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How ‘payday loans’ help Wolves manage money

The idea of taking a payday loan is often a worrying concept, so why is it any different for football clubs?

Clubs will not use the same phrasing, but many of them take out loans from banks regularly. It is very common in modern football.

Wolves are no different. In 2019 they took out a £50million loan secured against future television revenue with Australian financial services giant Macquarie Group.

Last month they then received £23million from the same group on a loan secured against the final two instalments due from Liverpool for the sale of Diogo Jota.

Financial jargon aside – Wolves were essentially handed £23million in December and when those future instalments arrive from Anfield, due in July 2022 and July 2023, that cash will then be repaid to the bank – with interest.

The reason? Cashflow. Clubs tend to receive huge amounts of cash at the start of a season, with TV deal advances and season ticket sales, but often have little income throughout a season.

They need to pay wages and various other costs, and this is where bank loans come into play.

“Good cashflow in any business is essential for survival and sustainability,” football finance expert Kieran Maguire said.

“Businesses don’t go bust because of a lack of profit, they go bust because they don’t manage cash well.

“It’s exactly the same as us. As individuals we might be asset rich, in the sense that we have a car or house, but if we don’t have the cash to buy this week’s groceries then we’re going to starve.

“Having someone at a football club who can do cashflow forecasting and budgeting is essential for the survival of the club.”

If you or I took out a payday loan, interest is likely to build up and financial difficulty is on the horizon.

But with traditional banks reluctant to loan to football clubs, these specialist lenders step in with cheaper interest rates.

“I don’t think there’s any danger in clubs taking out these type of loans,” Maguire added.

“If you receive cash now it kicks the problem down the road and it could give you a cashflow challenge in a year or two, or alternatively Wolves might have sold another couple of players or get finance from other sources.

“So I don’t see it as a problem. It’s a cashflow management issue and is cheaper than alternative forms of borrowing because it is secured against transfer money. Clubs might see it as an advantage.

“There is always interest charged on these type of loans.

“In the documents that we have seen, normally the lender is charging in the region of seven to nine-and-a-half per cent interest per year.

“It’s not prohibitive and is cheaper than a credit card. It’s cheaper than some owners charge in lending to clubs, but it’s still significant if we’re looking at the money in respect to Diogo Jota’s transfer.

“We’re talking about tens of millions of pounds, so the interest on that is potentially hundreds of thousands of pounds, but it won’t stop a club from carrying on.”

The financial world of football was murky enough before the Covid-19 pandemic came into play.

There are plenty of examples, past and present, of it going wrong and clubs ceasing to exist.

But for now payday loans in football will remain and the industry is likely to thrive as a whole.

Maguire said: “The pandemic has certainly not helped clubs.

“The Premier League does a degree of insulation financially from the pandemic due to the strength of the TV deals, but match day income is still a critical part of a club’s finances. Therefore that hole has to be made up somehow.

“They like to call it invoice discounting, but I prefer the phrase ‘glorified payday loan’.

“These types of loans are fairly common in other industries and those industries survive.”

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