Finance options we shouldn’t take

by .

Happy Saturday people. There are some rumours doing the rounds on the internet that Raul is exploring player financing options via a special fund that was started off the back of a super-agent transfer back in the day. The fund in question is called 23 Capital. They help clients in music, entertainment, and sport gain access to liquidity. This is from their website.

Our capital and solutions capabilities encompass straightforward advances through to more complex, off balance sheet structures. We offer artists, entertainers and professional sports teams the freedom to create, inspire and compete supported by finance that is flexible and most importantly fair.

If you are out of a job right now and struggling to make ends meet, you might find this sort of copy on a payday loans website. The operation looks opaque and it’s quite complicated to explain, but here’s The Guardian making sense of it through the lens of a deal for Silva.

A few days after confirmation of Silva’s move XXIII Capital began trading. Companies House showed a registration of charge document was filed on 11 September 2014 for an unspecified amount. The company was listed as being controlled by the Candlewood Investment Group, based in New York but registered in the tax haven of the Cayman Islands.

So what does all this have to do with Bernardo Silva? His move to Monaco was made permanent in January 2015 for €15.75m but it would be another year before the story became clearer. In January 2016 the Football Leaks website published three documents which revealed details of the transactions between Benfica and Monaco.

The first two concerned the agreement for Silva’s loan and permanent move and the third – dated 10 July 2015 – shows the mandate for the first instalment of the transfer fee: €5.25m. What seemed unusual, however, was that while Monaco were listed as the liable party it was XXIII Capital who were due to receive the funds rather than Benfica.

Other documents later explained that XXIII Capital had purchased the credit from the Portuguese club, a method employed for numerous other transfers in that period, including that of the midfielder Giannelli Imbula’s move to Porto from Marseille in 2015.

Benfica described their actions as “a normal financial operation”, although there was no mention of XXIII Capital in their annual financial report in 2015. That states the profit from the sale of Silva was €12.855m, meaning almost €3m appears to have gone elsewhere.

Given the lack of official documentation it is difficult to know exactly how that money has been distributed. It is likely that at least 10% of the total fee would have been allocated to Gestifute for its brokering services; records state Mendes’ company received €3.995m from Benfica that final year, which also included the transfer of João Cancelo to Valencia for €15m. The question remains how much was paid to XXIII Capital in exchange for the acquisition of the credit, with potentially €1.3m not accounted for from the €15.75m total loaned in three instalments – an amount that corresponds to 9%

The firm, run by a Brit (Spurs fan) and an Aussie, has gained ‘credibility’ for brokering the deals for Griezmann and João Félix. The reason Barcelona used them is because they couldn’t gain credit through normal channels… but again, read this and tell me it doesn’t sound like they’re solving a problem that is there for a reason.

“All clubs will absolutely have the same need and challenge around the fact that their intangible assets, the players, suck up all their liquidity,”

“If you think around the principles of a transfer, you have the selling club who want the money up front, and why not, and you have a buying club who for a whole range of reasons want to defer the payment. We often get involved and can say: ‘We can solve both your needs, help one have their money up front and help the other defer over five years.’ All you need to negotiate is the cost of the finance.”

This looks very much like short-termism that has been allowed to flourish (in normal times) because football clubs are not run like proper businesses. This from football finance expert Kieran Maguire, of the University of Liverpool, sums up why the game is so ripe for this sort of service.

“They have realised that the transfer market and the club transaction market is unregulated, often unprofessional and contains people who see football as an opportunity for an easy profit. If anyone can then come in and run a professional service and effectively provide a one-stop shop, then there is a gap in the market,”

“A boutique operation, and that is what they are, don’t have to go through so many layers of approval, don’t have to go through governance rules you may see at JP Morgan, where a bank of that nature is very risk concerned and will have a compliance department, which to a certain extent is the tail wagging the dog in corporate lending.”

