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April 16, 2003
"Schalke already got the first Easter eggs
Loan concept might be of interest for the entire German football league
By: Dieter Hintermeier, Udo Rettberg
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Frankfurt. The man likes to joke: "Now I can finally buy my favourite player, Roberto Carlos of Real Madrid", says Josef Schnusenberg, financial manager of the Revier [i.e. Ruhr (former mining) region] club Schalke 04. Sufficient financial means for such a sensational acquisition would be there in any case, for the Gelsenkircheners have recently become richer by 85 million Euros through a corporate bond.


The club had to wait for the miraculous money increase since October last year. The investors - major US and British insurance companies and pension funds - did not pay. For the consent by the Land North Rhine Westphalia, requested by the investors, was still missing. The Deutsche Fußball Liga (DFL) also took its time before giving the thumbs up for the bond issue. Once these problems were solved, the first 75 million Euros flowed into the club's cash box last week. The remaining ten million Euros will follow at the end of the month.


This loan concept might have model character for the Bundesliga currently in debt in the amount of approx. 600 million Euros. "I should imagine that this financing method is highly interesting for clubs in times of declining income," says Josef Schnusenberg, whose primary occupation is tax-consultancy. Intensive talks regarding the loan issue are underway with several members of the German Football League and the Deutsche Fußball Liga (DFL).


Cologne Rechtsanwalt Theo Paeffgen, for instance, regards the clubs' TV and sponsoring-proceeds as "well organised sources of income" which would be well suited as security for a long-term financing via a bond issue. Such a concept, Paeffgen continues, would, however, only be realisable, if all league-clubs would assign their TV-licensing rights to potential investors on a long-term basis.


The raising of funds by issuance of a loan in the amount of 85 million Euros as has been done by Schalke is a road that is also open to other clubs in the league. At least that's the belief of Stephen Schechter, Chief Executive of the British investment bank Schechter & Co. Ltd., which specialises in sports financing. "We are currently talking with two further clubs in the first Bundesliga," says Schechter, whose investment bank has placed the Schalke-bond.


The bond enables the Revier-club to redeem approx. 48 million Euros of existing liabilities and to invest approx. ten million Euros for investments in a "Football Experience World", a hotel and a rehabilitation centre. The share capital of the Stadiongesellschaft (stadium company) will be increased in the amount of ca. 16 million Euros. The rest will be used in the normal course of business.


For the loan Schalke 04 has to pay an annual capital service for interest and repayment of about 7.5 million Euros, that is about 50% of the annual estimated ticket revenues which serve as security for the bond. The rating agency Fitch attested the club a medium debtor quality (Triple B). This is a rating at the lower end of the investment sector. It is has also been given to DAX-giants such as METRO, Deutsche Telekom and French car manufacturer Renault.


Due in 2025, the Schalke loan, is conceived as an "Asset Backed Security"(ABS). As security for the service for interest and repayments, the proceeds from ticket sales in the Schalke-Arena have been assigned. "On the basis of ticket revenues it thus becomes possible to make the most reliable and most long-term projection concerning the profit position of football clubs." says Schechter.


He brought his experience as ex-banker with the British bank Lazard to this financing. "In 1999 we entered completely new territory in Europe with our ticket securitisation for the Premier League club Newcastle United in the amount of 55 million British Pound Sterling", says the bond expert. Since then Schechter has settled six further deals as sole placing agent. His firm has recently been granted two further mandates from British football clubs; talks with two further clubs are at an advanced stage."

[Handelsblatt April 16, 2003]

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