Clubs will not use the same wording, but many of them borrow from banks on a regular basis. It is very common in modern football.
Wolves are no different. In 2019, they took out a £50million loan from Australian financial services giant Macquarie Group, secured against future TV earnings.
Then last month they received £23million from the same group for a loan secured against Liverpool’s last two installments to sell Diogo Jota.
Financial jargon aside – Wolves were essentially handed £23m in December and when those future installments arrive from Anfield, due in July 2022 and July 2023, that cash will then be returned to the bank – with interest.
The reason? cash flow. Clubs typically receive huge amounts of money at the start of a season through TV deal advances and season ticket sales, but often have little revenue during a season.
They have to pay wages and various other expenses and this is where bank loans come into play.
“Good cash flow in any business is essential for survival and sustainability,” said football finance expert Kieran Maguire.
“Companies don’t go broke because of no profits, they go broke because they’re not good with cash.
“It’s exactly the same as ours. As individuals, we may be wealthy in the sense that we have a car or a house, but if we don’t have the money to buy this week’s groceries, we will starve.
“Having someone at a football club who can produce cash flow forecasts and budgets is vital to the club’s survival.”
If you or I have taken out a payday loan, interest rates are likely to rise and financial difficulties are looming.
But with traditional banks reluctant to lend to football clubs, these specialist lenders are stepping in with cheaper interest rates.
“I don’t think clubs risk that kind of credit,” Maguire added.
“Getting cash now sets the issue on track and it could give you a cash flow challenge in a year or two, or alternatively Wolves may have sold a few more players or received funding from other sources.
“That’s why I don’t see it as a problem. It’s a matter of cash flow management and cheaper than alternative forms of borrowing because it’s secured against wire transfer funds. Clubs could see this as an advantage.
“There is always interest on this type of loan.
“In the documents we’ve seen, the lender typically charges around 7 to 9.5 percent interest per year.
“It’s not prohibitive and cheaper than a credit card. It’s cheaper than some owners are asking when lending to clubs, but it still matters when we look at the money related to Diogo Jota’s transfer.
“We’re talking tens of millions of pounds so the interest could potentially be in the hundreds of thousands of pounds but that’s not going to stop a club going forward.”
The financial world of football was murky enough before the Covid-19 pandemic kicked in.
There are many examples, past and present, of things going wrong and clubs dying out.
But for now, payday loans in soccer are here to stay and the industry as a whole is likely to thrive.
Maguire said: “The pandemic has certainly not helped clubs.
“The Premier League is financially isolating itself somewhat from the pandemic due to the strength of TV deals, but matchday revenue is still a critical part of a club’s finances. So this hole has to be filled somehow.
“They like to call it a bill discount, but I prefer the phrase ‘glorified payday loan.’
“That kind of lending is pretty common in other industries, and those industries are surviving.”