Breathing life into sports, music and entertainment funding

Insights

Posted: 12.10.18

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A new breed of specialist financiers is helping to unleash the true potential of artists, entertainers and sports teams with innovative financial solutions tailored to their needs

The sports, music and entertainment sectors are huge financial marketplaces, yet the ability of artists, musicians and athletes – who entertain and inspire so many others – to reach their full potential is often limited by lack of effective and appropriate finance.

The traditional model of financing means songwriters and performers must often sign away the rights to their songs and master recordings, and even creative control, in exchange for advances from industry majors. Most football clubs, too, are unable to leverage the full value of their assets to invest in new players or infrastructure.

But 23 Capital is now rewriting the rules on innovative funding. We breathe life into the finances of those we help by developing flexible new solutions to old problems, lending against future incomes or monetising assets. How do we do it? With a deep knowledge of both finance and the industries we lend to.

A new way of working

When we start working with a client we look at how we can add value and help them achieve more. The first question has to be: “Is there a better way of doing what you’re doing?” The answer is usually yes. This approach has resulted in us being able to fund and advise on more than $2.2bn of transactions for our clients since 2014.

Typical transaction sizes are between $5m and $125m, and in every case our capital has helped clients access future revenues for, among other things, buyouts, acquisitions, wealth management, roll-ups, rights and contract negotiations, leverage, production and touring, and player transfers.

We are able to think and act differently for our clients thanks to the combined expertise of our team. We’re an eclectic mix of creatives from the sectors we serve and specialists from the finance world. This gives us unique insight into the risks and opportunities of funding, as well as the ability to make sound decisions based on what our hearts and heads tell us.

By analysing the data on a songwriter’s catalogue of work, for example, we are able to build a model projecting future royalties so we can lend against future cash flow. A catalogue might have years of data behind it, so we can look at multiple points such as revenue consistency, release dates, sync data, the geographical split of the fan base and much more. We can then provide artists with the working capital they need to fund their business needs, go on tour, record and promote, and write more songs – on their own terms, independently of the label.

Crucially, by enabling the client to retain ownership of their intellectual property, our solution levels the playing field and puts them in a much stronger position to negotiate better deals with record companies, publishers, tour operators and promoters. Equally, we can also help labels and distributors deliver greater value to the artists they represent by advising on strategies available through innovative financing solutions.

In sports, we can assist in transfer negotiations through advanced finance against transfer fees. We can also lend against intangible assets, such as the value of a playing squad and broadcasting and sponsorship income over the medium to long term – potentially on a non-recourse basis, if appropriate. Many traditional finance houses are unwilling or unable to provide this type of niche financing – other than as a very standard offering – and certainly not at the speed needed by clients.

Getting creative

In one recent case, a successful songwriter was looking for ways to draw money from his catalogue and realise funds to allow him more creative freedom. He had been offered five-year facilities from others, but when we examined the data we were able to offer a much more flexible solution. Today, free from financial constraints and without having to sell his catalogue, he is writing new music and generating more revenue.

In another case, we monetised a production company’s portfolio of media-distribution guarantees, tax credits and network sales to fund new productions. We’ve also structured a bespoke $70m off-balance-sheet loan secured against licence revenues for a top-tier brand licensing and global distributor.

This is in addition to the work we’ve done with a number of football clubs, enabling them to provide optimum value through their player-transfer activity – principally by ensuring that any significant immediate payment obligations are aligned with the club’s balance sheet.

Ultimately, 23 Capital is about unleashing greatness and creating innovative solutions to help our clients develop their full potential.

Tags: Sport, Music, Entertainment, Capital Finance, Unleashing Greatness, Football

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