I put this presentation together while I was doing my LL.M at The University of Sydney. I was watching the London 2012 Olympics and I thought this presentation would be appropriate. I hope proves useful!! Securitisation is used for a number of reasons, including risk transfer, balance sheet management, funding diversification and lowering funding costs. Though securitisations were first applied to mortgage loans, later, in the 1980s, its techniques where applied to credit card receivables and auto loans. Today, these asset classes have grown into their own markets in which an extensive and subtle array of financial products has developed. Thus, nowadays, new assets, such as pharmaceutical patent revenues, trademark leases or future tickets receipts, are part of these transactions. Apparently, the key seems to be whether the asset is capable of commoditization: if its cash flows are sufficiently stable and predictable and if the asset class relates to a service provided en masse to the public its chance of survival and promulgation increase. One of the markets which has used securitisations is sports, particularly football clubs in the United Kingdom. Since 1999 English football clubs such as Newcastle, Southampton, Leicester City, Ipswich Town, Leeds United and Arsenal FC have used securitisations as a devise to raise millions of pounds.

1. Football Securitisations
Past, present and future
Ricardo Vasquez-Urra
LL.M Candidate
Sports Law (LAWS 6808)
Sydney University, School of Law
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2. Preliminary issues
Asset classes
 Pharmaceutical patent revenues
 Trademarks leases
 Future ticket receipts
Keys: The asset is capable of commoditization
Cash flow sufficiently stable and predictable
Asset class relates to a service provided en masse to the public
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3. History
1999 stock market interest in football
shares was over:
SUNDERLAND 11.9%
ASTON VILLA 21.8%
NEWCASTLE UNITED 26.8%
Clubs continued to need financing…
What do we do?
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4. History
 Clubs turned to
securitisation as a
form of long term
borrowing, often to
fund construction or
renovation of
stadiums.
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5. Clubs face problems
Transactions relied on:
 Whim of fans
 Fitness of players
 Team’s performance on the field
…this experience left investors much more wary of
football securitisations…
No new football securitisations between 2003 and 2006
July 2006 £260 million securitisation carried out by
Arsenal FC
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6. What is a securitisation
The process of converting cash flows from underlying assets or debts
(receivables) due to the originator (the entity which created the receivables)
into a smooth repayment stream, thus enabling the originator to raise asset-
backed finance through a loan or an issue of debt securities—generically
known as asset-backed securities or ABS—which is limited recourse in nature
to the credit of the receivables rather than that of the originator as a whole,
and with the finance being self-liquidating in nature.
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7. Key issues of the structure
 SPV is insolvency remote from the originator
 Principle of separate personality of a company
Salomon judgment [1897] AC 22
 Serves to lower the credit risk for investors
 Helps to improve the credit rating of the bonds
What are they looking for?...
…that the bonds are rated as ‘investment grade’ securities
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8. How can credit enhancement be achieved?
 Bank letter of credit to back the issue
 Issuing bonds in tranches (junior tranche)
 Originator purchases the junior tranche to
reduce the risk for the senior bondholders
 Over-collateralisation
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9. Securitisation Structures in Football
 Secured loan
 Whole Business Securitisations (WBS)
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10. True sale?
NO…
…unless the general operating cash flows associated with the
football stadium (the club’s main collateral) can be effectively
ring-fenced from the claims of other creditors of the clubs.
According to Standard & Poor’s, it must be clear that, as a
matter of law:
a) the security gives de issuer securitization entity “true control” of the assets;
b) is fully enforceable; and
c) cannot be challenged under general law or insolvency law.
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12. Advantages of this Structure
Most important:
Allows the club to retain control over its business
In addition:
 Prevents over-collateralisation
 Club retains the surplus cash generated by the asset
 Club retains the residual value in the asset itself at the end of the
financing
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13. Whole Business Securitisation
 Essential Difference:
In a whole business structure it is the cash flows from the entire range of
operating revenues generated by a whole business, or a segregated part of a
larger business, that are securitised.
 However can be more costly to establish because of, inter alia:
 Additional legal costs of setting up the appropriate corporate structures to
manage the cash flows
 Additional costs of arranging the necessary credit enhancements and
appropriate covenants to achieve a high credit rating from the credit rating
agencies.
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14. Key elements in this Securitisation Structure
 Loan agreement between the operating companies and the SPV
 Covenants:
 Financial covenants: e.g restricting the level of indebtedness of the group, or the
level of dividends payments by the parent
 Operational covenants: e.g restricting the business operations of Stad.Co
…However, because the focus of the secured loan securitisation is on the
gate receipts, the football club has normally been given more flexibility in the
operation of its general business than would typically be the case with bank
loans. This has given the clubs an opportunity to borrow against other
revenue streams, such as TV revenue or sponsorship deals.
