Economy

Football: With fan bonds you are threatened with a total loss

Schalke players in the 4-0 defeat against Borussia Dortmund on February 20th, 2021.

Schalke players in the 4-0 defeat against Borussia Dortmund on February 20th, 2021.

LEON KUEGELER / POOL / AFP via Getty Images

In addition to TV money, viewer income is another important source of income for football clubs. However, the Corona measures have ensured that professional football has the privilege of continuing to play – and thus receiving the TV money. However, no audience is allowed in the stadiums that can hold tens of thousands of spectators.

This loss of income is difficult to compensate for clubs – the weaker the financial situation was before Corona, the more the clubs are now affected. Werder Bremen reported a record loss of 23.7 million euros in the 2019/2020 season. Sales fell from 157.1 million euros in the previous season to 116.7 million euros. Equity was still 7.6 million euros in the 2018/2019 season, now there is a minus of almost 16 million euros.

The association officially announces its balance sheet at the general meeting, which has not yet taken place due to the corona pandemic. The numbers ensure that Werder Bremen has to keep all options open. In the first step, Werder Bremen had already taken out a loan of 20 million euros for the first time in history, which is secured by a guarantee from the state of Bremen.

Werder Bremen: Fan bond “the very last option”

Managing director Klaus Filbry also recently confirmed to the deichstube.de portal that the issue of bonds would also be an alternative, both to medium-sized companies and to fans. But: A fan bond in particular is “the very last option that we actually do not want to take and that we very likely will not,” said Filbry.

Other clubs have already taken this step in the past. There are a few examples that show how risky these investments can be for investors or fans. At the moment, FC Schalke 04 is getting a lot of sporting and financial worries in the summer. The club is currently lagging behind in the last place in the Bundesliga and has to repay a fan bond in July, which has been running since 2016.

To explain: Bonds are subject to a predetermined, fixed interest rate. For example, FC Schalke 04 offers 4.25 percent interest on the aforementioned bond. Means: If an investor has bought this bond, he receives 4.25 percent of his invested money every year until July of this year and gets his money back at the end of the term.

Consumer advocate: “Associations are not benefactors”

Such a guaranteed interest rate is comparatively high in the current environment, as savings books or overnight money accounts no longer offer any return at all. But you have to ask yourself why clubs pay these comparatively high interest rates for investors. “You have to be aware that associations are not benefactors,” says Thomas Beutler from the Saarland consumer center in an interview with NewsABC.net. “If there was a cheaper way for them to get money, they would choose this one. Anyone who issues a fan bond would have to pay higher interest at the bank or would no longer get a loan from an institute, ”he sums up.

It is therefore clear: Fan bonds are primarily issued by clubs that are economically troubled. Schalke 04 is such a club. The club is already burdened with around 200 million euros in debt, and relegation to the second division would mean serious cuts in TV money. Financial analyst Peter-Thilo Hasler recently told “Bild”: “Even if you stay in the 1st Bundesliga, it will be difficult, and Schalke will hardly survive a relegation to the 2nd division due to the threat of illiquidity. In the second division, the club is threatened with bankruptcy. ”However, the club denied this to the newspaper.

But the financial situation is tense and now the club has to repay the fan bond. It’s about 16 million euros that fans have loaned the club. Bonds are also traded on the stock exchange and the Schalke bond currently promises a return of around 20 percent. Means: The investors see the possibility that the association cannot repay the money. Otherwise the return would not increase to such a high value.

Investors face a total loss

This brings us to risk for investors who buy such bonds. The clubs know how to address their fans emotionally and when the club needs help, many fans are ready to stand by their side. “Using fan bonds as a financial investment out of emotion can become dangerous,” warns consumer advocate Beutler. “Anyone who invests money must be aware of the risks that are taken. If the association gets into financial difficulties, investors even face a total loss, ”he says.

As a bond owner you have no voting rights or even a deposit insurance. In the event of bankruptcy, bond owners get nothing. As a bond buyer, you make yourself dependent on the sporting success of the clubs. Especially with clubs that rely on the issue of fan bonds, it is difficult to forecast this success over a period of several years.

When Schalke issued the bond, the club finished the season in fifth place. In the years before that, Schalke was 6th and 3rd – so they played regularly in international competitions. It was hard to predict at the time that the club would be relegated with a high degree of probability six years later.

Alemannia Aachen was unable to repay the bond after bankruptcy

So no matter how emotionally the clubs address their fans, they shouldn’t let that get them. “It’s really about numbers: How high is the interest I get for my investment? How is the risk-reward ratio derived from this? When it comes to these questions, emotions cloud the view of the investment, ”says consumer advocate Thomas Beutler.

Schalke is not the only example. Alemannia Aachen, at that time the second division, had already collected 4.2 million euros from its fans with a bond in 2008 and offered six percent interest per year for it. In the following years, the club slipped into the third division and filed for bankruptcy. Investors’ money was gone. Today AAchen plays in the regional league.

Arminia Bielefeld issued a bond in 2011 and was only able to repay it in 2016 because some fans had waived interest and the repayment of their capital. “Anyone who wants to support their club as a fan, sees a fan bond as a donation rather than an investment and is prepared to lose the capital invested in case of doubt, can rely on such investments,” says Thomas Beutler from the Saarland consumer center. “If you want to invest in a promising investment, you should always make investment decisions free of emotion,” he advises.

The following applies: Spreading widely and investing in the stock market for the long term – for example by means of an ETF savings plan – helps to reduce the risk of loss.

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