Yankee_Jack
Key Player
French Soccer Faces Financial Crisis After Record TV Deal Collapses
The sudden collapse of a billion-dollar television contract has created a serious cash crisis for French clubs as the January transfer window nears.
MediaPro has failed to fulfill their obligations under their media contract to Ligue1. The media bubble of football is starting to tear if not burst.
Like all leagues, premier clubs in France take the majority of their revenue from centrally contracted / managed media contracts. In addition, the league is rife with systemic risk. As has become standard practice, player transfers are not paid in cash but are financed by the selling club factoring its receivable on the transfer - a receivable spread out over the term of the player's new contract at the buying club. Banks didn't fall off the back of a turnip truck yesterday. Banks get involved based on guarantees from the league since they control the flow of cash into the clubs from the media contracts. When a club defaults, the bank turns to the league, who in turn pays the defaulted amount and withholds the funds from the club's media revenue. Very tidy in theory! As long as the music keeps playing everybody is happy; banks can get a good relatively risk free rate of return. But practice, and stressed practice, is always going to be a kick in the balls. Over time, a network of systemic risk has built up as clubs transfer between themselves and invoke this game of musical money to finance the deals with the league guaranteeing an ever increasing bubble of money.
Now the music has stopped in France. It is compounded by the virus cutting short match day revenue. Clubs are now ever more dependent on the media revenue.
If so much as one club defaults on a payment to a bank for this mass of debt ... the banks will turn to the league ... and the league is short a ton of cash! This is not going to be a one club event ... it's likely to be a multi-club event and so the network of risk comes calling and the whole pyramid comes crashing down.