Jockey Club alternative funding initiative a model for project financing in other sports, says expert

Sports law specialist Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, said that the sports industry is uniquely placed to utilise alternative methods of raising finance. He predicted that sports bodies will increasingly turn to schemes such as the one deployed by the Jockey Club to deliver infrastructure projects.

Late last week the Jockey Club announced that it had extended the deadline it had imposed for applications for its Racecourse Bond scheme until 28 May after its initial £15 million financing target was met.

The scheme was launched in order to raise money for the £45m redevelopment of Cheltenham racecourse. It allows investors that commit between £2,000 and £100,000 to benefit from a set gross return of either 7% after five years or a 4.75% gross return and 3% interest in "racing rewards" over the same period.

"In a market place where traditional forms of borrowing may not be immediately attractive or available, sports bodies have to find alternative ways to deliver projects, such as the building of new stadia or to improve existing facilities," Watkins said.

‪"The Jockey Club has been hugely successful and innovative in looking at how the bond market can help attract investors and allow it to part-fund the redevelopment of Cheltenham. Key to the success of the scheme has been the Jockey Club's values, its integrity and pedigree as an organisation that has been around since 1750. It has managed to utilise those elements to attract horse racing enthusiasts and investors who will perhaps see the Jockey Club's scheme as a better investment proposition than others in the market, deliver a strong return and be inclined to support the scheme through their loyalty to the sport and the benefits on offer," Watkins added.

‪"We are seeing a range of other similar alternative financing schemes being looked at by major sports bodies, as a way to deliver stadium, facilities and ultimately enhance spectators' experiences," Watkins said. "The passion, commitment and following that sport can generate makes it a uniquely placed industry to make alternative financing schemes work."

‪"The Jockey Club bond scheme is just one example, as is the debenture schemes in operation at Twickenham and Wimbledon, but there will be more inventive products coming onto the market to allow sports bodies to achieve their vision for projects. This is particularly so given the context of commercial rights being so valuable and driving the interest in delivering major events. This is particularly the case in a market where returns are so low from traditional lenders," Watkins said.

‪The Jockey Club said that the average amount invested into the Racecourse Bond scheme was approximately £11,000.

"To raise more than £15m and counting in just three weeks from our first foray into consumer finance makes us incredibly proud and I look forward to repaying the trust racing fans and investors have shown in our Group," Paul Fisher, group managing director of Jockey Club Racecourses, said in a statement. "We are big believers in innovation when we know it is the right thing to do, even if new approaches present a risk to reputation. We designed the Racecourse Bond as a specialist product for a racing audience and its unique combination of generous cash interest and racing rewards has proved a winner."

"We have agreed to extend the deadline for people to get involved because we've received a large number of requests to do so from interested investors and because the pace of applications has shown no sign in slowing. This bond offer has always been about raising significant capital towards the development of Cheltenham Racecourse while getting closer to our customers, so it would be a strange decision not to extend for a few more days when we have that option," Fisher added.

Edward Sunderland, a debt capital markets expert at Pinsent Masons, said: "Bond financing is extremely attractive for corporate issuers at the moment, both in the institutional and retail markets. Pricing is at historic lows, while the demand for quality issuers exceeds supply.  Likewise, demand from retail investors remains high while returns on bank savings are so low."

Sunderland said that a number of issuers have tapped into the retail bond market in the past 12 months, both privately and via the London Stock Exchanges’ ORB (Order book for Retail Bonds) platform. Ranging from companies such as property giant St Modwen, lender Provident Financial, to the London Stock Exchange itself, investors have typically been presented with the chance to obtain between 4.75% and 7% returns on their investments over a seven-to-10 year period.

Sunderland described the retail bond mark as a viable alternative to bank funding, particularly in light of liquidity and capital concerns in that market.