Football finance expert explains how Middlesbrough borrowed money as part of Martin Braithwaite deal
Football finance expert Kieran Maguire has explained how Middlesbrough borrowed money from an Australian investment bank to gain instant cash following the sale of Martin Braithwaite.
Due to the limits Financial Fair Play regulations, modern day transfer fees are rarely paid in lump sums and are instead paid in instalments over a number of years.
This, though, can cause problems for clubs wanting to spend money immediately, with many now using the transfer fee factoring method to receive funds up front.
This is where clubs sell a players with an agreement to receive the fee instalments, but, in order to gain cash up front, they use external companies – typically a bank - to do so.
In exchange the club will pay back a small percentage of around 5-15 per cent to the company, a method Maguire claims has been used by Bournemouth and Leicester following the sales of Tyrone Mings and Harry Maguire respectively.
Documents from Companies House show that both clubs used Australian investment bank Macquarie, while similar documents show Boro have also been clients following the sales of Braithwaite and Marten De Roon in 2017 respectively.
Maguire says that Boro will pay two instalments to Macquarie, one worth €1,800,000, due on July 31 2020, and another worth €1,000,000 due on July 3 2021, after receiving funds up front in the summer.
For this deal, Maguire claims Boro will pay Macquarie around €250,000 in interest, around 11.2 per cent of the instalments’ total value, which is quite a high figure.
“The bank's fees depend on the risk they attach to the buying club in terms of whether they are expected to pay on time or not,” Maguire tells The Mail.
“A big club such as Barcelona might be deemed relatively risk free so the interest fee would be about 4%. A smaller club might be seen as riskier and the fee can go to about 8 per cent.
Despite the comparatively expensive nature of Boro’s dealings with Macquarie, there are a variety of reasons why the club’s accountants and financial advisors would endorse such a deal.
“VAT is due to HMRC on the whole fee once the player is sold,” adds Maguire. “So if Martin Braithwate was sold for, say, £5 million, then the VAT due on this would be £1 million, which would be due the next time Boro paid VAT.
“If the instalments are over a few years then there's a lot of cash going out soon after the transfer takes place.”
Factoring, therefore, allows clubs to acquire funds they need to pay unavoidable expenses from transfer sales. However, it is also useful when minimising debts from day-to-day operations and signing players.
Maguire adds: “By having cash early from the factor company, Boro might be in a stronger position to buy in players and offer the seller cash up front, which might mean they can get the player at a lower price.
“Having cash earlier also allows the club to pay its day-to-day bills rather than use an overdraft, which might come at a higher rate of interest.”