of a transaction involving Newcastle fell through, MSD was approached about the north-east team’s local rivals Sunderland, a club whose struggles were captured by Netflix documentary Sunderland ‘Til I Die. Although MSD opted against a deal, a group of partners at the firm made a loan to Sunderland in 2019, according to two people familiar with the matter.
The firm, which is run out of offices in New York and Santa Monica, California, is confident that English football’s local appeal and global reach will emerge largely unscathed from the pandemic. Despite the crisis, MSD has not ratcheted up interest rates compared with loans it made before the crisis, according to a person familiar with the matter.
Mel Morris, the owner of Derby County, told the Financial Times that clubs were confronting a dearth of financing options, especially those that did not qualify for the government’s coronavirus emergency loan schemes.
“We took out a loan with MSD while the pandemic was raging,” said Morris, who made some of his fortune from the Candy Crush video game and late last year reached an agreement in principle to sell the club. “In strange times thank heavens people like MSD do exist because they’ve certainly helped us get through a sticky patch.”
MSD can require clubs to put up considerable assets as security for the loans, including property. Derby’s Pride Park stadium is part of the security for the loan, Morris said.
The spectre of having to call in a football club’s loan or seize assets has long been a deterrent for commercial banks considering financing teams, according to Maguire of the University of Liverpool.
“From a reputational perspective commercial banks don’t want to take that on and put themselves in an awkward position of calling in the debt and weaponising the fan base,” said Maguire.
According to people familiar with the matter, MSD has no interest in taking over any of the teams it has lent to, a view echoed by Morris, who recalled being visited by Dell himself in Derby in the early 1990s when one of his business ventures was a customer of the PC maker.
MSD’s most recent wager on English football was sealed on New Year’s Eve, when it helped fund US investment firm ALK Capital’s purchase of Burnley, a fixture of the Premier League for the past five seasons.
Alan Pace, managing partner of ALK and a former chief executive of US Major League Soccer team Real Salt Lake, told the FT last month that the financing for the takeover was “very reasonable and we feel that it’s sustainable” and that MSD was a “brilliant partner”.
If MSD’s burst into English football gathers further pace, the pressure to continue to live up to that billing will grow.
— to www.ft.com