Explained: West Ham’s accounts and the huge £120m loan facility with MSD Capital
West Ham United have become the fifth English club to take a loan from MSD Capital with the loan facility worth £120 million.
The club have blamed the COVID-19 pandemic for losses of £65 million for the year to June 2020, and this latest cash influx from MSD is by far the biggest loan yet.
But what does this really mean?
Well, The Athletic has answered that question and many more to make sense of West Ham’s accounts.
What are the standout details in the accounts?
On February 25, West Ham secured a long-term five-year loan from MSD Holdings Ltd, the British arm of MSD Capital, a US-based private equity firm set up to look after the fortune of Dell Computers founder Michael Dell. This loan facility is worth £120 million and West Ham will use it to pay off the short-term loan they have taken from Rights & Media Funding Ltd (£55 million) and an overdraft extension with Barclays (£20 million). Both of those must be repaid by July this year.
This makes West Ham the fifth English club MSD has loaned to and it’s by far the biggest. The others are Burnley (to fund ALK Capital’s purchase), Derby County, Southampton and Sunderland. Southampton are a good comparison to West Ham as they received £79 million at 9.14 per cent. The Athletic understands that this interest rate can increase to 12 per cent if various fees and penalty clauses are included.
What this means for West Ham is that, as of this summer, they will have borrowed at least £75 million from MSD at nine per cent interest, annual costs of roughly £6.75 million, to pay the debts from Rights & Media and Barclays.
But we know the club will use more of the MSD loan — they lost £65 million last season and nearly £30 million during the 2017-18 season when they had fans in the ground and finished 10th, so losses will be heavy this season, too.
The accounts also revealed the tax investigation HMRC started in April 2017 regarding image rights is still ongoing. This was in last year’s accounts and the club have to mention it but they are not alone and the accounts reveal the club have put no money aside to cover any taxes that might come as a result of the investigation.
Are the substantial losses only down to COVID-19?
Put simply, yes.
The results show a net loss for the financial year of £38.1 million, with overall turnover falling to £139.5 million. The club has blamed the COVID-19 pandemic for these losses, with broadcast revenue dropping by £44.9 million. Match income was also severely impacted, falling by £4.6 million to £22.5 million.
Due to the steep revenue fall, West Ham dropped from 18th to 26th in the Deloitte Money League, which ranks clubs globally by revenue. It is their lowest rank since 2013.
How does this compare to other clubs?
Only four other Premier League clubs in Everton (£140 million), Southampton (£76 million), Tottenham Hotspur (£68 million) and Brighton & Hove Albion (£67 million) have posted larger losses than West Ham’s £65 million.
Are those at the club concerned by the latest figures?
In a statement, Sullivan said: “The 2019-20 season was a unique and unprecedented campaign across the professional game. There can be no denying the financial challenges that everyone in the game has faced as a result of the pandemic.
“However, our absolute priority has always been the well-being of everyone within the West Ham United family and those most in need in our local community, and we can all be very proud of how the club has steered its way through the past 12 months.”
Any good news?
Outside of these accounts, in June 2020, there was the rights issue that brought an additional £30 million into the club. Rights issues involve creating a load of new shares and “selling” them to the existing shareholders on a pro-rata basis. It’s how shareholders inject money into the club without it being a loan.
The accounts also showed that the decision to sack Manuel Pellegrini in December 2019 cost the club around £3.5 million. But it has proved to be a good decision, with West Ham in strong contention for a top-four finish under David Moyes. European competition next season of some form looks possible, perhaps even likely.
In February, The Athletic revealed the squad will share around £10 million in bonuses if they qualify for the Champions League. Qualifying for Europe would take the club to another level financially. English clubs earn about £50 million from UEFA just for taking part in the group stages of the Champions League and participation in the Europa League or new Europa Conference League would be worth a minimum of £10 million. But playing in Europe also means more match days and greater commercial revenue, as sponsors want their names to be showcased on the biggest stage.
West Ham only earned £34 million from commercial income, which is the eighth highest in England, behind London rivals Woolwich (£142 million), Tottenham (£162 million) and Chelsea (£170 million).
What else did we learn?
The women’s team received a sponsorship fee of £40,000 from Ann Summers, which is a British and Irish retailer that specialises in lingerie and sex toys. Jacqueline Gold, the chief executive of the company, is the daughter of David Gold and the sponsorship agreement is to help support the club’s goal for the growth of the women’s team.
The squad, Moyes, vice-chairman Karren Brady and chief financial officer Andy Mollett all agreed wage deferrals. Co-owners Sullivan and Gold deferred interest payments owed to themselves. The wage bill also fell from £135.8 million to £130.8 million.
Brady’s salary fell by £100,000 to £1 million for the year in question and it may fall even more in the next set of accounts.
This means West Ham are effectively borrowing money from their fans at an interest rate of 10 per cent, although that interest will eventually flow back to the club as those credits can only be spent on tickets or merchandise.
Does West Ham’s approach to transfer windows change in light of these results?
Their policy on recruitment and investment will stay the same. Any money that comes into the club through player sales can be used to strengthen the squad. When Sebastien Haller was sold to Ajax for £20.5 million, West Ham made a formal bid of €25 million (£22.5 million) plus €5 million (£4.5 million) in add-ons for Sevilla striker Youssef En-Nesyri, although the offer was turned down.
The club have also benefited from Grady Diangana’s £18 million switch to West Bromwich Albion. In fact, West Ham have improved at selling players, banking nearly £25 million on player sales last year, double the amount they made a year earlier.
In September, they also decided to defer the €26 million (£22 million) they owed Eintracht Frankfurt for Haller until September 2022. But they incurred a loss when they sold the striker to Ajax in January, having agreed a total fee of £45 million to buy him in 2019.
What happens next?
It is hard to say at this stage but providing West Ham have a strong end to the season, there is a possibility they may even offset the impact of a season behind closed doors thanks to the extra merit payments they will earn from the Premier League’s broadcast contracts for finishing higher up the table, as each place is worth about £3 million.
And then there is the prospect of UEFA money in the following year’s accounts. Furthermore, supporters will return, perhaps even for the last home game this season. And the club could be playing European football next season, with all the good things that flow from that.
As mentioned, West Ham have made money on player-trading in recent seasons and with the likes of Felipe Anderson, Andriy Yarmolenko and Manuel Lanzini seemingly surplus to requirements, the club’s accountants will be hoping they can be moved on for a return this summer.
Whether those names will fetch the prices they once did is another matter, though, as COVID-19 has already depressed the last two European transfer windows, particularly the one in January. With clubs across Europe all making losses at the moment, nobody is expecting transfer activity or values to rebound for at least a year.