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15. What went wrong?
• Clubs spent too much money
on:
 buying new players
 increasing wages for existing players
• They became reliant on gate
receipts
• They became reliant on
media revenue
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16. Reasons for the Failure:
Economic, Managerial and Structural
 Investor under-estimated
the peculiar risk
associated with football
securitisations, and
 Over-estimated the level
of security they had
against the various risks
that might arise in
football
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17. Renaissance
2006 Arsenal FC securitisation, made via Barclays Capital and Royal
Bank of Scotland, changed the panorama with a deal that effectively
brought whole business securitisation to the sporting arena.
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18. Arsenal’s Securitisation: Main features
 Arsenal’s deal differs in some key respects to those that have struggled before, with various
structural features making the transaction more akin to a whole business securitisation than a
receivables-backed deal
 The Arsenal securitisation is a secured loan structure, based on anticipated ticket revenues over
the next 25 years.
 However, it also resembles a whole business securitisation insofar as fixed and floating charges are
placed over other sources of revenue, such as the income from broadcasting rights and
sponsorship deals to support the loan repayments, if the gate receipts should happen to fall
 Incorporated a public limited company, Arsenal Securities PLC, to issue the notes publicly.
 The transaction offered £210m of Ambac Assurance UK Ltd.-wrapped fixed rate notes with a
weighted average life of 13.5 years and a £50m floating rate portion with an expected life of 7.1
years.
 Arsenal’s aim was to refinance a £260m loan taken out to fund the development of Arsenal’s new
Emirates Stadium in Ashburton Grove (London)
 With the lump sum of £260 million raised by the issue of fixed rate and floating rate notes,
Arsenal paid off its existing debts and replaced them with lower cost securitised debt saving
around £1.2 million on annual interest payments.
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19. Of particular note in the structure
a) the limitation on the club taking on any more debt;
b) the testing of working capital on a three-season,
look-forward basis, to ensure that the club could
pay its players; and
c) measures to prevent asset-stripping.
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20. Crucial Asset
The participation of Ambac Assurance UK Ltd
as a monoline guarantee. Without Ambac
Arsenal would have been rated in the Triple B
area. This was an important difference compared
to former deals.
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21. Transaction Structure
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22. Security Package
 Over all assets of the securitization group, including all accounts, property,
and lease agreements.
 Noteholders have security over substantially all of AFC's assets in the form of
fixed and floating charges.
 The security over substantially all AFC's assets extends to fixed charges over
the club's intellectual property rights. The main benefits, among other things,
are that the secured creditors should be able to prevent AFC from reforming
as a new legal entity and playing at an alternative venue under the "Arsenal"
name.
 The security also provides control over revenue generated by AFC, should
the club play at another stadium, and thus provides a further disincentive to
AFC to do so.
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23. Flow of Funds: Structure
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24. Flow of Funds: Explanation
 The debt is serviced by ticket revenues collected for all the matches AFC plays at the
stadium.
 All the ticket revenues are credited directly to ManCo's receipts account.
 The cash standing to the credit of the ManCo receipts account is applied to:
a) fund AESL debt-service reserve account (DSRA) up to the required DSRA reserve
amount;
b) fund AESL debt-service accrual account (DSAA) up to the debt service required
balance; and
c) fund the AESL operating account up to the higher of £1 million or a 12-month
look-forward test for operating and capital costs.
 The required DSRA reserve amount is defined as a minimum of six-months' peak debt
service. This mandatory reserve, added to the 12-month liquidity facility provided
jointly by Barclays Bank PLC and The Royal Bank of Scotland PLC, covers a
minimum of 18-months' debt service. The debt-service required balance is defined as a
minimum of 150% of debt service due next period.
 The operating account is a reserve put in place to cover the ongoing operating and
capital costs.
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25. Conclusions
 It seems that some investors are clearly prepared to risk their
money in football bonds again.
 The improvement of football finances and a favourable economic
climate for bond investments may increase the chances of further
football securitisations, particularly for the purpose of retiring
expensive debt and replacing it with lower-cost securitised debt.

 Yet it is far from clear that this will lead to a large scale revival of
the technique.
 At present, investors seem to be interested only in the largest clubs
with the most loyal supporters, perhaps because they view these
clubs as less of a credit risk than the smaller Premiership clubs.
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26. Many thanks!
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