I’ve just finished a book called Den of Thieves that tracks the career of Michael Milken and his rise to prominence in the 80s as the ‘King of Junk Bonds.’ To be clear, I’m not drawing comparisons to the man and the illegal acts he committed, but what does draw parallels how junk bonds were also marketed with a ‘this is good for everyone’ vibe. Selling club gets the cash, the buying club gets long payment terms, agents get fees, the finance firm gets fees… everyone is a winner, right?

We are about to find out.

The junk bond market in the eighties gave small companies with limited assets access to the credit they needed to buy huge companies in hostile takeovers. Everyone looked like a winner. Then it all came crashing down, because in the end, someone had to pay the bill when firms were crushed by the weight of interest payments they eventually defaulted on.

Giving football clubs access to the capital they can’t get through normal channels could prove to be problematic. Barca’s £100m purchase of Griezmann; that they couldn’t afford, now looks an unmitigated disaster because the exponential growth of the transfer market has come crashing down along with major revenues streams. In response, most normal clubs have reduced wages by 20%. Barca savaged them by 75% to stave off problems (so did Atletico). The question is, how bad are their financial issues? What we know for sure is they’ll never recoup that Griezmann money if they need it, the transfer market has gone to shit for at least 3 years, but Barca are still left footing a bill for the player and the fees they had to go outside the system to get.

In normal times, no problem, but now? There could be trouble. The reason the Spanish banks wouldn’t lend is because Barca borrowed £500m for their new stadium. To put their financial exposure into perspective, they turned over almost a billion euro (€990 million) in revenue last year and only made £17m in profit. That’s a 1.7% profit margin in the GOOD times. Razor-thin margins like that mean you have little room for bumps in the road, well, that bump in the road has arrived and it’s a meteor landing on the M25 during rush hour.

There aren’t many people that are serious about risk assessment when it comes to finances. We’re optimistic by nature and short-term needs usually override rational decision making, which is why we make dumb decisions. So when someone offers you ‘fair terms’ you sign them. Did all the poor suckers that took WONGA loans worry about terms in the fine print? No. They needed the money and likely didn’t think about the worst case. What they didn’t realise is that no one gives out loans to customers with shit credit ratings without fail-safes and fat profits for the risk. The terms are always weighted to make money, otherwise, there would be no point.

Football is the wild west. It’s a naive industry that has been savaged by vultures. Super agents taking disgraceful fees, rampant back-channel dealing, transfer fee manipulation, and middlemen sucking the life out of the game. It’s all there. It’s barely disguised. Fans just let the party roll on, as long as there are superstars on the pitch. There will be a day of reckoning though. It’s out of control and I suspect we’ll start to see some of that happen over the next year or so as over-leveraged clubs start to make big financial decisions on who does and does not get paid.

Back to my point. I have no idea if Raul is interested in utilizing this sort of fund for transfers. A random twitter account saying they know stuff they don’t is an annual thing Arsenal fans foolishly engage with. What I will say is that it wouldn’t shock me that it’s being suggested. We hired Unai Emery because an agent recommended him when all data and anecdotal evidence pointed to him being a bad pick, we have football leadership that seems susceptible to cajoling by super agents. Borrowing next seasons transfer budget to make the Champions League was a gamble we took last season that will likely fail, but at least it’s money we knew we had. Doubling down on that gamble, but with an outside financier would be reckless, especially in a climate where the natural appreciation of player value has stopped.

These deals and financing offerings only work for the people making monster fees off the back of them. Junk bonds had a day of reckoning, people lost jobs, healthy companies disappeared… but you know who didn’t suffer? The people making the fees off the back of them. Beware the financiers with the ‘too good to be true’ products. There is always a catch and it rarely benefits the consumer (fan).

Arsenal might not have money. We might be struggling with cashflow. It might be a tough couple of years. What we don’t need is a ‘fair’ loan from a company registered in the Cayman Islands. We have a billionaire that runs Arsenal. He has $10b worth of wealth and he could access liquidity in a heartbeat. He’s already come out of this covid nightmare £300m richer. If we need to borrow money at fair rates, let’s go through the normal channels.

See you in the comments.

