The heavily indebted second division soccer team Schalke 04 will receive 90 million euros through its sixth bond. He needs more than half of it to redeem old bonds.
Through the successful placement of their new bond, the Royal Blues say they have raised almost twice as much money as was originally planned for additional income of 50 million euros. Financial experts warn about the risks of the comparatively high-interest bonds that football clubs use to lure people.
Expert: High interest rates are a problem for bonds Risk indicator
Ralf Scherflein, financial expert at the North Rhine-Westphalia Consumer Center, recently pointed out in the Süddeutsche Zeitung that when purchasing individual bonds, one must be able to assess “how soundly the company is operating.” To do this, you have to delve deeply into the business figures: “That’s why it’s not for inexperienced investors,” says Scherflein.
Before you subscribe to an individual bond, you must be aware of the risk and be able to assess how soundly the company is operating.
Ralf Scherflein, financial expert at the North Rhine-Westphalia Consumer Center, in the Süddeutsche Zeitung
If Schalke offers a return of 6.5 percent and promises a bonus of 1.5 percent if they return to the Bundesliga, these are returns that no current account can compete with. The returns in online comparison portals for most banks are currently below three percent. However, Scherflein points out that high interest rates on bonds are a “risk indicator”: “High interest rates can indicate that a company cannot get the sums it needs elsewhere or can only get it more expensively,” says the Süddeutsche Zeitung.
Issue volume increased due to high demand
Demand for the sixth Schalke bond was apparently not slowed down by such concerns. On the contrary: the second division football team had originally expected 50 million euros, increased the issue volume, i.e. the total amount of securities issued, to 75 million shortly before the end of the subscription period and ultimately reached the target of 90 million. The sum consists of allocations as part of the public offer as well as institutional private placements amounting to 15 million euros.
The security, which had a term of five years, was heavily oversubscribed. Demand exceeded supply. How much emotion fans put into this investment behavior remains speculative. However, Scherflein generally does not consider these to be good advice when it comes to financial investments: “If you love your football club, you can express it in many ways. But this love should not be the motivation for lending them your savings.” Alexander Langhorst from GSC Research also considers it questionable whether the interest rate of 6.5 percent is appropriate given Schalke’s high debt burden: “In view of the high debt, the interest rate is likely to be rather favorable for the club,” said the analyst in the SZ.
Forced Debt settlement and more scope for advancement
When issuing its sixth bond, the Revierclub pointed out that total liabilities had fallen from around 238 (June 30, 2021) to 150 million euros (December 31, 2024). The net financial liabilities have been reduced from 148 million euros to 113 million euros since December 31, 2020. When Schalke launched its first loan in 2012, the club wanted to be debt-free in ten to twelve years. However, leaving the Bundesliga was not planned. 13 years have now passed and the club’s debts are still high, not least due to two relegations and a corona pandemic.
Because the club’s previous bonds are still running, the second division team cannot completely invest the money it has raised in the “re-promotion” mission. Above all, he wants to replace two previous bonds from 2021 (15.9 million euros) and 2022 (34.1). The originally planned 50 million euros would have been enough for this. The additional income, which was not initially planned, is now intended to force the repayment of further liabilities, and the club management also hopes that, in parallel with financial consolidation, there will be more scope for further sporting development towards the desired return to the Bundesliga.
Our sources:
- Süddeutsche Zeitung: “Are football bonds a good investment?”
- News agencies DPA and SID
- Online comparison portals Verivox and Check24
- Westfälischer Anzeiger: “With the Schalke bond against the debt – risk for investors?”
