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Kroenke's Arsenal will not be saddled with debt

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David Bond | 16:52 UK time, Friday, 6 May 2011

Ever since Stan Kroenke announced his intention to buy Arsenal last month, he has faced questions over exactly how he would fund a deal which values the club at £731m.

Despite a fortune counted in billions rather than millions and repeated pledges not to load the club with debts, fans have been anxious that he might copy the Glazer family at Manchester United by using club money to cover hefty interest payments.

Well, today we at least got an answer of sorts as Kroenke posted a 64-page offer document to Arsenal's shareholders.

On page eight of that document the American sports tycoon reveals his business, Kroenke Sports Enterprises (KSE) has "entered into a finance facility with Deutsche Bank AG, New York branch, to satisfy the certain funds requirement of rule 24.7 of the Takeover Code".

Kroenke's offer for the remaining Arsenal shares reiterates his intent to not load club with debt

Kroenke's offer for the remaining Arsenal shares reiterates his intent to not load club with debt

What this means is that Kroenke HAS borrowed money (or at least arranged a credit facility) to complete the takeover should every Arsenal shareholder take up his offer of £11,750 a share.

To cover that it is estimated that he will need £394m, having already spent around £230m buying the shares of former director Danny Fiszman, who died after a long illness last month, and Lady Nina Bracewell Smith.

Those deals took his shareholding from just under 30% to 63% triggering the full offer for the club.

That even super-rich businessmen like Kroenke need or choose to use credit to fund acquisitions of this sort is no surprise.

And Kroenke repeated his promise today not to use Arsenal's money to cover his own acquisition costs. He said: "The offer is not being funded by way of any debt finance for which the payment of interest on, repayment of, or any security for any liability (contingent or otherwise) will depend on the business of Arsenal."

That will be a huge relief to Arsenal supporters who were also encouraged by a new pledge from Kroenke to meet with them regularly and to engage with them on the key decisions involving the club.

But in a week when Arsenal's season tickets went up by 6.5%, there is certain to be increased scrutiny of how the business is run to ensure Kroenke keeps to his promise not to use club money to pay his interest bill with Deutsche Bank.

Comments

  • Comment number 1.

    If Stan Kroenke doesn't buy the Red Holdings 29% shareholdings then he can't put any debt on the club anyway so in a way I am happy that Usminov has said that he is not selling the club as anything big will have to involve him as well, so he is also a custodian of the club.

  • Comment number 2.

    I really hope that Alisher Usmanov doesn't sell and from what he has said recently I don't think he will. His investment could be a very good thing for the club, but i guess we'll she what his reaction to Kroenke's offer is in the coming days.

  • Comment number 3.

    He's being more subtle than the 'Hicks and Gillette' PR disaster, that's all. Football fans understandably take a simplistic view of this sort of financing. If you load the debt on the club, and they can see the interest payments as an expense, then the average fan gets angry. If he keeps the debt in a holding company, and the football club is run profitably (like, er, Arsenal for example) then in the future dividends can be paid to the owners - in this case the holding company.

    But if 30m leaves the club as a 'dividend' then everyone can claim that the football club is profitable and debt free and the average fan is not as upset as if the debt is in the club's books and the 30m shows as an expense.

    I agree that without Usmanov's shares he can't change the capital structure of the club and load the debt onto Arsenal directly. My point is that, in the long term, as 'Financial Fair Play' makes clubs more profitable by controlling escalating costs, dividends can be paid and he can still pay off the debt with cash from Arsenal.

    But the average bloke down the pub will feel less upset about it.

  • Comment number 4.

    why is a mid American business man buying Arsenal?

  • Comment number 5.

    Are the Glazer takeover and Kroenke takeovers particularly comparable?
    Arsenal do not have the money generating power of United, so giving them anywhere near the debt that Manchester United have at the moment, or had in the past, would be disastrous.
    Arsenal's operating profit: c. £59m
    Manchester United's operating profit: c. £101m
    United make around 75% more operating profit, and before each respective takeover each club was run differently.

    Anyway, the less debt the better, and so Arsenal's owner is on the right path in my eyes.

