Heady recent wins at Liverpool and Arsenal have helped keep Sean Dyche’s Burnley team eight points above the Premier League relegation zone, but at Turf Moor the air is still clearing over a £170m US takeover which has used the club’s own money and loaded it with debt.
The new chairman Alan Pace, a former Wall Street financier leading the US consortium ALK Capital that bought the club, has been a very vocal proponent of energetic plans to build on Dyche’s achievements and improve the club’s historic home. But he has not explained in detail the deal to buy the club from its long-term local owners and directors, led by outgoing chairman Mike Garlick, who owned 49.24% of the shares, and John Banaszkiewicz, who had 28.2%.
Responding to questions from the Guardian, Pace, citing confidentiality, declined to confirm precisely how the multimillions of pounds paid to those outgoing Burnley shareholders have been financed, although ALK maintains that its plans are sustainable and it intends to invest new money in the club. Sources with knowledge of the deal did, however, confirm some essential elements: the initial payments to Garlick, Banaszkiewicz and the other sellers have been financed with a loan from MSD UK Holdings, the investment firm of the US tech magnate Michael Dell, said to be approximately £60m. The loan is charged like a mortgage on Turf Moor and the club itself, which will have to repay it from its own revenues, with interest at a rate ALK has not yet publicly stated.
Initial reports that the club’s own cash reserves have also been used to pay the selling shareholders were accurate, the Guardian understands. Sources with knowledge of the deal put that figure at between £30m-£40m of the club’s money.
The club’s cash was built up handsomely in the Premier League years since promotion in 2016, through careful husbandry by Garlick and his fellow owners. Burnley’s most recently published accounts, for the year to 30 June 2019, stated that it had no borrowings at all, and £42m in the bank. That makes it difficult not to conclude that just to pay for ALK to take over, the club is now approximately £90m worse off, with interest to pay.
The deal is understood to value Burnley at more than £200m – presumably if certain circumstances are met including continued Premier League status – and will be completed with the payment of further instalments. ALK has not confirmed how much of its own capital it has paid for this first instalment in addition to the loan and club cash paid out. Bloomberg reported last month that the total first payment to Garlick, Banaszkiewicz and their fellow sellers was £102m, and if three further instalments are not paid, there is a mechanism by which ALK’s shares in the club go back to the outgoing shareholders.
Pace, who spent considerable time looking for a club ALK could buy, previously coming close to purchasing Sheffield United, argues that Burnley have great potential to grow commercially from shrewd recruitment of players, stadium improvements and wider marketing of the club. He has insisted that their financial structure is sustainable, suggesting it will still be so even if Burnley are relegated to the comparatively straitened circumstances of the Championship.
Dell’s MSD has lent money to other English football clubs during the pandemic, including Southampton and Derby County, also secured by charges, but these loans were not taken out to finance takeovers. Southampton recently published their accounts for the 2019-20 financial year, declaring that their loan from MSD is £78.8m, at an annual interest rate of 9.14%. By comparison, interest on their ordinary bank loan is just 1%. Pace has declined to say whether Burnley’s MSD loan has a similar 9% interest rate, which would cost the club approximately £5.4m interest a year. As the loan was taken out on 31 December, when the takeover was concluded, the interest rate is likely to be disclosed in Burnley’s annual accounts for the current 2020-21 financial year, but they are not due to be published until June 2022.
Pace has expressed some impatience with questions suggesting that this method of financing a takeover, including with the club’s cash, is not normal, and has compared ALK’s purchase to taking out a mortgage on a house. But for many seasoned campaigners, including the Football Supporters’ Association, investors using loans to pay for a takeover, then requiring the club itself to service them, is a “leveraged buyout” with uncomfortable similarities to the Glazer family’s debt-laden takeover of Manchester United in 2005.
The Glazers loaded £525m debts on United, that have since caused more than £1bn to be paid out by the club in interest, fees and refinancing charges, prompting an outcry and years of sustained campaigns by United supporters. Despite that, the Premier League still has no policy to bar the imposition of loans on clubs to pay for takeovers. The takeover process entails an “owners-and-directors test” that bans people with unspent criminal convictions from owning clubs, and requires the league to be satisfied that new owners have the resources to take over and a credible plan to keep the club in business. Asked about the Burnley takeover, and why it still approves such leveraged buyouts, the Premier League declined to comment.
Ashley Brown, head of governance at the FSA, said: “Historically, the FSA and our affiliated supporters’ groups have always opposed the concept of new owners ‘mortgaging’ a club during its takeover. Using club assets as security for loans taken out to purchase that club has the potential to put a financially solid football club into a less secure position.”
The Guardian asked Garlick and Banaszkiewicz, who have stayed on as Burnley directors, about the criticism that could be levelled at them as the major shareholders, that they appear to have made personal fortunes by concluding this deal to sell their shares, for which the club itself has been put into debt.
In response to that and other questions about the financing of the takeover, a spokesperson for the club and its directors said: “ALK Capital reiterates that its financial approach is reasonable and sustainable. Burnley Football Club’s cash reserves remain in a healthy position following the takeover and compare favourably to other Premier League clubs. It is well placed to thrive under its new ownership.
“ALK Capital’s business plan is about securing top-flight football in Burnley for decades to come, but its financial model considers all economic circumstances, both on and off the football pitch. The new owners of Burnley are committed to investing in this club, the team and facilities over the coming years. Their actions will speak louder than any words.”