The new-year sale of Burnley to US investors after 139 years of local Lancashire ownership marked a sign of the times for football as Turf Moor, one of the 12 original Football League grounds, was mortgaged to the American private investment firm MSD Capital.
Three more clubs – Southampton, Derby and Sunderland – had taken out multimillion-pound loans from MSD or MSD’s senior partners, and their stadiums, somewhat newer than Turf Moor, were also mortgaged. Of these four clubs, only Southampton have publicly declared the cost of borrowing from MSD, paying 9.14% interest on a £78.8m loan taken out during the pandemic last June: £7.2m interest a year.
MSD describes itself as a private investment firm, based principally in the Olympic Tower on New York’s 645 Fifth Avenue, which manages the assets of the tech billionaire Michael Dell, founder of Dell Technologies, and his family. The firm’s mission statement sets out: “The purpose of MSD Capital is to make investments that consistently generate superior absolute risk-adjusted returns over the long term.”
The secured loans into football, which MSD’s partners first made to Sunderland in 2019, have been jangling nerves around the game given that ordinary banks, whose interest rates hover not far above zero, can now be wary of lending to clubs. As the pandemic froze the game and its revenues, borrowing to cover the resulting shortfalls became difficult for all but the biggest clubs. A source familiar with MSD told the Guardian the firm began to lend – funded by other investors as well as Dell – at a time when other providers of financing stepped away from football. Inevitably, such borrowing comes with costs, and senior people in football worry that more clubs will take on further high-interest borrowings as the pandemic’s financial impact continues to bite.
Sunderland’s loan, for $12m, was taken on in November 2019 by the owner, Stewart Donald, who was by then actively trying to sell the club. The loan was made by FPP Sunderland LLC, a company registered in Delaware, the favoured state for US corporations; it had a charge over the Stadium of Light and the club’s other assets. FPP’s directors are Glenn Furhman, John Phelan and Robert Platek, respectively the chairman, chief investment officer and a partner in MSD Capital. The source familiar with MSD said the partners themselves made the Sunderland loan, and it was not a loan from MSD itself. Last week, when the 23-year-old Kyril Louis-Dreyfus finally completed his takeover of the club, the loan was paid off.
The loans to Burnley, understood to be about £60m to part-fund the takeover by ALK Capital, went to pay the outgoing local owners, principally Mike Garlick and John Banaskiewicz, and are now charged on to the club to pay: a “leveraged buyout”. That loan and those to Derby and Southampton have been made by MSD UK Holdings Limited, which is registered in Britain and owned by MSD through a company in the tax haven of the Cayman Islands.
Derby and Sunderland did not answer questions from the Guardian about their borrowings in detail, but as they have modern stadiums and infrastructure, it appears the loans were taken to cover ongoing costs, which for all clubs are principally players’ wages. Southampton have made clear they borrowed in anticipation of further losses because of the pandemic.
Derby’s first loan, reported to be £30m, was taken out on 6 August, secured on Pride Park; then in October the club took a further loan, secured on their Moor Farm training ground. Derby’s owner, Mel Morris, who bought Pride Park from the club for £81m in June 2018, has agreed to sell Derby to a company, Derventio Holdings, owned by Sheikh Khaled Bin Zayed Bin Saquer Al Nahyan of the Abu Dhabi ruling family. Reported to have been passed by the EFL in November, the takeover has not completed. Derby have not published their accounts for 2018-19 that were due last June, and were late paying the players in December.
The Derby chief executive, Stephen Pearce, said last month they were confident the takeover would complete; a Derby spokesman told the Guardian that Morris was still funding the club and that the MSD loan was taken out by the company that owns the stadium, not by the club itself.
Southampton’s £78.8m loan was taken out on 29 June, and MSD’s Cayman Islands-owned company has a mortgage on St Mary’s stadium, the training ground at Parks Farm, and the club’s other properties. The Chinese power supply businessman and property developer Gao Jisheng bought the club for a reported £210m in 2017 from Katharina Liebherr, who said at the time that Gao and his daughter Nelly “share our values and ambitions”. But Gao was widely reported to have put the club up for sale last March; the borrowing from MSD followed three months later.
Saints’ accounts for the year to 30 June 2020, covering three and a half months of the Covid-19 shutdown, recorded a £23m drop in turnover, and an overall loss of £76m. Wages, mostly for players, were about the same as the previous, pre-Covid season: £114m. The club said the £78.8m loan from MSD was taken out immediately before the 30 June accounts reporting date, “in order to mitigate against anticipated further losses as a result of the Covid-19 pandemic”. Gao is reported to still be negotiating with potential buyers to sell the club.
Ashley Brown, head of governance at the Football Supporters’ Association, said the MSD loans, secured on clubs’ grounds, were signalling general worries about the game’s financial health.
“Covid-19 has exacerbated the financial pressures at football clubs, but the issue of unsustainability at certain clubs has built up over a number of years and will remain until action is taken,” he said. “Reform is needed to protect our clubs, our heritage and our football assets.”
MSD declined to comment or confirm the interest rates charged at Burnley, Derby and Sunderland, but the source familiar with the firm stressed it sees itself as supporting the clubs through difficult times.
Still, when Pride Park, St Mary’s and the Stadium of Light were built in the Premier League era as landmarks for football’s brighter future, it was never really envisaged they would end up mortgaged to a US lender, via the Cayman Islands tax haven, to help pay the bills.