Sign of the times: why English clubs are turning to high-interest US loans

Sign of the times: why English clubs are turning to high-interest US loans

The new-year sale of Burnley to US investors after 139 years of local Lancashire ownership marked a sign of the times for football as Turf Moor, one of the 12 original Football League grounds, was mortgaged to the American private investment firm MSD Capital.

Three more clubs – Southampton, Derby and Sunderland – had taken out multimillion-pound loans from MSD or MSD’s senior partners, and their stadiums, somewhat newer than Turf Moor, were also mortgaged. Of these four clubs, only Southampton have publicly declared the cost of borrowing from MSD, paying 9.14% interest on a £78.8m loan taken out during the pandemic last June: £7.2m interest a year.

MSD describes itself as a private investment firm, based principally in the Olympic Tower on New York’s 645 Fifth Avenue, which manages the assets of the tech billionaire Michael Dell, founder of Dell Technologies, and his family. The firm’s mission statement sets out: “The purpose of MSD Capital is to make investments that consistently generate superior absolute risk-adjusted returns over the long term.”

The secured loans into football, which MSD’s partners first made to Sunderland in 2019, have been jangling nerves around the game given that ordinary banks, whose interest rates hover not far above zero, can now be wary of lending to clubs. As the pandemic froze the game and its revenues, borrowing to cover the resulting shortfalls became difficult for all but the biggest clubs. A source familiar with MSD told the Guardian the firm began to lend – funded by other investors as well as Dell – at a time when other providers of financing stepped away from football. Inevitably, such borrowing comes with costs, and senior people in football worry that more clubs will take on further high-interest borrowings as the pandemic’s financial impact continues to bite.

Sunderland’s loan, for $12m, was taken on in November 2019 by the owner, Stewart Donald, who was by then actively trying to sell the club. The loan was made by FPP Sunderland LLC, a company registered in Delaware, the favoured state for US corporations; it had a charge over the Stadium of Light and the club’s other assets. FPP’s directors are Glenn Furhman, John Phelan and Robert Platek, respectively the chairman, chief investment officer and a partner in MSD Capital. The source familiar with MSD said the partners themselves made the Sunderland loan, and it was not a loan from MSD itself. Last week, when the 23-year-old Kyril Louis-Dreyfus finally completed his takeover of the club, the loan was paid off.

The loans to Burnley, understood to be about £60m to part-fund the takeover by ALK Capital, went to pay the outgoing local owners, principally Mike Garlick and John Banaskiewicz, and are now charged on to the club to pay: a “leveraged buyout”. That loan and those to Derby and Southampton have been made by MSD UK Holdings Limited, which is registered in Britain and owned by MSD through a company in the tax haven of the Cayman Islands.

Derby and Sunderland did not answer questions from the Guardian about their borrowings in detail, but as they have modern stadiums and infrastructure, it appears the loans were taken to cover ongoing costs, which for all clubs are principally players’ wages. Southampton have made clear they borrowed in anticipation of further losses because of the pandemic. Continue reading