In a significant new interview, Il Sole 24 Ore journalist and football finance expert Carlo Festa posits that there will be a need for Inter owner Steven Zhang to sell the club in the near future.
In an exclusive interview with FCInter1908, Festa describes the financial situation of the Zhang family in detail and explores how it relates to Inter’s own current financial predicament.
Festa’s analysis is highly insightful, and he breaks down the reasons why circumstances in and out of Suning’s control have led to the company’s ownership becoming untenable at the present moment.
Festa paints a somewhat gloomy picture of Inter’s situation, in which no solution will be fully free of the problems presented by Suning’s inability to finance the club in recent years and the debt subsequently taken on.
However, Festa believes that Inter fans will have a better idea of the ownership structure of the club going forward within a year.
Festa gave some insight into the meaning of Zhang’s recent statements:
“Inter’s financial problems are due to the health of the Suning group. The Nerazzurri have had a defined ownership structure for years, and this has given stability to the whole environment. Now this certainty no longer exists. It is not known who the owner of Inter will be in a year. Therefore, a definite and certain growth and development plan cannot be given in this situation.
Zhang kept the club at a time when he could sell it during the period between January and February, but in doing so he got heavily into debt. He did not increase Inter’s debt, which is already close to €400 million, but further indebted the Luxembourg shareholder vehicle that belongs to the Zhang family. He did so by pledging shares of Inter. In a certain sense, therefore, the future of Inter is committed to Oaktree, who at any point when the pre-established conditions of the loan are not respected, would quickly become the new owner of Inter by right.”
Going further, Festa elaborated on the economic foundations underlying Inter’s well-known current financial problems:
“The economic situation at Inter is not the best, even though in football we live in a situation of ‘mal comune, mezzo guardio’ [in other words Inter’s problems are only relative to the situations at other clubs, who may share similar problems]. Inter, in comparison to other clubs, have two weaknesses to their balance sheet: on the one hand, the debt situation which sees €375 million in bonds maturing in 2022, to be repaid or refinanced; the second weakness is in the fact that Inter are currently burning money and generating no revenue.
To overcome this problem there are two solutions: firstly that capital increases are continually made, though we see that Suning cannot make money out of China; the second is to reduce costs by increasing revenue, which is what Inter executives are trying to do. But it is not an easy task given that Inter have a high wage bill that is complicated to cut, given that it risks weakening the team. The situation is complex, even if it is one that affects many clubs. Inter, as mentioned, are worse off because they have to face the debt and the situation of the bonds maturing in 2022.”
Festa also went into great detail regarding the importance of new directives by the Chinese government in determining the problems faced by Suning’s ownership of Inter:
“It’s half-true [that these directives have pushed Suning away from being ableto successfully run Inter.] Bejing’s interest in football has always been great fantasy. China has never really been interested in footbal except in a brief period when the Chinese government tried to invest in the west. China initially wanted to invest in other sectors but football was a great advertising vehicle. When they realized that this investment was not needed, given the investments in other sectors, football interest returned to zero. The example is the Chinese Super League, which was meant to be the expression of the internal movement: it has been considerably weakened, so much so that sponsors can no longer even associate their names with teams. Suning let Jiangsu Suning, the CSL champions, fail, and that says it all.
In the next few years, unless there is a major change of course which I think is unlikely, China will be entirely out of football. As a result, there will be incentive for Chinese firms to grow abroad, but in other sectors. With that being said, the Suning group has had major problems, both for the impact of COVID on its turnover, and with seeing a negative trend in real estate, retail, and real estate. It all happened when Suning had to repay bonds with several hundred million euros. Consquently, in Najing, they decided to sell shares of their company to the state.
Because Bejing is not interested in football, the money collected will not go towards financing football-related activities, especially abroad. Rather, they will serve to stabilize Suning and China in order to prevent firing employees. There is no way that Suning can take capital out of China for football. It could only do so through subsidiaries elsewhere in the world: for example, Suning has stakes in Japan. Unless we see any surprises, Inter will not have any money coming in from Suning for the next year and a half, and will have to go on their own. The one ray of hope is that television rights might bring in more income.”
Festa explained the key differences between Oaktree Capital and Elliott Management as such: “The main difference is that Elliott is a fund which also manages companies, while Oaktree has a more purely financial perspective. In the event that they become owner, it is difficult for Oaktree to manage Inter for a few years. On the other hand, I believe that the speculation that the fund can immediately start a process to sell the club to another investor, possibly American, is more credible.”
On the subject of what the future holds for Suning and the Zhangs at Inter, Festa was quite clear as to what he predicts the outcome will be:
“If I had to make a forecast for the next few months, looking at the numbers, I don’t think there are too many uncertainties. Inter’s number speak clearly: With these figures and with a shareholder who cannot take money out of China, it is almost certain that Inter will soon have another majority shareholder. The important thing is that no further damage is done to the club’s balance sheet, and that the player assets at the club are respected. Having said that, nobody at the moment buys Inter for one billion euros. However, at €600-700 million it can be done once the pandemic is over. It is important that Zhang does not cause the club to become even more financially imperilled in the coming months. Inter’s situation is also complicated because the new buyer will have to implement a sort of revolution: if one looks at the balance sheet, much of the money comes in from Chinese sponsorships, with some unknown names. When Suning is gone these sponsors will disappear. Therefore, the new owner will have to completely reverse the club’s business model and find new sponsors.Zhang will have some preparatory work to do before the sale, on the front of the budget and sponsors. I think that at that point Inter will be sold within two years.”
Despite much talk of supporter share ownership and the InterSpac project, Festa expressed great skepticism as to the feasibility of such a project:
“At Bayern Munich it is true that there is a popular shareholder base, but there are also shareholder sponsors who are large groups. It is a mixed model. These models are potentially applicable to Italian teams, but not to Inter given their current condition. Let’s think about the economic aspect: how much money should this shareholder raise? What should be the quota for each shareholder? Either take, for example, a million people each paying a fixed fee, or it becomes a fantasy to think about such a project. Problematic to implement especially in the short-term, which is what we’re talking about, because this is not a five-year project. I say this on a purely fantastical, speculative level: the Luxottica group, with Inter supporter Leonardo del Vecchio, could enter into the club with a 5-10% share. It is not an impossible project, but is when one considers the conditions that Inter currently find themselves in. Zhang in particular, having invested €800 million in the club, will certainly not negotiate with InterSpac. It would not be of interest to him. There’s no time.”
Festa also dispelled the notion that Inter have at any point in recent years faced the possibility of bankruptcy delineating the sense in which the problems faced by the club differ from bankruptcy as such:
“Bankruptcy, no. But it is still problematic to have debts and not pay them. There may be some creditors going to court. The big issue is the reimbursement of the bond in 2022. There we will be able to understand how Inter intend to move. Between the end of 2021 and the beginning of 2022 there will be a milestone. If a bond is not repaid, the company defaults. Among the major underwriters of the bond is Oaktree with €100 million, but there are also other financial groups that could ask for the sale of Inter in that case.”
An important point clarified by Festa in the interview is that despite the three-year timeline of the loan signed between Suning and Oaktree, the situation with Inter’s ownership should be fully clarified much sooner than that, likely within a year:
“Yes, I believe that within a year the situation will be fully clear. Either Suning will be back in the saddle or there will be another owner.”