373 Responses to “Finance options we shouldn’t take”

Jump to comment form ↓

  1. Andy1886

    Terra, fair play to her, originally my assumption was that you were suggesting that someone on minimum wage could buy a property off their own bat.

    Unfortunately the cost of housing is totally out of whack relative to wages. Insufficient government investment as well as selling off housing stocks hasn’t helped but buy to let has been a bane too.

  2. Graham62

    I see that Ayia Napa(Cyprus) will be off limits to all the Brits post pandemic. Clampdown on drinking in public, drugs and improper behaviour will mean 95% of Brits will not head out there, unless that is they change their ways and genuinely care and respect the environment they are visiting.

    Not a bad thing then.

    New laws and regulations have been established to make the resort a more tranquil and traditional destination.

    No doubt flights and accommodation will be more relevant to a more sophisticated and higher class of clientele. Folk then that respect another countries culture and way of life.

    I’m sure the residents of Ayia Napa along with many more Brit based destinations around Europe, will not be too upset.

    Sorry guys, just putting the world to rights today.

  3. Marc

    Graham

    As long as I don’t have the head of the Hotel Association in Ayia Napa on the TV bitching that they’re all going bust next summer because no ones going there.

  4. Valentin

    More than just Aya Napa, because COVID is still not under control here the entire Isle of Cyprus will be off limit to British resident and Russian resident. Both nationalities used to be their main clients.
    That allows them to reframe the island as a cool family oriented destination rather than the European drunkard, loud mouth party central.
    I am sure that with COVID-19 and the need to have social distancing until the arrival of a vaccine, lots of cheap, packed in resort will either go bust or try to attract a different clientele.

  5. Aussie Gooner

    When Kim Kardashian’s net worth is greater than that of Eric Clapton, Keith Richards, Mick Jagger, Roger Waters etc etc we know the world is in trouble!

    Add Kim’s wealth to that of her husband and you are looking at a combined total of $3.6B!

    There are 19 countries on the earth with less National Net Wealth!

  6. Marc

    Valentin

    There’s an article on the Sky News website about the Oxford vaccine – they’re worried about the testing because new cases of the virus are dropping off so quickly they don’t think they’re going to have enough people to be able to run the trials.

    I don’t know about anyone else but I’m finding life is getting more surreal by the day!

  7. Aussie Gooner

    Marc

    No one I know can work out exactly what she does – but whatever it is she must do it well!!!!

  8. Aussie Gooner

    Zlatan has just snapped his Achillies – I guess he is now off the list as Abu’s replacement!

  9. Dissenter

    Aussie
    What’s the situation down under with this Chine vs Australia spiff
    It seems China are bent on using Australia as an example to make others fall in line.
    Self interest may very well be the order of the day in the post-Covid world.

  10. Sid

    Entertainment is the new religion.
    social media icons, film stars etc are the new priests. They have caused intellectual and cultural stagnation.

    The reformation is coming disruption triggering war on them and persecutions. Their end is near.
    Along with billionares the new Tyrants

    You heard it here 1st!

  11. Aussie Gooner

    The Bosman ruling shifted the goal posts as far as the player/club relationship is concerned. Financially players thereafter became company liabilities instead of assets in the traditional sense. Their ability to produce income for the club became exponential and was no longer linear as at the end of a player’s contract he no longer had a value to be sold or traded. Consequently the super agent was born to exploit this dichotomy. Arsenal has not been very good at adjusting to this ‘new’ reality. Club loyalty became a thing of the past and personal wellbeing took precedence. Unfortunately many footballers are young and naive at the beginning of their journey and are ripe for exploitation, not this time by the club but by agents promising the world.

    Arsenal are in their current predicament partly because of the failure of the club to manage finances and employees. They have been seen as an easy touch by the agents for years and stories are rife in the industry how vulnerable Arsenal are. We have witnessed with our own eyes the mistakes relating to contracts, senior management appointments, investments, residuals, income generation and asset management.

