Football is attracting investment from private credit firms amid the professionalisation of clubs and its growing appeal as an entertainment business with a captive global fanbase.

Josh Shipley, head of PGIM’s European private credit business, first began to see private debt and institutional investors financing European football clubs about a decade ago, following improvements in governance and financial reporting.

In that time, PGIM has invested approximately $1.5bn (£1.1bn) into stadiums and clubs across the Spanish, Italian, Portuguese and English leagues.

The Covid pandemic accelerated the trend, with football clubs having to borrow from banks offering government support packages, he explained.

“That’s where private credit can differentiate versus the banks,” Shipley said. “The banks can only provide short-term financing, and private credit players can provide medium- to long-term financing.”

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Another attraction is a football club’s “connectivity to the local market”, according to Stuart Pinnington, global head of asset owners at IQ-EQ, citing examples where institutional investors have developed hotels and other properties near a stadium.

“On the institutional side, it’s what investors can do with the surrounding area and the client base and all of those ancillary revenue streams, perhaps more than the actual football club itself,” he said.

There are risks for investors to consider, however, including the impact of relegation and poor performance on revenue streams, with Pinnington noting there is “reputational” risk as well.

“The moment a team gets relegated, their revenues will significantly fall, so that will have an impact on servicing debt and on other operational expenses that a team has,” said Harsh Talikoti, a director in Houlihan Lokey’s financial and valuation advisory business.

“To grow into a global brand, you need to attract new fans,” he added. “That means a team’s performance matters.”

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Risks aside, Talikoti observed that, in the past few years, private money has continued to flow into football due to its ability to engage its fanbase “for longer periods of time than any other [type of] entertainment”, whether through ticket sales, merchandising or media content.

For PGIM’s Shipley, part of the reason private credit’s interest in football continues to grow is the risk-adjusted returns generated versus traditional corporates, with “mid- to single-digit-type return thresholds in this sector, depending on the quality of the club and the type of structure”.

“You can structure a very attractive investment-grade stadium financing that’s going to get returns similar to other investment grade private credit deals,” he said.

“I think it is a trophy asset that has proven it can be a very good economic return for investors.”

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