Two of English football’s most famous clubs are competing to be the first to issue a catastrophe bond.
West Ham United and Tottenham Hotspur are both working on bonds that would compensate them if they were relegated from the Premier League, sources have told GlobalCapital.
Both clubs — whose performance is normally impressively consistent — have been suffering from a run of poor form which has baffled pundits and fans alike. With only seven games to go, Tottenham is 17th and West Ham 18th in the table of 20. The east London club has won one game in its last five, the north London outfit none.
Structuring and marketing the bonds is urgent, because the nearer the end of the season gets, the higher the risk of relegation is likely to become, unless either club can pull off an impressive turnaround.
Spurs, working with Southend-based boutique Relego Markets, believes it can raise £50m from a parametric bond that would cover it for multiple relegation events over the next three years. The first payout, for falling out of the Premier League, would be for £25m.
“We’ve always been an innovative club and a leader in every sense, on and off the pitch,” said Daniel Levy, Spurs’ long time former chairman, who was once an investment banker. “This is a sure fire way to turn a temporary setback into a win.”
Tottenham would use the money to make up for lost television income, so it could replace underperforming players and give the team extra Weetabix on match days.
West Ham is trying a different approach more akin to an insurance book of business securitization. Its $40m dollar bond, being arranged by Flop Risk Management, will yield a payout in Bitcoin, determined by an algorithm that can calculate how much abuse and disappointment the club receives from fans after a potential relegation.
“It’s amazing what you can do with AI,” said Baroness Brady, West Ham’s vice-chair. “We’re monitoring season ticketholders’ Facebook and Twitter accounts and installing listening devices under the seats. Obviously we’ve had to teach the large language model some new vocabulary.”
Market participants raised questions about whether the bonds would be attractive to investors.
“Bonds like this are a great investment,” insisted a source close to one of the deals. “If West Ham or Tottenham do not get relegated, their investors stand to make a tidy return. We think there will be huge interest.”
The source said the bonds might be appealing as a hedge for those who have invested money or emotional energy in other badly performing clubs such as Burnley.
There is also the question of moral hazard. The structures raise the suspicion that the issuing club could deliberately try to get relegated so as to win a payout.
But football experts dismissed this. “In these particular cases it’s not a concern,” said one. “Based on recent form, these clubs clearly have no ability to influence the outcome on the pitch.”
GlobalCapital wishes its readers a happy April