Stadium finance update — more borrowing, more revenue, more Nike
In the latest installment of the dreaded stadium updates, Spurs on Friday night confirmed that the new stadium would not open until 2019. For the first time during the delays, Spurs also provided a financial update on the project.
Frustration over the delays, communication and ticketing simmered on social media, while the in-no-way-coincidental news of Dele Alli’s new contract took attention away from the financial portion of the announcement — not exactly the stuff most fans want to get stuck into on a Friday night anyway.
However, there were some important developments in the statement, which I’ll look at in a bit more detail here now the dust has settled.
COST OF BORROWING
Spurs confirmed what has been rumoured for a while — that borrowing for the stadium has increased from the initial £400m deal. The Mail on Sunday put it at £500m, I’ve cited a figure of £560m — we were both wrong. In fact, the facility from Bank of America Merrill Lynch, Goldman Sachs and HSBC is now £637m. That’s an increase of almost 60 percent — I assume it will all be drawn eventually.
The structure of the facility remains the same — it is a five-year deal, which will then be refinanced. The terms of the initial five-year loan were not disclosed. The previous £400m facility was extremely cheap, at LIBOR + 3–2.5% — at time of writing, that’s a maximum interest rate of 3.68%.
What does this mean for fans? The bigger the loan, the greater the financing costs, which means less money available for things like central midfielders and community programmes.
At £400m, taking 3.68%, that is interest of £14.7m per year. At £637m, it rises to £23.4m. The annoying thing about loans is that you also have to repay them. Let’s say for sake of argument, this eventually ends up being repaid over 25 years. So the £400m facility would be £16m per year, for £637m that is £25.5m. Combined, Spurs are looking initially at annual finance costs of £48.8m (this is a ballpark figure, quite literally, so take with a pinch of salt — the next annual report will give more detail hopefully). By comparison, in the final season at White Hart Lane (and with CL games played at Wembley), Tottenham’s matchday revenue was £45.3m.
Spurs are essentially building a stadium-shaped cash machine — but a lot of champagne and high-end cheese needs to be shifted to make this work.
How is this greater borrowing possible? The answer is increased revenue. In an unexpected move, Spurs released the revenue for the period ending June 2018 — normally, this wouldn’t be released until May next year.
Total revenue jumped to £381m, up from £306m in 2017 and £209m in 2016. Large attendances at Wembley swelled the coffers, allowing Spurs to post increased profits.
Profit before football trading (so player sales and purchases), depreciation, interest, tax and exceptional items was up to £163m, from £111m and £63.3m in 2017 and 2016 respectively. We don’t know how much of that profit was retained — in 2017 it was £41.2m, and in 2016 it was £33m.
However, the club advised that the 2019 accounts won’t be pretty — the statement was effectively a profit warning.
“Trading for the current year will, however, be impacted by the additional costs of Wembley and the delay to the opening of the new stadium.”
With very little fanfare, Spurs also confirmed that the kit deal with Nike had been extended to a 15-year arrangement, running until 2033.
Nike have form here — the company agreed a £900m deal with Chelsea that also spans 15 years. Tottenham’s initial Nike deal was £30m per year over five years, while Chelsea’s works out at £60m per year.
The club did not disclose the value of the “extended agreement”, which makes me concerned that the value isn’t anything to brag about. Kit deals, in the past decade, have soared — as soon as they are signed, another big club comes along and blows it out the water, just like Chelsea did with Spurs.
We simply don’t know the terms or potential get-out clauses, but this one concerns me a bit, based purely on instinct. It’s easy to imagine Spurs, desperately scrabbling for cash with the costs spiraling and no naming rights deal in sight, being attracted by a large up-front payment from Nike, with the pain at the back end of the deal when the agreement falls further and further below market value. Arsenal were forced into a similar deal with Emirates when building their new stadium, albeit for naming rights and shirt sponsorship.
I hope I’m wrong, and this is the kit deal that finally puts Spurs into the upper echelons alongside the likes of Chelsea. But the track record of Spurs in this area and muted nature of the announcement doesn’t encourage this view.
NAMING RIGHTS AND UNCLE JOE
Missing from the financial statement were two things: a specific mention of naming rights, and any suggestion that Tavistock Group (Joe Lewis’s group which ultimately owns Spurs) has put any more money in beyond the previously announced £50m contingency fund.
Naming rights was briefly alluded to:
The residual amount of gross debt to be converted or extinguished will depend on a number of factors including several commercial discussions.
Translation: If we get a naming rights deal or big new shirt sponsorship deal, we might be able to reduce the amount of debt we’re rolling over into a long-term facility in 2022.
In the recent meeting between THST and THFC boards, Daniel Levy also suggested that naming rights talks were ongoing, and the club was refraining from doing a sleeve sponsorship deal until naming rights was done.
When Spurs bid for the Olympic site, there was an explicit agreement that Tavistock Group would cover any shortfall in naming rights revenue up to £150m.
However, there does not appear to be an equivalent agreement over the White Hart Lane redevelopment.
Lewis and Levy are walking a fine line — at £637m in bank finance, hundreds of millions from current funds over the past decade plus future commercial revenues from either Nike or other commercial partners, everything that the club could potentially put into this new stadium has been put in. Fans are all in too — season tickets and hospitality were sold before the electrical wiring checks had been done. Meanwhile, the owners have put in a paltry £50m contingency fund.
The statement made great play of the £1 billion in gross tangible assets that have been built, including not just the stadium but also the training centre and other developments. No other club in world football has done similar — while the rest of the world has zigged and spent crazily on superstars, Spurs have zagged and spent crazily on infrastructure. Thanks to the genius of Mauricio Pochettino, and the footballing Mega Millions win that is finding the best striker in the world in your academy, the strategy has worked so far.
Rumours continually float about Lewis and Levy cashing out — and when they do, they’ll do so in extraordinary fashion. The £1bn in “gross tangible assets” will be factored into the sale price, while the debt incurred to build these will remain with the club.
At this juncture, in my view — the time has come for the ownership to show that they have a little more skin in the game: a significant investment in new playing staff, or a contribution in lieu of naming rights that allows the club to put more resources onto the field. This stadium deserves a team that matches it — we’re so close, and it would undermine the broader goal of the stadium project if extended austerity meant Spurs slipped back into the pack.
It’s a heck of a time to be a Spurs fan, no? Never dull…