For fans, the most visible indication of these challenges will be a reduction in the number and level of summer transfers.
As a result of these cash flow challenges many football teams, with perhaps the exception of some of the biggest European clubs, will be looking to either borrow money to cover the short-term funding gap, until the fans return, or find ways to reduce costs.
Prior to the global financial crisis, many clubs would have resorted to borrowing against large fixed assets, such as stadiums, to manage cash flow challenges. However, using long-term lending to fund short-term spending carries risks for lenders – and requires the clubs to ensure they have set aside sufficient funds to repay when the loan matures. The result was several defaults after 2008, and the end of this type of lending for all but the largest clubs that fund real estate developments combined with their stadium.
Fortunately, since then, the market has matured considerably – both with the introduction of Financial Fair Play and the increasing professionalism of clubs’ financial departments. Football club’s finance departments are now staffed with highly trained accountants, providing greater comfort for lenders and encouraging more UK based debt providers back into the market.
The main mechanism for lending is now receivable financing, which use future guaranteed income to provide immediate working capital for clubs, smoothing the club’s cash flow throughout the year – which can be helpful during periods of low or reduced income as we are seeing currently.
Even under normal circumstances cash flow management is an issue for many clubs because of the timing of centralised payments from leagues. In the case of the Premier league, payments from media revenues are made in July and December - with third payment including prize or merit money in May. However, spikes in clubs’ expenditure, including player bonuses and contracts, typically fall in other points in the year – meaning a negative cash balance for clubs between December and March ahead of the May payments.
Right now, that pressure is exacerbated by the absence of game day revenues. The simple fact is that there are only so many costs that can be cut – so third-party financing could become a more popular option for clubs looking to navigate the coming months.
While receivables financing is designed to provide working capital, banks and Private Equity firms can also offer a potential source of larger funds for strategic or development finance. Whatever the need, institutions lend according to the security offered by the club and their own appetite for risk. Because they are contracted to receive a minimum sum each year from the Premier League - and therefore guaranteed income - England’s top tier clubs still have a range of finance options available to them to help them navigate the challenges ahead.