The announcement of a breakaway league at the top of European football has put one of the world's biggest banks in the spotlight.
JPMorgan Chase (JPM), the American financial Goliath, is behind the financing of the European Super League, the controversial new football competition made up of the continents most storied clubs. Funding for the new competition is said to total between $3.8bn (£2.7bn) and $5bn.
A spokesperson for the bank confirmed it was working on the deal but declined to give any details.
The transaction represents a coup for JPMorgan. It is likely to be the biggest sports financing deal of 2021 and should reap big fees. The Financial Times reported the bank will charge an interest rate of 2% to 3% on the debt.
Tim Bridge, a director at Deloitte, which produces an annual report on the finances of football, said the funding deal was “one of the biggest ever" and “a pretty seismic shift."
The business of sports has been a fast-growing market over the last few decades as TV distribution deals have soared into the billions. The growth of the market has attracted private equity investors, sovereign wealth funds, and bankers eager to lend money.
“It’s most noticeable in the last three or four years," Bridge told Yahoo Finance UK. "The interest we see from private equity firms and we see from banks in terms of looking at sport as an investment opportunity — there’s a lot of people who are banking on, and hoping for, the continued growth of sport in the coming years."
JPMorgan is America's biggest bank, with assets of over $3trn on its balance sheet. Its sprawling business covers everything from retail banking — under its Chase brand — to investment banking and corporate lending.
JPMorgan's sports finance team was created in the late 1990s and grew out of work its private bank was doing with wealthy team owners. Today, the team still sits within JPMorgan's private bank — a division tailored to meet the needs of the extremely wealthy.
One of the biggest clients is Stan Kroenke, the billionaire owner of Arsenal FC, the Los Angeles Rams, and the Denver Nuggets. JPMorgan lent Kroenke $2bn to finance the Rams' Inglewood stadium project, according to a recent profile of JPMorgan's Brian Kantarian in the New York Business Journal.
"Given the capital-intensive nature of sports ownership, it is imperative to understand the financial interplay between the team and individual owner," Kantarian, a member of JPMorgan's sports finance group, is quoted on the bank's website as saying.
The bank promises to help "sports teams and owners... secure the customized financing you need for team acquisition, stadium or arena construction, working capital or any other liquidity need."
JPMorgan's long track record in the sports finance market makes it an attractive partner for the European Super League. So too does the fact that the bank is American.
Unlikely the tiered league system traditionally favoured by European sports — where teams are relegated and promoted each season — the new Super League will have permanent members who cannot be removed from the competition.
WATCH: Juventus and Manchester United shares rally on European Super League deal
The structure is much closer to American sports, where the teams that make up Major League Baseball, the National Basketball Association, and the National Football League are all fixed. JPMorgan will be intimately familiar with this sort of set-up, having worked extensively with American leagues and teams.
Bridge said this structure appealed to club owners because of the certainty over revenues and "investment security."
"If you’re own the owners of Liverpool this season and you don’t qualify for the Champions League, then you take a significant hit on your revenue for the next season whereas playing in this competition will likely give them the security that they crave in order to maintain the value of their investment," he said.
"Founding" clubs of the new European Super League — which also include Barcelona, Liverpool, Arsenal, and Real Madrid — will each acquire an equity stake in a new company that will run the competition.
This top company will borrow billions from JPMorgan secured against future broadcasting rights, the Financial Times reported. Early discussions about broadcasting deals have been held with Amazon (AMZN), Facebook (FB), Disney (DIS), and Comcast's (CMCSA) Sky, the paper said.
“It sounds as though there’s going to be an element of debt financing initially to provide the guarantees to the clubs but ultimately then you would expect a commercial vehicle to be used to sell broadcasting rights, sponsorship rights," Bridge said.
The move for Europe's biggest to break away from national leagues comes amid a COVID cash crunch across football that even the top teams haven't been immune to. The sports' 20 biggest teams saw their combined revenues fall by 12% to €8.2bn last year, according to Deloitte.
Bridge said the European Super League had the potential to increase revenues for top clubs but cautioned that there were risks.
"There’s a long way to go before you get there," he said. "You’ve got to develop a competition that doesn’t exist currently. Yes, it has all the biggest teams in there so it certainly should drive value but there’s no guarantees and if you look at the reaction today of the fan base then, frankly, it’s not particularly positive."
Watch: London football fans react to Super League project