Inter Milan Sponsorship Deals Deter Possible Suitors

(Bloomberg) -- Nestled in the countryside about an hour’s drive north of Milan lies a soccer compound called the Suning Training Center. It’s where FC Internazionale Milano SpA’s players get in shape for their matches, with a few fans milling at the gates to catch a glimpse of the arriving stars.

For Inter Milan, the unassuming plot has turned out to be a rich source of revenue.

Company accounts filed with Italian regulators reveal that Chinese conglomerate Suning Holdings Group Co., the majority owner of the storied squad, has helped boost the team’s income by paying millions to stick the owner’s name on the center, including a 25 million-euro ($30.1 million) sign-on fee in 2016.

Those contributions are coming back to haunt the club and its Chinese owner, which is exploring ways to bring on another investor for Inter Milan following a state-sponsored bailout back at home.

To the handful of potential suitors, there’s no certainty the so-called regional sponsorship revenue is actually a sustainable source of income should there be a change of ownership, complicating a valuation for the total asset, according to people familiar with the talks.

The club has raked more than 260 million euros in revenue from Chinese entities -- equivalent to a quarter of total sales -- between 2017 and 2019 from regional sponsoring deals. Beyond the sign-on fee, the training plot alone pulled in an annual revenue share of 16.5 million euros, plus bonuses, the accounts reveal.

Cold Feet

Like many storied clubs across Europe, Inter Milan has a loyal fan base and a globally recognized name, but lacks the deep pockets needed to sustain an expensive squad that runs into hundreds of millions each year. It’s why a group of 12 soccer clubs from Italy, Spain and England had considered a breakaway league this month that would have injected much-needed funds into clubs like Inter Milan. But the plan was short-lived after a public outcry from fans and soccer organizers, and teams began pulling out again.

Private-equity firm BC Partners had already walked away from a deal following doubts about the longer-term stability of the Chinese payments, people familiar with the talks said last month, asking not to be identified discussing private deliberations. Besides the training ground, Inter Milan received annual contributions totaling 45 million euros from unaffiliated Chinese parties for services including “tourism and education” as well as branding and media rights in parts of Asia.

Potential buyers that considered a investment in Inter Milan have decided not to go ahead after evaluating the revenue portion linked to Chinese entities, the people said. One possible buyer said his group had identified total debt at the club of about 500 million euros and that it would only proceed if there’s a complete restructuring of the debt and equity.

A Suning representative didn’t comment on the regional sponsorship and the potential sale of Inter Milan shares, while an official for the soccer club declined to comment, as did a spokesman at BC Partners.

Pressure is mounting on Inter Milan to shore up its finances following the collapse of the Super League project, which held the promise of injecting more 300 million euros of cash into the Italian team. The club has failed to pay regular salaries to its players in recent months, highlighting its strained situation.

Oaktree Capital Group is in advanced talks with Inter to provide 150 million euros to shore up the club’s finances, according to people familiar with the matter. The companies held several meetings in the last month and a possible deal with Inter could led Oaktree at some point to become a minority shareholder of the team, the people added. A representative at Oaktree declined to comment.

Chinese Money

Inter Milan remains in financial dire straits, particularly after some of the regional sponsorship payments dried up at the end of last year. The club’s accounts show that adjusted revenue slid to about 372 million euros last year from 417 million euros in 2019, after the contracts ended with three indirect Chinese entities -- Fullshare Holding Limited, King Dawn Investments Limited and Beijing Yixinshijie -- that had brought in the extra 45 million euros each year.

Inter is not the only major club facing financial troubles which sought to turn around its business betting on the Super League project, which was aimed at guaranteeing games and revenue for the participating clubs for years to come. The 12 founding clubs of the short-lived Super League have more than 2.5 billion euros in net debt, according to KPMG Football Benchmark. The three Italian clubs alone -- Juventus FC, AC Milan and Inter, account about 800 million euros of that figure, and the trio lost 440 million euros in the 2020 season.

Any delay to resolving the financial situation and the ownership structures risks spilling over into the planning of the next season, including possible player transfers. Inter Milan’s table-topping run has given the club the first chance of winning the Italian title for the first time in more than a decade.

Russian Owners

Complex sponsoring arrangements aren’t unusual in the sport. England’s Everton Football Club, owned by British-Iranian businessman Farhad Moshiri, has a training-ground deal with business partner Alisher Usmanov’s USM. Combined with sponsorship of the club’s women’s team and some other payments, the accord brings in about 20 million pounds in additional revenue each year, according to people familiar with the arrangements. Everton FC declined to comment.

It’s common for many European clubs to have wealthy owners -- from Russian oligarch Roman Abramovich at Chelsea FC to the billionaire American owners of Liverpool and Manchester United, John Henry and Joel Glazer -- but that doesn’t give them free reign to douse their teams in limitless amounts of money.

Soccer teams must abide by financial fair-play rules set out by the UEFA governing body, which demand that teams can’t spend lavishly on players unless they have the funds to support a transfer. Breaching the rules can lead to expulsion from lucrative tournaments like the Champions League, though no such draconian step has occurred since the rules came into force in 2011.

No Remorse

Inter Milan’s difficult financial situation stems partly from an expensive squad that includes top players like Romelu Lukaku and Christian Eriksen whose monthly salaries run in the millions of euros. The pandemic has also weighed heavily on clubs, who have been playing in empty stadiums for the better part of a year, depriving them of an important revenue stream.

LionRock Capital, the club’s minority owner with a 30% stake, is growing increasingly impatient with the situation at Inter Milan and Suning’s reluctance to strike a deal with a new owner, a person familiar with the situation said. The company has been actively pushing for external financing, but is realizing the limits of that endeavor, the person said.

If Suning does eventually retreat from Inter, it will be another step in the withdrawal of Chinese owners from European soccer.

“Nearly everything owned by the Chinese has either been a playing or financial disaster,” said Keith Harris, a U.K. financier who is an expert on takeovers including Chelsea and Manchester City. “Their departure may bring some much needed new blood and will not necessarily be mourned by many.”

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