  • Comment number 6.

    Comment #1 is the reason this blog means nothing. Ask yourself why Kroenke or any sane businessperson would keep paying substantial interests on the loan if he's not getting something back in return. This is an investment, not a lifetime fan's support. Please stop trying to soothe us Arsenal fans with baseless assertions.

  • Comment number 7.

    I heard a very Interesting theory, as I haven't a clue about finance i can only say a 'theory....

    It is as such, while Kroenke hasn't got the same amount of money as an Abramovich or the lads down eastlands way...

    he is doing this takeover in the hope of the football club becoming a more valuable asset once the UEFA Financial Fair Play rules kick in. Once the rules come in the clubs cannot be saddled with huge debt in order to play in European compitition.

    Once the rules are in Play the club becomes a morevaluable asset and can be priced at a higher price, then he will sell to a richer investor...

    as I say I'm no financial whizz but it makes sense to me....

  • Comment number 8.

    @smellysalmon

    He has taken a credit to fund his acquisition- but every major takeover in any business involves that. Nobody is going to make a takeover and have 365 Million Pounds cash to pay for it- I have rarely heard of such a thing, if ever. This is the best scenario that Arsenal could have dreamt of. The key issue really is that the credit facility is not in Arsenal's books- its as you say a credit facility that works as a collateral against ALL his business activities.

    Also he PROMISED- that any of the profits made by Arsenal will be reinvested in the club and not replenished to fund his other business interests. Its a separate entity and will be treated as such- I am sure there are legal documentations that support this. So no, a dividend of 30M will not be used to pay his credit facility.... it will mainly be used for the transfers and wages of Arsenal........

    The Glazer was a hostile take over........ something completely different and not even comparable to Kroenke's.

  • Comment number 9.

    I understand that eventually Kroenke will realise Usminov won't sell his stake or if he does will charge a ridiculous amount for the shares, however Arsenal won't work if 1 person owns it as the philosophy is to be profitable and make decisions as a board, democraticly, not as a dictatorship

  • Comment number 10.

    #8: I agree that it is better for the debt to be in the holding company and not in Arsenal's books. But it is my contention that an American sports investor doesn't pay interest on a 400m credit facility from his other income purely because he loves Arsenal Football Club. He sees this as a good time to buy before 'Financial Fair Play' kicks in and makes clubs more profitable and hence more valuable. As an investor he will have a strategy to ultimately either cash in on his investment (by selling to a higher bidder) or to start receiving dividends.

    My point is that there is still debt to service and he's not paying that interest out of the good of his heart. Someone will only pay a higher price to buy Arsenal from him if they expect to make money from the investment, assuming that the new regulations restrict the ability of the likes of Abramovich to buy a club as an ego trip and throw money at it. I guess time will tell, but in the long run I think his investment will earn a return like any other successful investment. The acquisition debt is just on another level in the corporate structure.

  • Comment number 11.

    Nothing ventured nothing gained. If it helps on the pitch then thats what really matters.
    http://www.youtube.com/watch?v=x4bKDHTbVww

  • Comment number 12.

    If at some future time Kroenke is unable to service his debts then presumably the banks will commandeer the assets (i.e. the clubs owned) of the holding company in the same way that RBS did with Liverpool. It won't much matter that the loans were not made directly to Arsenal.

    As to the operating profits, if Kroenke keeps his 'promises' (and he is not obliged to) then, presumably, the Chancellor of the Exchequer will at least be happy because of the corporation tax that is levied. Might this actually turn out to be a less efficient use of the money than servicing debt with these profits?

  • Comment number 13.

    I wouldn't rely on Usminov retaining his interest. The only reason he invested in the first place was to be in Kroenke's position eventually. But the major shareholders wouldn't sell to him. He'll most likely cash in once he's satisfied Kroenke is playing a long game.

  • Comment number 14.

