(Bloomberg) – Planning for the new 100,000-seater stadium this week for the Manchester United PLC surprise announcement was easy. Now it needs to find money.
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Bankers are debating how difficult it is to borrow the £2 billion ($2.6 billion) needed to build a massive venue. Lenders can provide £1 billion to £1.5 billion in debt, according to people familiar with the fundraising market. It would leave a blank that might need to be full of fairness, they said.
However, many recent stadium developments, such as Barcelona’s Spotify Camp Nou, are fully funded by debt, and the club should be able to raise the capital needed by Manchester United’s height. It also has the potential to be funded by a new UK government eager to promote economic growth projects.
Manchester United CEO Omar Bellada said he will consider all the fundraising options. The club has struggled on the pitch in recent years, already building up at least £1 billion in debt, but given that it is considered one of the world’s largest soccer teams, there is little shortage of financial operators that the club is willing to support.
Goldman Sachs Group Inc. and Jpmorgan Chase & Co. people said that they are the two banks that are most likely to join the mix when it comes to knowing the solution. Bank of America Corp. is another candidate as the club’s existing lender and as a candidate as an investor in the new stadium for other teams such as Tottenham Hotspur and Real Madrid.
Manchester United has not yet officially spoke to lenders, and people said the structure of funds could change depending on the credit market, government potential funds, and club performance on the pitch.
“Stadium trading is more attractive to investors than the team itself when it’s conservatively structured,” said Manuel Gutierrez, vice president of corporate ratings at Morningstar DBRS. “The revenue generated by the stadium tends to be more resilient than clubs. Clubs may rely on players’ sales and other fluctuating items.”
The challenge is that the credit market has changed since Manchester United last raised its debt. Despite central banks currently retreating interest rates, borrowing has become more expensive after a surge in inflation in recent years.
The club is also expected to refinance existing debts as part of a transaction to raise funds for the stadium, which will essentially double its interest payments.
It is also unclear where to get fairness if necessary. Ratcliffe has spent about $1.5 billion to get almost a third of Manchester United, then cut work and staff perks as they try to keep costs down. Meanwhile, the Glazer family remains a majority owner.
Manchester United, Goldman Sachs, JPMorgan and Bank of America declined to comment.
Football clubs are increasingly focusing on stadiums, along with some of the softening of revenues from the media rights market and the effects of regulations that link players’ spending to revenue. The redevelopment of the stadium is also shaking the club’s funding, Morningstar DBRS said in a memo earlier this year.
“The structure of a top-class club can achieve investment grade credit ratings,” says Gutierrez and Michael Goldberg of Morningstar DBRS, “condition that the finance entity is a special purpose bankruptcy remote entity (STADCO).”
Creative options
People said another entity like this, protected by ticket sales at the new stadium, could be an option. The expectation is that clubs must raise their debts through a variety of different means, including project finance loans, third-party units and support from local governments. The local mayor is enthusiastic.
In 2015, the club raised $425 million in bonds in 2027, paying 3.79% if the benchmark interest rates were historically low. It will have $225 million in loans from Bank of America and an additional revolving credit facility of around £300 million. Additionally, clubs aimed at players will be subject to an additional £300 million.
The owner of local rival Manchester City will pay 7.4% on loans sold in the US credit market, and lenders are unlikely to offer Manchester United terms to less than 6% to 7%, one of the people said.
On the positive side, revenue from clubs like Atletico Madrid, Tottenham Hotspur and Juventus that have renovated or built stadiums over the past decade has grown 2.3 times faster than the average team in the Big Five Europe league, according to Morningstar. Manchester United’s game day revenue was £137.1 million for the 2023/24 season.
Ratcliffe has already hiked ticket prices, and the club has warned that fans may need to rise further. News like this come at an inappropriate time. The team is currently ranked 14th out of 20 teams at the highest level of British football. This would be the worst finish in 50 years if that level is retained at the end of the May season.
Plans for the new stadium, which will take years to build, are attempts to keep up with modern facilities built by some of Europe’s largest clubs. Ratcliffe spoke about building “Wembley of the North,” a reference to London’s England national team’s home base. Once that’s done, people said refinancing could occur in more appealing terms.
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