Tackling Cash Flow: Assessing Liquidity of European Football Clubs

This commentary discusses aspects of liquidity assessment specific to the European football clubs, namely cash flows from operation (CFO), net player capital expenditure (surplus cash generated from player sales and purchases), and shareholder loans/cash injections.

Key highlights include the following:

-- Top-tier clubs can generate significant CFO from match day as well as commercial and media rights to meet their liquidity needs.

-- Mid-tier clubs, such as SL Benfica and Villarreal CF, develop young talented players in their player academies and sell them to bigger clubs, providing cash flows for liquidity.

-- As a measure of last resort, owners are incentivized to provide liquidity support when a club has significant franchise value.

"Unlike the English Premier League and LALIGA, DNCG (the French football club regulator) excludes cash inflows from expected player sales in its annual assessment of financial sustainability and liquidity of football clubs. Going by DNCG's approach, point-in-time financial forecast for clubs without consideration for expected player sales could reflect a cash deficit until the conclusion of the sale in the subsequent transfer window", said Gaurav Purohit, Vice President, European Corporate Ratings, Asset Finance. "We believe that cash inflows from player sales can be a significant source of liquidity for European football clubs and incorporate those in liquidity assessment when there is a track record of generating a consistent surplus from buying and selling of players."