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QPR Bond: Is new £20m training facility investment risky?

Queens Park Rangers has opted to bypass the banks and other traditional avenues of financing for its new £20million training facility, which the West London football club instead hopes to build with the help of fans and everyday savers.

The club’s chief executive Lee Hoos, who has received plaudits from fans for his role in helping turn around a dire financial situation since coming on board, believes the plans are a win-win; cheaper for QPR and a lucrative income investment for individual savers.

The launch of the QPR Bond at the end of September gives investors the chance to earn 5 per cent gross interest annually for a minimum buy-in of £500.

Loftus Road-based QPR are hoping to partially fund their £20m training facility via a mini bond offering

This compares to 2 per cent interest over five years for a minimum deposit of £1,000 via Recognise Bank – the best paying fixed-rate account currently available in Britain.

‘Right now, with what high street banks are paying, this is a very good rate of return,’ Hoos told This is Money.

‘The traditional route [of financing] is also more expensive for us. This way, we shave a couple of percentage points off of the interest we’d be paying, and investors are getting a lot more interest compared to what they’ve been getting in the high street bank.

‘It’s a win-win for everybody.’

CEO Lee Hoos says the method of fundraising 'brings the club and the supporters closer together'

CEO Lee Hoos says the method of fundraising ‘brings the club and the supporters closer together’

And, if you’re a Rangers fan, there’s more on offer than just an attractive interest rate.

The mini bond, which is available through Tifosy Capital and Advisory, and is Innovative Finance ISA-eligible, will pay an additional 3 per cent gross interest in club credit redeemable on tickets and merchandise.

Perhaps most enticing, though, will be the opportunity for investors to earn a one-off 25 per cent bonus if QPR is promoted during the lifetime of the five-year bond to the Premier League – ‘the promised land,’ according to Hoos.

Handy checklist: What do you need to know before buying bonds

* Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet. Read a guide here.

* When looking at bonds, research all recent available reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results on This is Money here. You can search Companies House here.

* Check the cash flow is healthy and consistent. Also look at the interest cover – the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. A guide to doing investment sums like this is here.

* It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.

* Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.

* Inexperienced investors who are unsure about how bonds work or their potential tax liabilities should seek independent financial advice. Find an adviser here.

* If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.

* If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found on This Is Money here.

* Investors should bear in mind that it can be harder to judge the risk involved in investing in some bonds than in others – it is easier to assess the likelihood of Tesco going bust than smaller and more specialist businesses.

The offering has already proved popular, Hoos says, with over 2,000 individual commitments by Monday 4 October.

‘Obviously, that’s not including me and my wife who haven’t put anything through yet, but we definitely will be because it’s ISA-compliant,’ he added.

‘There are some people who have indicated an investment of £10,000 or more. Of course, there’ll be a lot of people who will stick with £500 – the key here is we’ve opened it up to everybody.’

QPR say the two-year £20million Heston training ground project will provide state-of-the-art facilities for all its players, from first team to academy, at a single site.

Opening during the 2022-23 season, the new training ground will include seven specially constructed pitches, a performance gym, rehabilitation facilities, dining and recreation areas, classrooms, and a performance analysis suite.

QPR has seen 20 academy-developed players play for the first team in the last seven years, including fan-favourite Ilias Chair. Heston, it is hoped, will help the club continue this momentum.

But the new facility also helps maintain the club’s commitment to being sustainable and self-sufficient in the years since its financial restructuring.

Hoos explains that the goals of player development and financial sustainability are intrinsically linked.

He says: ‘Part of our game plan is that we recognise that we need to develop players and sell them on at some point.

‘If you’re just relying on operational income, there are very, very few Championship clubs – or Football League clubs for that matter – that will be able to make ends meet.

Academy graduate and fan favourite Ilias Chair scored the match winning goal against Preston North End last weekend

Academy graduate and fan favourite Ilias Chair scored the match winning goal against Preston North End last weekend

‘So player development is a key part of our business case; whether it’s signing the eight-year-old who stays with us and comes all the way through the academy, or the 15-year-old who’s coming from somewhere else.

‘Offering the best facilities helps one in the recruitment of those people, the retention of those people and the development of those people.’

QPR are far from the first Football League club to shun traditional avenues of financing. 

A similar bond was launched by Norwich City in March 2018, raising £5million to build a new academy, which opened in August 2019.

More than 700 supporters and investors registered for the Canaries’ five-year bond, qualifying for a 25 per cent bonus when the Club was promoted in 2019.

AFC Wimbledon’s Dons Bond led to the club’s return to a Plough Lane stadium after nearly 30 years, while Hoos’s former employer Burnley also embarked on a similar venture.   

Dr Rob Wilson, an expert in football finance at Sheffield Hallam University, explained that club finances have been ‘significantly’ impacted by the pandemic, but that Covid-19 had only ‘unmasked the frailty of the financial model’.

He said that ‘many clubs [were] making a loss pre-pandemic’ and this has been ‘exacerbated by Covid’

Dr Wilson added that a number of football clubs are beginning to look to alternative sources of funding, like the QPR Bond, because it ‘represents a different way of thinking and a major, new source of finance’.

He added: ‘Many traditional methods have been exhausted so these new opportunities naturally help things along. It’s also a way that fans can engage in supporting their teams.’ 

QPR’s Hoos believes the latest example of football mini bonds will not be the last we see.

‘As the success gets demonstrated, other clubs will follow because there’s already been some great examples.

‘It’s a model that can be effective and fair as well – it brings the club and the supporters closer together, everybody’s got the same vested interest.’ 

The FCA’s mini bond crackdown 

While football clubs may be increasingly tempted to cash in on mini bonds, the UK’s markets watchdog is less than keen on the financial instruments.

The Financial Conduct Authority has raised concerns several times in recent years about the proliferation of mini bonds, amid a series of high-profile collapses, and in January 2020 banned the promotion of so-called ‘speculative mini-bonds’ to retail consumers

Generally speaking, mini bonds are highly illiquid and unregulated assets whereby investors are not compensated for their losses.

They are often issued by smaller business, which are unable or less willing to raise funds via traditional funding routes. In many cases, this means they carry a higher degree of risk to investors.

‘Firms issue speculative mini-bonds to raise money from investors to lend to a third party or invest in other companies or property. These investments offer high rates of return but are usually very risky,’ the FCA says.

But QPR’s mini bond issuance is a far cry from more ‘speculative’ examples, which are typically from weaker institutions offering less modest interest rates.

Perhaps the most high-profile example was Mexican fast-food chain Chilango, which in 2018 offered investors 8 per cent per annum, in addition to multiple other perks.

It raised £3.7million from investors, who had their fingers burnt when it emerged Chilango was struggling to stay afloat.

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