Debt Dwarfing Manchester United Shows Turkish Soccer Rot

Debt Dwarfing Manchester United Shows Soccer Rot: Turkey Credit

Turkish soccer champion Galatasaray’s $57 million of debt due in the next 12 months, racked up by hiring coach Roberto Mancini and players including former Chelsea star Didier Drogba, is drawing whistles from investors. The team, standing 10th in the Turkish Super Lig as of Oct. 4, and beaten 6-1 by Real Madrid last month in European competition, has seen its shares slump 25 percent this year amid deteriorating finances. Its $4.5 million in cash at the end of September wouldn’t cover one season of salary for Mancini, the former coach of English team Manchester City, hired last week on a $17 million three-year contract plus bonuses. Ivory Coast forward Drogba has a 10 million-euro ($13.6 million) contract.While Galatasaray (GSRAY) has the most debt to repay in the next 12 months, its short-term debt-to-cash multiple isn’t the worst among the nation’s cash-strapped clubs. Black Sea team Trabzonspor (TSPOR) has 40 times more short-term debt than cash, while Istanbul teams Besiktas and Fenerbahce have multiples of 24 times and 8.3 times, data compiled by Bloomberg show. The Turkish stock exchange cited Besiktas, Trabzonspor and Galatasaray on Sept. 26 for having negative working capital.

“If Turkish soccer isn’t reformed, institutionalized and if all goes as it has so far, Turkish soccer is doomed to hit a wall,” Tugrul Aksar, a soccer economist in Istanbul who writes for financial daily Dunya, said in a telephone interview Oct. 3.

Short-Term Debt

Short-term borrowings of the three clubs identified by the exchange created “uncertainty over the sustainability” of their finances, the bourse said. Shareholders’ equity for each is negative, it said.

Galatasaray’s short-term debt is almost eight times that of Manchester United, which has triple the annual revenue, according to data compiled by Bloomberg. The ratio of Galatasaray’s net debt to earnings before interest, taxes, depreciation and amortization was 17.4 in its fiscal third quarter of 2013, according to data compiled by Bloomberg. The ratio for Manchester United (MANU) was 3.9.

The Istanbul-based team’s stock decline compares with a 3 percent drop on the Borsa Istanbul (XU100) National 100 index this year and a 21 percent gain for Manchester United. Turkey’s benchmark dollar bond yields increased 223 basis points this year to 8.39 percent on Oct. 4. The lira has depreciated 10 percent against the dollar this year.

Company Finances

Galatasaray board member Ebru Koksal didn’t answer calls seeking comment on the company’s finances last week. Fenerbahce and Besiktas (BJKAS) officials also didn’t reply to e-mailed questions. Trabzonspor Chairman Ibrahim Haciosmanoglu declined to comment.

An official at the Union of European Football Associations who declined to be identified didn’t respond to questions when reached by phone on Oct. 3, saying that only Secretary-General Gianni Infantino was authorized to respond to press enquiries and he was unavailable.

Galatasaray is led by Unal Aysal, chairman of Unit Group, a Brussels-based holding of energy companies with trading operations in Europe and power plants in Iran.

In addition to Mancini and Drogba, Galatasaray has added Dutch international midfielder Wesley Sneijder for a 3.2 million euro salary, a 3.9 million euro signing bonus and a 7.5 million euro transfer fee to his former club AC Milan. They also signed Argentinian Fernando Muslera, former Sporting Portugal player Bruma and ex-Arsenal defender Emmanuel Eboue.

Bank Loans

Galatasaray had 322.7 million liras ($162.4 million) in revenue for the fiscal year ended May 31, and a net loss of 99.9 million liras, according to its latest financial statement. Revenues included 73 million liras from jersey and other sales, 68 million liras from broadcast payments, 57.7 million liras from UEFA Champions League awards, 36.6 million liras from sponsorships and 23.6 million liras from ticket sales. The total figure compares with about 224.8 million liras in 2012.

Domestic television broadcast rights account for 42 percent of club revenues in Turkey, according to UEFA’s “Licensed to Thrill” report for the 2013-2014 season on its website. Digiturk, the nation’s biggest digital broadcaster, paid $321 million on January 2010 for four-year rights to the Turkish Super Lig, in which all four teams compete.

Debt for Galatasaray, Trabzonspor and Besiktas consists of loans, while Fenerbahce (FENER) has loans and lira bonds. Galatasaray had total loans of about $115 million, of which about $17 million was euro-denominated and the rest in dollars, according to its financial statements on May 31. It pays interest rates ranging from 5.5 percent to 8.75 percent, according to the statements.

Listed Stocks

Team lenders include Istanbul-based Denizbank AS (DENIZ), a unit of OAO Sberbank (SBER), located in Moscow, Turkish state bank Turkiye Halk Bankasi AS (HALKB) and Istanbul-based Anadolubank AS.

“Galatasaray’s debt to us may be refinanced,” Hakan Ates, Denizbank’s chief executive officer, said in an interview on Oct. 2 in Istanbul. He declined to elaborate.

Among the four listed soccer stocks, only Besiktas Futbol Yatirimlari Sanayi & Ticaret AS, which operates the soccer club, has outperformed the benchmark index this year, climbing 13 percent. Fenerbahce Futbol AS has slumped 15 percent while Trabzonspor plummeted 51 percent. The Black Sea team’s decline came as owner Trabzonspor Futbol Isletmeciligi Ticaret AS sold more than 5.26 million shares, cutting its stake to 51 percent from 72 percent, according to company filings.

Club Ownership

Fenerbahce profit fell 73 percent to 1.6 million liras in its fiscal year ended May 31, company filings show. It was the only club to post a profit in the period. Besiktas reported an annual loss of 68.3 million liras while Trabzonspor had a deficit of 61.2 million liras.

Besiktas will cut spending by transferring players from its youth clubs and will increase its cash base through a capital increase and sponsorship deals, it said in its financial statement Sept. 6. The club signed a 10-year, $145 million sponsorship deal with Vodafone Group Plc (VOD)’s Turkey unit in August. Its plan to raise capital through a rights issue was approved by the market regulator in March.

The clubs’ ownership structure limits transparency in their accounts, said Aksar, the economist. Most clubs are owned by associations that are subject to a law independent from commercial law, he said.

“There’s no predictability in these stocks,” Emre Sezan, research manager at Is Investment, a subsidiary of Turkiye Is Bankasi AS, Turkey’s largest bank by assets, said in a phone interview from Istanbul on Oct. 3. “They do not provide regular information flow for analysts.”

Mancini Salary

UEFA’s “financial fair play rules” go into effect for the 2014-2015 season and include a ban on cash inflows from club chairmen, limits on borrowing and more transparency in bookkeeping. The rules will impose a 45 million-euro ceiling on club losses for 2014-15, falling to 30 million euros for the three following seasons.

Galatasaray said on Sept. 30 it hired Mancini to replace coach Fatih Terim, 60, who was fired on Sept. 24. Mancini, 48, will get a salary of 3.5 million euros this season, rising to 4.5 million euros for each of the next two campaigns, the club said. The figure doesn’t include performance-linked bonuses or compensation Galatasaray will also pay Mancini’s assistants. The Italian last coached Manchester City, which he led to the English football title in 2012.

“Turkish clubs are financially dead,” Ibrahim Altinsay, a voting member of Besiktas’s club organization who served as a board member for four years until 2004, said in a phone interview from Istanbul on Oct. 3. “But the corpses haven’t started to rot yet.”

To contact the reporters on this story: Ercan Ersoy in Istanbul at; Taylan Bilgic in Istanbul at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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