Financial expert reports on Sheffield United ‘payday loan equivalent’ deal with ‘vampire bank’
What at first glance sounds like some pretty boring legal jargon was actually rather intriguing, as the 38-page document detailed United’s arrangement with the London branch of the Macquarie Group; the Australian bank that provides the Blades with an undisclosed, secure cash amount on their Premier League parachute payments.
This is certainly nothing new – The Star first reported that United were doing business with Macquarie and had a loan facility in place in 2019 – but with the bank known as ‘Vampire Kangaroo’ due to his ruthless focus on profits, some Blades fans have little worried about the club’s financial future.
So we spoke with football finance expert Kieran Maguire, lecturer at the University of Liverpool and author of the book The Price of Football, to try to understand everything …
What are we dealing with here?
It is actually a reversal or renewal of United’s relationship with Macquarie Bank. Parachute payments come in lump sums over a period of time, just like Premier League money.
And all that says is Sheffield United are awaiting their next Premier League payout and could settle for a little cash now. So Macquarie said, âWe’re going to give you the money now. “
It’s a bit more sophisticated but it’s broadly equivalent to a payday loan. If you have cash flow problem today and you have the money guaranteed in a month or a few months, then the banks will lend to you on the basis that when you get that money guaranteed it gets transferred to the bank.
It’s a cash management problem more than anything, and it’s very, very common in football. Even some so-called âblue chipâ clubs are involved.
Manchester United have taken out an overdraft facility with some banks for Â£ 200million, Spurs have taken out over Â£ 630million in loans. How can you and I afford a house if we want to buy one? We get a mortgage.
Debt in itself is therefore not a problem. If there is a cheaper alternative, which could be for the owner to invest the money, then that is fine, but it may not be feasible for a number of reasons. This could be the structure of the club, the owner can have his wealth tied to assets.
So is this arrangement common?
It is certainly quite common. Southampton, my club Brighton took out a similar loan from Barclays, West Hamâ¦ a lot of clubs are involved. And remember, we are emerging from the biggest health crisis the world has faced in a century.
These arrangements revolved around pre-Covid, but they have accelerated since the coronavirus in terms of clubs going to these third parties. Southampton, Derby, Sunderland have borrowedâ¦ if I went through the full list, it would be pretty big.
Why would a club go down this path?
It’s more a cash flow issue than anything else. Clubs are constantly developing budgets and identifying when they need money for specific issues.
Even though United had had a quiet transfer window, they had existing creditors of Â£ 95million in the accounts until July 2020. So some should have been paid and others would be linked to pending transfers, payments to players.
They signed a few players in the summer of 2020 and maybe paid half the fees then, and the rest over the next two years. We the fans forget this because we tend to assume that if you sign a player for Â£ 23million you pay it all in one go.
But it is the ongoing commitments that need to be factored in and create cash flow needs in these clubs, potentially requiring contacting an institution such as Macquarie.
How much will it cost United?
The fees for clubs are interest charges. There was an article online recently which suggested that clubs pay an average of six to eight percent, which is not obscene.
It’s not cheap, but it’s not obscene. Macquarie may have loaned United some of the payments they will receive over the next several years. After all, you don’t get a 100% bank mortgage on your house. So it could be Â£ 10million, Â£ 20million, Â£ 80million. We don’t know how much is involved.
United were the most profitable club in the Premier League in 2019/20. They had a fantastic season after leaving the league so the players would have had increases in their contracts but not be on the amounts that many other players from other clubs would have been on.
Last season there were more raises and signings from players expecting Premier League salaries and the profits may have evaporated.
So, is there a reason Blades fans are worried?
You have to look at a club’s short term and long term financial needs, and I think those are short term cash flow issues. It is up to the management team to make sure that the debts can be paid.
Open invoices must be paid as they fall due, as is the case for all businesses and for all of us when it comes to our personal finances. Going forward, the club still have assets that they can sell and I think some of the players who are still at the club were expected to be able to leave this summer. But they could leave in 12 months.
But there is no need to panic at first glance. I borrowed money when I had to in the past, and I’m still here.