The announcement of a separatist league at the top of European football has put one of the world’s largest banks in the spotlight.
JPMorgan Chase (JPM), US financier Goliath, is behind the funding for the European Super League, the controversial new football competition made up of the continent’s most famous clubs. Funding for the new competition is expected to total between $ 3.8 billion (£ 2.7 billion) and $ 5 billion.
A bank spokesperson confirmed it was working on the deal, but declined to give details.
The transaction represents a coup for JPMorgan. This is possibly the biggest sports fundraiser of 2021 and is expected to come at some big costs. The Financial Times reported that the bank will charge an interest rate of 2% to 3% on the debt.
Tim Bridge, director of Deloitte, which produces an annual report on football’s finances, said the funding deal was “one of the biggest ever” and “quite a seismic change.”
The sports sector has been a rapidly growing market over the past decades, as television distribution contracts have soared into the billions. The growth of the market has attracted private equity investors, sovereign wealth funds and bankers eager to lend money.
“It’s more visible over the past three or four years,” Bridge told Yahoo Finance UK. “The interest that we see from private equity firms and that we see from banks in terms of seeing sport as an investment opportunity – there are a lot of people who are banking on, and hoping for, the continued growth of the sport. in the years to come. “
JPMorgan is America’s largest bank, with over $ 3 billion in assets on its balance sheet. Its sprawling business spans everything from retail banking – under its Chase brand – to investment banking and corporate lending.
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JPMorgan’s sports finance team was formed in the late 1990s and grew out of the work his private bank did with wealthy team owners. Today, the team remains within JPMorgan Private Banking – a division designed to meet the needs of the wealthy.
One of the biggest clients is Stan Kroenke, the billionaire owner of Arsenal FC, the Los Angeles Rams and the Denver Nuggets. JPMorgan loaned Kroenke $ 2 billion to fund the Rams’ Inglewood Stadium project, according to a recent profile by Brian Kantarian of JPMorgan in the New York Business Journal.
“Given the capital-intensive nature of sports ownership, it is imperative to understand the financial interaction between the team and the individual owner,” said Kantarian, a member of JPMorgan’s sports finance group, quoted on the site. Web of the bank.
The bank promises to help “sports teams and owners … get the personalized financing you need for team building, stadium or arena construction, working capital or any other need. of liquidity ”.
JPMorgan’s long experience in the sports finance market makes it an attractive partner for the European Super League. The same goes for the fact that the bank is American.
Unlikely, the tiered league system traditionally favored by European sports – where teams are relegated and promoted each season – the new Super League will have permanent members who cannot be removed from competition.
WATCH: Juventus and Manchester United share rally over European Super League deal
The structure is much closer to American sports, where the teams that make up Major League Baseball, National Basketball Association, and National Football League are all fixed. JPMorgan will be intimately familiar with this type of setup, having worked extensively with American leagues and teams.
Bridge said the structure attracts club owners because of the certainty of income and “investment security”.
“If you own the Liverpool owners this season and don’t qualify for the Champions League then you are taking a significant hit on your earnings for next season as playing in this competition will likely give them the security they crave. . in order to maintain the value of their investment, ”he said.
Shares of Manchester United (MANU) and Juventus (JUVE.MI) – two of the founding members of the Super League – surged on Monday after the news broke.
The “founding” clubs of the new European Super League – which also includes Barcelona, Liverpool, Arsenal and Real Madrid – will each acquire a stake in a new company that will run the competition.
The leading company will borrow billions from JPMorgan secured against future broadcast rights, the Financial Times reported. The first discussions on the broadcast agreements took place with Amazon (AMZN), Facebook (FB), Disney (DIS) and Comcast’s (CMCSA) Sky, according to the newspaper.
“It looks like there will be an element of debt financing up front to provide the guarantees to the clubs, but ultimately you would expect a commercial vehicle to be used to sell the broadcast rights, the rights sponsorship, ”Bridge said.
The decision of Europe’s biggest to part ways with domestic leagues comes amid a COVID financial crisis in football from which even the best teams have not been immune. The top 20 sports teams saw their combined revenues drop 12% to € 8.2 billion last year, according to Deloitte.
Bridge said the European Super League has the potential to increase the income of top clubs, but warned there were risks.
“There’s a long way to go before we get there,” he says. “You have to develop a competition that doesn’t currently exist. Yes, it has all the bigger teams so that should definitely generate value, but there is no guarantee and if you look at the reaction today from the fan base, so, frankly, it’s not particularly positive. “
Watch: London football fans react to Super League plan