    It is time for the club to turn a corner and get their affairs in order. The Abu situation is a case in point. He should have been offered a contract extension last year. Abu will not now sign a new contract with his agent whispering in his ear about the riches he can secure by leaving at the end of his contract as a free agent. We will also encounter similar problems with our youngsters like Saka who will have their heads turned by persuasive agents. Players already on extortionate wages like Ozil, Mustafi, Xahka etc will milk the club dry and move on at the end of their contracts. Ozil worked out a couple of years ago when he signed his new contract that he didn’t have to put in any effort to receive his huge salary.

  12. Aussie Gooner

    Dissenter

    As you can imagine Australia is very dependent on trade with China. They buy our Iron Ore, Gas and farm produce – we buy their crap electronics, consumer goods and dodgy building materials! 31% of our exports go to China. The dependence on the economy of one country is frightening. Add to that the covert purchasing of Australian agricultural land and businesses by Chinese state owned entities relate to a typical case of ‘having all ones eggs in one basket’.

    China knows that it has got Australia over a barrel and our questioning of the origins of COVID-19 will not help matters.

    Here is a very good article on the situation

    https://thediplomat.com/2020/05/can-australia-flatten-the-curve-of-its-economic-dependence-on-china/

  13. CG

    Aussie Goon

    “”””They have been seen as an easy touch by the agents for years and stories are rife in the industry how vulnerable Arsenal are”””

    That’s because we have owners who reside in LA- and have allowed total and utter pillocks to run the club.

    How we miss people like Dein…
    Dein who was a vital cog in the FA too , would have not allowed Arsenals chronic demise.
    How he ain’t back at the club in some capacity- just shows how disinterested KSE are.

    (Great post Aussie.)
    9/10

  14. Dissenter

    Aussie
    I thought the Australian policy of jumping in like that was very naive considering the dependence of trade with China. Australian self interest ought to come first more so when you logouts have dealt with Covid-19 quite well.
    It ought to be Trump against China, everyone else should steer clear.
    Trump was praising Xi in March and us in changing tune to distract and to fire up his base.
    Boris Johnson is too smart to jump in like that as are most world leaders.

  15. Aussie Gooner

    Un

    The dumbing down of society begins in school. Sorry to tell you but your kids will be influenced by such zombie television/media when they are in the right demographic for such exploitation.

    As Sid said social media tycoons are the new priests not the industrialist of yester years! Look at the worlds richest lists and see the rise of social media giants like Google, Facebook and tech companies like Microsoft, Oracle and online business models like Amazon!

    What exactly does a ‘social influencer’ do?

  16. Jamie

    Cummings trying his best to explain why it was reasonable for him to repeatedly break his own lock-down rules. Awkward.

    “I, I, I, I think I acted reasonably. “

  17. Marc

    Dissenter

    Surely if there is a reckoning for China in all of this it would be best if all of the countries concerned actually took a joint stand? The US, EU, UK, Japan, Korea, Canada, Australia etc etc together would just be far too powerful for China to ignore.

  18. Jamie

    Marc –

    That is so simplistic. Imagine everyone in the country exercised their own discretion as to what trips were reasonable to make during lock-down.

    Short answer and according to government rules, zero.

  19. Dissenter

    Marc
    True dat but China’s treatment of Australia will make other countries think twice about joining in.The last thing the world needs now is a trade war atop the economic debacle we have already.
    More so, Trump hasn’t been that much if a global leaders and really shows no fealty to alliances other than his ego..

  20. Marc

    Dissenter

    Agree re starting a trade war – really the last thing the world needs at the moment however I do think western countries need to look at weening themselves off of “cheap” goods out of China.

  21. Marc

    Jamie

    Come on there’s a world of difference – I can understand someone stealing food to feed a staving child – I don’t understand someone committing physical violence against another person.

  22. Marc

    Jamie

    If the parent of a murdered child kid the person responsible could you understand their actions whilst still think it was wrong?

  23. Aussie Gooner

    I turned 60 yesterday so I won’t be around to see the full long term affects of climate change, globaisation and mass migration from war torn regions. However my children will.

    In the short term my pension will be taking further hits, my investments will plumet and I will have to work on to a much stage than I had planned. And in my business that is not a good idea!

