Tottenham Hotspur fans do not need to be concerned over the club’s decision to take out a £175 million loan from the government.
A report on The Athletic website explained that Spurs anticipate a £200 million loss due to the impacts of coronavirus. The club will bear the costs of ultimately not asking the government to pay for furloughing staff, and player wages still need to be paid.
The continued expenses have to be paid for - and that is despite losses from reduced ticket sale income, potentially tens of millions lost in decreased broadcast revenue, and the cancellation of events that were due to be held at their new stadium.
Tottenham had a net debt (total debt, less cash on the books) position of around £600 million going into the intra-season covid-19 break, though that was being well managed. The club had financed the sum that was all due by 2022 into several tranches that had maturities between 15 and 30 years. Breaking up that debt means it can be paid off as and when is most convenient, and it could be regularly refinanced or paid off, if interest rates or other circumstances are advantageous.
Spurs would have hoped that they could have used the increased ticket revenue to pay down the debt manageably at the same time as improving their profits to serve the team and its owner, Joe Lewis.
The Athletic explains that Spurs have been able to access the government loan because they have investment grade credit rating, meaning they can access borrowing at low rates. Interest rates are at generational lows, and the chances of them rising during the coronavirus pandemic are low. Indeed, they may slip into negative rates in the US and UK should low growth persist, something that might allow Spurs and other reputable companies to essentially be paid to borrow money.
The loan currently holds an interest rate of 0.5% and has to be paid back within a year. There are two important considerations. One is that the club has access to corporate debt facilities, meaning that it can go out to banks and other lenders to borrow from them if the government does enforce repayment. Most likely is that the UK government will look for alternatives to make companies to pay back large sums in one go and will maintain their facility to allow the debt to be rolled over. They could extend their own scheme indefinitely, particularly if they continue to have access to borrowing at their own rock-bottom rates.
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There are reasons to think that Spurs will be able to manage this additional borrowing without too much strife. While they are likely to miss out on the Champions League next season, the Premier League broadcast revenue will be dependable going into next season. Commercial and sponsorship income is generally agreed on a medium-term basis, too, so unless they have several deals to renegotiate over the coming months, they should not see a major drop-off in this section of their income, despite the inevitable recession caused by the recent pandemic.
Similarly, while the rush back to reopen the economy looks likely to be foolish, it does appear that attending open-air events such as football games will not prove to be a great worry over future outbreaks of the disease, particularly when the culture of wearing masks becomes more widespread. If that is the case, then Spurs may even be able to sell off a percentage of future ticket sales in return for an upfront payment to help them manage their finances.
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Daniel Levy has always been a conservative investor on the pitch, and Jose Mourinho took over Spurs knowing that he would not be given significant funds to rebuild his side. Spurs have a relatively young squad that might have grown stale, but remains a potential foundation for another excellent side.
Given the limitations placed upon his rivals by coronavirus, it may be that the Portuguese manager and the club find themselves at a relative advantage. While they might not spend money on players beyond what they can raise through sales, that may not represent a dramatic change in their strategy. Other clubs who do not have access to reliable and cheap borrowing may struggle not just over the next year, but over several seasons. If Spurs can use this money just to stay still, those around them could fall back. Despite potentially concerning headlines, Spurs are stronger for taking on further debt.