23 Capital, a prominent lender to the football and entertainment industries backed by billionaire George Soros, is winding down its $1bn loan book with its co-founders parting ways amid rising uncertainty for lenders to those sectors.
The London-based firm has outsourced the administration of its existing loan book and corporate entities to Intertrust, the Amsterdam-based corporate services provider, and cut staff numbers from around 70 to roughly 15.
Jason Traub, the former Investec banker who co-founded 23 Capital in 2014, is looking to create a new corporate entity under the 23 name, re-establishing a sports lending business with a focus on providing finance to European football clubs.
The decision to concentrate on the world’s most popular sport has led to Mr Traub and co-founder Stephen Duval, who had specialised in lending to the music and entertainment sectors, going their separate ways.
The restructuring of 23 Capital, which has helped to finance some of the biggest transfers in football, including Barcelona’s €120m signing of French World Cup winner Antoine Griezmann and Atletico Madrid’s €126m purchase of Joao Felix, comes as the pandemic has smashed ticket sales and forced clubs to pay rebates to broadcasters.
The pandemic forced 23 to restructure some loans to clubs, said Mr Traub, with the company needing to “realign” a financing facility provided by Credit Suisse that backs loans. “It’s not rocket science,” said Mr Traub. “They [clubs] had their revenue taps turned off four months ago and clubs need a transfer window to manage their liquidity. Not all of them have spare resources — cash — lying around.”
Mr Traub is in discussions with existing 23 Capital shareholders, which include Soros Fund Management’s Quantum Partners, about backing the new entity, as well as with Credit Suisse, the Zurich-based bank which has been providing funding before the restructuring.
Typically, such lenders provide credit facilities to clubs secured against future revenues on top of assets. This allows clubs to draw down funds, offering them crucial liquidity ahead of receiving future revenues.
Such revenues — especially the billions of pounds in broadcast revenues commanded by Premier League clubs — were previously considered to be virtually guaranteed.
But the pandemic forced the Premier League to delay the conclusion of the 2019-20 season, resulting in a £330m rebate to broadcasters, and fans have yet to return to stadiums, hitting revenues. The loss of income raised the possibility that lenders may have extended finance against revenue that would have failed to materialise.
Mr Traub said he remains confident in the “fundamentals” of top leagues and clubs, particularly at the upper echelons of the game, even as they try to recover from the revenue losses owing to the pandemic.
Nevertheless, the pandemic could signal an end to low risk lending on the back of the clubs’ stable cash flows.
More than 40 per cent of Premier League clubs surveyed by auditor BDO last year had raised funds against future broadcast revenues, while a fifth had obtained funding on future transfer income, but it is relatively rare for elite clubs to take advances on ticket revenue.
Against a backdrop of record-low interest rates set by central banks, lending to football clubs offered an opportunity to the lenders to generate a higher yield. However, high-street banks have tended to steer clear because of the risk of stirring anger among fans in the event of a default or debt restructuring.
Technology billionaire Michael Dell’s personal investment vehicle has entered the market, providing secured financing facilities to Southampton and Derby County. Australian lender Macquarie has provided loan facilities to Leicester City, Sheffield United and Wolverhampton Wanderers in the past two months.
Mr Duval and Quantum Partners did not respond to requests for comment.