    Why is Boris defending Cummings? Is his judgment that seriously impaired or is his grip on the nation sufficient to see him over the line?

    Bring back football before we all go mad!

  24. Marc

    Aussie

    What Cummings did was wrong but I do find the press’s attitude more than a little hypocritical – a hoard of them ambushed him outside of his home the other day – at least a dozen or so all of them tripping over each other and ignoring the social distancing rules.

    If Cummings is wrong then what about the journalists?

  25. Terraloon

    Marc

    Yet again the supposed top journalists haven’t added to the debate.

    The questions they are asking Cummings are pathetic and whilst I think he is a dick they really haven’t been able to nail him.

  26. UTarse

    Rare for me to post anything political but I’ll make an exception for Cummings. He’s a lying manipulative cunt.

  27. Terraloon

    Un

    He clearly doesn’t give a toot about how he comes over to them.

    Theses are the top journalists in the country and they haven’t a clue how to unpick his stance.

    They are desperate to call him a liar but they don’t have the ammunition or indeed proof that what he is saying is incorrect.

  28. Marc

    Un

    I with you 100% this is politically motivated and the media smelling blood.

    If he’d had stayed up North rather than returning to work when well enough they’d be accusing him of abandoning the Country in an hour of need.

  29. jwl

    Parents protect their children, regardless of the law, I can totally understand why Cummings would want family to look after his autistic child if him and wife got sick. Parents who follow law, but endanger their child health, are idiots.

    Cummings is lightning rod because he was head of Leave campaign and many remainers are still butt hurt about losing referendum, he has to be punished forever more.

  30. Marc

    Terraloon

    I don’t have kids but I do have a niece and 2 nephews and there isn’t anything in the world that could stop me from doing whatever it took to protect them.

    I can understand him traveling to his fathers farm – the test drive etc was bloody stupid.

  31. Guns of SF

    Anyone from PSG that we can take?
    Auba might end up there… back home with more $$$
    Draxler in a part swap?

    I have serious doubts of a front line of Saka Pepe and Gaby- all are very young and with out a proper midfield, it will be a mutiny by the fans

    I am warming up to Coutinho… use him as a 10. CAM

    A major upgrade to Nozil

    A loan is fine.
    Sell what we can, grab Partey…

    those 2 right there would be huge.
    Grab some talent from south america as well….
    will not cost as much….
    Mix it up

  32. Marc

    Un

    “The school system is predicated on the factory system”

    My nephew is ten and has been off school for weeks – the school has set up a website with homework etc but the school hasn’t been in touch since it closed.

    Why isn’t his teacher having a weekly conversation with him (and all the other kids) for 30 – 40 minutes checking on his homework, how are things etc – the teachers are all on full pay sitting at home in the sunshine and the fucking unions are arguing about reopening schools – usually it’s the end of the world if a kid misses a single day because of a family holiday.

  33. rollen

    Right about schools guys. Its its design to create dumb sheep easy to manipulate. Parents needs to do education now. Same with media now. No more truth. Just created narrative/reality.

  34. Marc

    rollen

    I actually had a Head of Year tell me and a friend when I was n my last year at school (long time ago now!) that it wasn’t a schools job to educate kids but to prepare them for a life of boring work.

    I’m actually quite proud I managed to exhibit some self control and not get expelled for calling him a cunt – maybe I should have!

  35. Dissenter

    Has it not occurred to many here that players may refuse to come to Arsenal .
    We aren’t in the Europa league never mind the CL] and have an untested manager in charge.

    All this talk of Draxler coming to retire at Arsenal is laughable. There’s a reason he’s comfortable sitting in the bench at Arsenal.

  36. Bob N16

    It’s understandable that someone would support Cummings if they supported his politics, so was astounded to see how the Daily Mail laid into him.

    Always think it’s interesting how people slag off the media when the media doesn’t support their viewpoint. This country has predominantly a right wing press, so it’s ironic when right wingers have a go. Always feels like that when they’re not going their own way they throw their toys out of their pram; just like Trump who attacks any media that doesn’t show full support for him and dares to criticise.

