Football finance expert Kieran Maguire believes there is cause for concern over Burnley’s latest club reports given the uncertain financial position at Turf Moor.
The accounts were released last week and showed the extent of the club’s debt following ALK Capital’s leveraged buyout, which completed in December 2020. As part of the deal, ALK has borrowed £65m from MSD Holdings and accounts show a significant chunk of that will have to be repaid should the Clarets be relegated.
The club’s cash reserves fell from £80m to £50m last June and the picture is likely to have changed since then. Burnley has also taken out a £12.5million loan from Australian firm Macquarie Bank for a transfer installment due from Newcastle United for the Chris Wood deal.
CONTINUE READING: Burnley takes £12.5million loan for Wood Newcastle United transfer rate
The striker moved to St James’ Park in January after Newcastle activated a £25million release clause in his contract. The second installment is due in February 2023 and the clarets have chosen to take out a loan to ensure they have the money now rather than waiting 12 months.
This means the transfer installment will be paid to Macquarie Bank instead, and an expected interest rate of around eight per cent will accrue. The process is not uncommon in football, with clubs often believing that the availability of money can offer flexibility in the transfer market, while it is common for transfer fees to be paid in installments, as is the case with the Wood deal.
However, the decision to include the loan linked to the accounts means Maguire is suspicious of the club’s financial situation, which would be exacerbated if the Clarets were relegated given that around 90 per cent of their revenue came from broadcast funds and the wage costs of around £86 million accounts for 76 per cent of their spending. Although the club would benefit from parachute payments should they end up in the Championship, players would also need to be sold.
Speaking to Lancs Live, Maguire said: “The problem for Burnley is that the parachute payments would effectively be used to pay back the loan and that would put pressure on wages and Burnley would have to sell players. A wage bill of £86m in the Premier League is unsustainable in the Championship and you will likely need financial re-hiring at the club and to do that you are selling players so look to Pope, McNeil, possibly Taylor and others at.
“We’ve also seen the club take this loan from Macquarie and under normal circumstances I don’t have a problem with that as it happens fairly regularly. But for a club that had £50m in the bank as recently as last June to suddenly take out payday loans, they say ‘they burned a lot of money very quickly’ and that’s where the uneasiness begins.
“You just borrow money and pay interest on it, usually around eight or nine percent, so you only pay that when you need the money. In theory, if you had £50m in the bank you wouldn’t need it.
“Did they spend a lot of money on wages? That’s not Burnley style. They also haven’t spent a large sum on the transfer market, suggesting the money went elsewhere. So was it used to fund payments to previous owners? And we don’t know what’s the case there, but it’s not overly comfortable.”
Burnley’s accounts would always be heavily indebted given the nature of the takeover and the borrowing involved. Chairman Alan Pace has always expressed his belief in the financial model and the Clarets posted a comparatively small operating loss of just over £5m, the third lowest in the top flight. Pace has not commented publicly on the accounts since they were made public, which have not been posted to the club’s website homepage or social media, and the club declined to comment when approached by him lances live.
ALK have invested in infrastructure around Turf Moor and spent money in the transfer market and they are willing to take more recruiting risks to try to build Burnley as a Premier League club, while Pace has consistently reiterated his desire to see the club healthy keep financial basis. The relegation would further hit finances and Pace has previously said it would mean the departure of some of Burnley’s top talent.
It’s the risk of a leveraged buyout – as Maguire concludes, “I teach leveraged buyouts, and they bring high reward when they work and high risk when they don’t. And it’s not looking good if I were a Burnley fan and they were in the league next season would I think they could keep the core of their squad and move up again like they did in 2016? I don’t think I would be confident.”
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