    I think Stan Kroenke is a long term investor. He sees the English Premier League as a brand that can grow worldwide.I think that American investors know that their own domestic sports will never be a worldwide phenomenon. Some of those investors have been, short-term market raiders like Gillette and the Glazers, financing takeovers with debt that they then transfer to the club. They have run the risk of killing the cash-cow. Liverpool nearly melted down and Man United have had to take a much more conservative approach to the transfer market.
    I think Kroenke is a different type. Arsenal Football Club is a sound investment it's only debts are from the New Stadium. It lives within it's means on the football side. If you look at the finances of the top five EPL clubs, it is the only one that would meet Uefa's criteria tomorrow. When it renews it's sponsorship of the stadium, shirts, etc. it will able to negotiate much better deals. If Soccer's popularity can grow in the US and elsewhere to even approach that in Europe then then the Broadcasting rights to Premier League matches will be worth an absolute fortune.
    As a supporter I have no illusions that Kroenke is our saviour. I believe that fans should have a protected interest in their clubs. The Fanshare scheme is a move towards that, but I think it should be takeover proofed. There should be a legal protection of their shares in the club. Fans representatives should be on the board of all the Premier League clubs by right, not at the whim of potentially fly-by-night investors.

  • Comment number 15.

    Here you go again David, you and all the other financially ignorant and morally driven football quacks.
    "oh goodie stan is moraly cleaner than those dirty Glazers."
    What drivel.
    You are a parasite feeding the ignorant fan nonsense and acting like Mr Clean.
    Well eat your heart out David. T
    he Glazers success will continue and you will find out Stan the man is not at all different, a fact you ought to be thankful for except you let your blind anger blind you the realities if life.
    anger

  • Comment number 16.

    I dont know what all you Arsenal fans are worried about, do you know he owns?

    Kroenke Sports Enterprises, which includes the Denver Nuggets of the NBA, Colorado Rapids of Major League Soccer, Colorado Avalanche of the NHL, Colorado Mammoth of the National Lacrosse League and St. Louis Rams of the NFL. He is also the majority shareholder of English football club Arsenal.

    Im sure he knows what hes doing.

  • Comment number 17.

    I am a Man City fan & have found a lot of the postings, on various sites, ignorant at best!! Why does any successful, wealthy businessman with any sense invest in a football club? To be popular? No! Because he's a fan? Highly unlikely!
    The answer, my friends, is in the question. They are 'investing'! Therefore, over time, they are gambling on the fact that their initial investment will realise a healthy profit. Sheikh Mansour at my club is no different. He has bought City, with the intention of redeveloping a huge chunk of East Manchester, which will ultimately return huge profits for decades to come! Having a very successful football team at the heart of this development is pivotal, hence the purchase of City. All the research was conducted, prior to the purchase of City, so his ADUG group knew that they had a 3 year timescale to get City into the higher echelons of English, and ultimately, European football before the UEFA financial rulings came into force. Hence the accelerated heavy spending over the past 2 years. They were well aware that this strategy would incur significant 'waste', as not every player purchase would be a success, plus they were well aware that they would have to initially pay inflated transfer fees & wages, as they didn't have Champions' League football to offer these players. Ultimately, City will be successful, leading to rapidly increased income generation, increased attendances & so the upward cycle continues.
    Stan Kroenke has the same sort of idea with Arsenal. The Arsenal board made a sensible decision in building Ashburton Grove, as they would never have been able to compete had they stayed at Highbury. Now they are in a position where they fill a 60,000 seater stadium on a regular basis & could possibly take a short-term hit & increase that gradually over the years, as Utd have with Old Trafford. That should help to ensure the longevity of Arsenal at English & European football's top table!
    For the average fan, this world of corporate big business is light years away from our 'ordinary' lives. The only thing I will say is that if your owner has sound business acumen, & Kroenke's track record would imply that he has, then the future for Arsenal football club will be one that you will be pleased with. Even when you consider the Glazer's at Utd, who aren't in the same league financially as City's owner or Kroenke, as much as they have had their fair share of negative press, they haven't exactly destroyed the club yet, have they?
    Gillet & Hicks at Liverpool were 'chancers', who gambled on buying a club for a cheap price & then making a fast buck. That's why they were a disaster waiting to happen.
    If your owner has the financial clout to acquire the club & develop it, & is looking at a long-term investment, then it has a much better chance of being a successful partnership! I look forward to the battles ahead!!!!!!!!!!!!!!!!!