    Strong press leads to a strong democracy.

    Cummings did not set a good example, regardless of whether his decision making was understandable. If Johnson wasn’t so dependent on his help, he would have got rid of him in a moment. The fact that he didn’t illustrates how important Cummings is and how needy Johnson is.

  37. jwl

    Public schools were created by the german grand parents of nazis – schools taught kids to obey authority and get people used to idea of being in airless rooms for many hours per day so they obedient when stuck at work in factory six days a week.

  38. Dissenter

    Some of your Covid-19 restrictions in the U.K. are outright draconian.
    To think some here in the states are storming state houses armed to the teeth over milder lock-downs!

    This Cummings fella drove all the way to Co Durham in his car which is self-containing any possible infection. He wasn’t doing hop scotch all the way and sneezing at every mile he passed, was he?

    What passes as controversy in the U.K.. can be really funny, looking in from this side os the Atlantic.
    I was that doctor that threatened to resign if Cummings wasn’t fired. Lol.

  39. Bob N16

    jwl, ‘public schools were created by the german grand parents of nazis’

    Does that deserve to be unpicked?

  40. Marc

    Bob

    The press aren’t behind my view – it’s the actions of the unions and teachers.

    I should point out that I very rarely read a newspaper – got fed up with all of them to be honest.

  41. Marc

    Dissenter

    It’s a politically motivated attack – Cummings was the driving force behind BREXIT and the media at large are very pro EU.

    That and just basic laziness.

  42. Bob N16

    Dissenter, the thing is Cummings is seen as the unelected puppet master behind the ‘throne’. Very clever but lacking any suggestion of empathy towards others. So when he was ‘caught’ not following the ‘stay home’ repeated ad nauseam message which he was most likely responsible for, it was and is understandable why he was ‘attacked’ with relish!

    If he showed any genuine remorse, most people would have accepted his explanation.

  43. Terraloon

    Bob

    Interestingly and strangely I don’t think you will find that Cummins is actually a declared Tory. I think his politics are more Liberal.

    Cummins doesn’t seem to respect the press and from what it seems he won’t give private briefings and far from favourites he is detached .

    Politically motivated or not the TV journalists who were there today clearly don’t share Conservative beliefs and this is their attempt to get rid of someone who they have seen as a bit of a renegade and won’t play their games.

    You only have to look at the way he dresses he clearly doesn’t conform and clearly doesn’t give a stuff and love him or hate him he clearly has skills.

  44. Bob N16

    That’s one view Marc!
    Politically motivated attack! ‘The media at large very pro EU’, seriously?

    You barely read a newspaper, check out The Express, The Times, The Telegraph, The Sun, The Mail, the majority of the press – very pro EU??? up against The Independent(Central), Guardian(Left of centre)Mirror (Left of centre).

    Sky – pro EU

    BBC- accused of being dominated by Liberal intelligentsia – in contrast to the right wing predominant gets accuse of being to the left when I would argue that is only because of the right wing press not being able to control it!

    Social media – that’s where Cummings and his crew really get stuck in and manipulate incredibly successfully.

    But Marc, not sure I’m going to change your viewpoint so I’ll stop now!

    Back to Arsenal chat.

  45. Marc

    Bob

    The Times is incredibly pro EU.

    As for implying that Cummings is something new – what the fuck was Alistair Campbell?

    Part of the inner circle who fabricated evidence, lied to Parliament and took us into an illegal war.

  46. Jamie

    Marc –

    “Jamie I never said I condone stealing.”

    I didn’t say you did. Maybe you’re confusing me with someone else.

  47. Bob N16

    The English school system may have it’s faults but if you compare it to the Spanish system for example, it’s far superior. In Spain they still believe in predominantly rote learning and their system produces fodder for the large civil work force. The teachers are allowed to set their own equivalent of A levels (Bachillerato) and then mark them themselves!

    Not saying our system is perfect but it’s not too, too bad!

  48. Dissenter

    Thanks lads for the inside gist about the nothing burger Cummings controversy

    So it’s just a comeuppance for Brexit