Cash goals - invoice finance in the football transfer market

The concept is straightforward - a selling club agrees to assign its right to receive deferred transfer instalments to a funder, who in turn advances the instalments to the selling club more quickly that it would otherwise receive the payments. The funder then collects the instalments as they fall due from the buying club. In a true sale structure, the receivable is derecognised from the selling club's balance sheet, risk transfers, and the buying club pays the financier directly. In many ways it is no different to other off-balance sheet, non-recourse arrangements, however there are some nuances. 

Be up to speed with the regulatory landscape 

FIFA, UEFA, the Premier League and the EFL all continue to evolve their financial regulations, and it is imperative that any funder and their advisors fully understand the impact of these regulations. There are many rules to consider, such as:

• the prohibition on third party ownership of players under both the Premier League and FIFA regulations, meaning that any structure must be carefully designed so that the funder holds only a right to receive a crystallised, completed transfer payment – not an ongoing interest in the player's economic rights or future transfer proceeds
• the possible requirement for underlying finance documents to be approved by the relevant regulatory bodies 
• the prohibition on onward assignment of the receivables by the funder to a third party, which has implications on funder transferability 
• bespoke football creditor insolvency rules

Each transaction should be properly evaluated, to make sure that the relevant regulatory rules are complied with. 

Be prepared to disclose 

Whilst some non-recourse, off-balance sheet arrangements are done on a confidential basis, it is often the case that a funder will require disclosure of the assignment to the underlying debtor. Obtaining an acknowledgement of the assignment from the buying club is strongly preferred, as it helps to confirm:

• the buying club's acceptance of the obligation
• the amount and payment schedule
• the buying club's agreement to pay directly to the funder 
• confirmation of no set-off rights or disputes, or the waiving of such rights if these have been identified as part of initial contract reviews  

The disclosure conversation between the funder and the selling club needs to occur early on, as some selling clubs may not be comfortable with the disclosure requirements. The buying club (here, the debtor) also needs to be brought into the process promptly, to ensure that an acceptable debtor acknowledgement is agreed and delivered to the funder.   

Understand the choice of law 

Under what law is the relevant transfer agreement governed? Is it an international transfer agreement governed by Swiss law (as FIFA's home jurisdiction), or a domestic transfer agreement governed by the laws of the buying club's jurisdiction? Funders will want to ensure that the assignment is valid and enforceable under all relevant laws, and cross-border enforcement risk is a key consideration for transfers involving clubs in jurisdictions with less predictable legal systems. It is therefore key to establish the choice of law early on, to ensure that the appropriate legal advisors are instructed and the correct legal documentation is used to put in place the funding arrangements.

Looking ahead – a market with significant potential 

Transfer spending is greater than ever, with individual transfer fees continuing to accelerate. Even a modest proportion of deferred instalments of these fees represents a substantial and viable market for funders. Invoice finance done well in this space, with proper legal structuring, genuine sector expertise and a clear understanding of the risks, is of great benefit to both clubs and funders. The transfer window may close twice a year, but the need for smart, well-structured finance around it does not.

At Addleshaw Goddard we have significant experience in the sports sector, advising banks, specialist lenders and football clubs on receivables finance in the football sector as well as advising clients across the broader sports finance market. We would be delighted to discuss your next transaction with you, so please do get in touch.