  • Comment number 18.

    Still, milking is Kroenke's intention.

    The view of football clubs being businesses where investors aim to make profit is one view. The other view is that football, for wealthy investors, is the means for free advertising of their business activities, marketing, etc. - a whole list is there.

    Clubs where the chairman has profit in mind are destined to mediocrity.

  • Comment number 19.

    In the long term he'll want some payback. That is natural. But as long as he doesn't screw up the hard work of the board collectively whoch he was involved then i have no issues with kroenke. I'm glad the arsenal fans with shares have decided to keep theirs though. It's important i think to have some fan invlovement in the share proportions. Also let us not forget that he owns various other clubs/franchises and many of them are in non-popular sports in the USA, from a financial standpoint anyway.

  • Comment number 20.

    It's a key thing for Arsenal fans never to lose their shares in the team.
    Let's hope Kroenke's reign is a productive one for Arsenal.

  • Comment number 21.

    Is it not debt that fuels business? Money sat in the bank is the sign of a badly run business, or perhaps spending it would remove the built in excuse that Wenger uses.

  • Comment number 22.

    i think that gillette and hicks should buy arsenal! lol.

    but seriously, i think Kroenke is an actual business man, with a good head on his shoulders and an idea that the club could make a lot of money, which in turn gives him a lot more money.

    I would say it is completely different to most other takeover bids recently in terms of him not having to use the club to take all his debt, unlike the glazers and the idiots that destroyed liverpool. I think it is closer to the takeover of Aston Villa. Which seems to me a well run business (and club). I say good luck to him but i tihkn the fans are just very wary due to the examples raised above.

  • Comment number 23.

    Why is Stan Kroenke interested in Arsenal? Its the money. Why can we not ban foreign ownership, like they have in the Bundesliga? Our football system is broke. Foreign owners are attracted to the PL as they know there are plenty of fans to fleece who will keep turning up to games come whay may and paying for their sky sports packages as well. its a travesty, what do the fans get out of this arrangement? Their love and affection is used against them.

    I hope Alan Sugar is right - the PL clubs are out of control and need to sort their finances out asap. A part of me wants the PL clubs to go bankrupt.

  • Comment number 24.

    He's an American businessman.

    1. Why do you think he cares about a British club playing a sport he knows nothing about if it wasn't for monetary gain?
    2. Would he risk going bankrupt for said club?
    3. What is the only way to keep away from financial oblivion if things go sour?

    Answer for #3: Put all the risk on what you are purchasing.

    Anyone who thinks he isn't going to saddle Arsenal with massive debt is in denial. It will be twisted in such a way with various holding companies that it may not look like there is any debt but the risk will always be arsenal's, not Kroenke's.

  • Comment number 25.

    as someone else on here said. no business man will take out credit to buy something, pay the interest on it and not expect nothing back. lets not fool ourselves. he's not in this because he remembers Steve Boulds through ball and Tony Adams left foot finish. he's in this to make money. buy low, sell high.
    nothing explains this takeover better than this:

    http://www.youtube.com/watch?v=Nm-wEO7ElL0

  • Comment number 26.

    The facility is only there if the funds are required for a full takeover. Kroenke already knows that isn't going to happen. He is required to have the appropriate funds in place in case his offer is accepted. Until that facility is drawn he doesn't pay interest, just a fee for having the facility in place.

  • Comment number 27.

    Its a naive blog. Hes invested and knows where his returns are coming from. Us fans might not grasp the minutae of the deals structure, but its obvious hes not investing not to take money from the Club unless hes had his brain removed!

  • Comment number 28.

    Yes, Stan will want a return on his money. This doesn't necessarily make him a bloodsucker though. What you also have to take into account is the added value which he brings in the form of his sports business pedigree and potential for revenue creation in the US. As an Arsenal fan I'm quite happy with his involvement and contribution to the club. During the last four years he managed to win over Danny Fiszman and Peter Hill Wood who famously said the club didn't want his 'sort' so he must have satisfied them of his commitment.

 

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