Last week, the Professional Football League (LFP) launched several procedures to recover the 172 million euros that Mediapro was due to pay it on October 5. As revealed the team, she claimed this money from Joye Media SL (the Spanish holding company which owns 100% of Mediapro), both before the Paris Commercial Court and before the Spanish courts, based on the joint surety from which the LFP benefits. But this legal activism is probably futile. Because there is at least one point on which Mediapro is not lying: the Spanish group does not have enough to pay these 172 million euros, nor the following payment of 150 million that were to be paid in December. Indeed, its cash flow amounted to only 113 million euros at the end of September, according to an estimate by the rating agency Moodys published on July 20 and consulted by Capital.
The financial impasse in which Mediapro finds itself was identified by Moody’s in April. The agency then downgraded the debt rating by two notches, from B1 to B3, pointing to “the very fragile liquidity” of the Spanish. Fitch followed in early June, also downgrading the rating by two notches, from BB- to B. In other words, Mediapro’s debt is now rated just above default. Fitch forecasts a 20% drop in revenue for 2020, and half of gross operating profit, falling from 204 to 106 million euros. The agency added: “the cash flow could drop to zero temporarily in 2020, requiring the raising of new funds”.
This is what the Catalan did shortly after, in June. It then raised 110 million euros: 50 million from its shareholders, plus 60 million loans (including 42 million guaranteed by the Spanish State) by activating the “accordion” clause of its credit lines. But all that money was immediately swallowed up by the 172 million payment made to the LFP on August 6. In theory, the Catalan could still claim new money from his shareholders and / or his banks, but will they be ready to take the pot again?
Undoubtedly, Mediapro hoped to bail out thanks to the revenues of its Telefoot channel. Sign of a crying need for cash, the Catalan had notably offered a large discount (a price of only 22.49 euros per month) to subscribers who agreed to pay straightaway a subscription year in advance. He also asked the telecom operators to pay him a guaranteed minimum independent of the number of subscribers. But, faced with their refusal, he had to lower his claims from 200 million euros per operator, to 120 million, then 50 million, before pitifully topping to a few million euros.
In short, at this stage, the Téléfoot channel has not provided any oxygen and is, on the contrary, a financial pit. It only recruited 278,000 subscribers according to RTL and the chained Duck, or even 350 to 400,000 depending on the world. Assuming that half of these subscribers have subscribed to the offer without commitment (29.9 euros per month) and the other half to the offer with a one-year commitment (25.9 euros), and that the operators telecoms keep 30% of the subscription price, so subscription revenue is between 4.5 and 7 million euros per month. And anyway, these recipes have been entered since mid-October by the LFP.
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The financial deadlock in which Mediapro finds itself is in part due to the Covid crisis, which suspended sports competitions, Mediapro’s main activity. But also the shooting of films, fictions and TV shows, its secondary activities. The crisis has also hit advertising revenue hard, which is supported by its free Spanish channel Gol TV. It has finally dampened the hopes of an IPO, which Mediapro envisaged for the beginning of 2020.
But this is not the only explanation. The 2019 results were already bad, mainly because of rights purchases in Canada and Chile, and the drop in advertising revenues for Gol TV. Revenue fell 8% to 1.8 billion euros. The gross operating margin had fallen from 6.8% to 3.9%.
Above all, Mediapro entered the already heavily indebted crisis, supporting 923 million in debt at the end of 2019, i.e. 4.6 times the gross operating surplus (Ebitda). Little consolation: the clauses (covenants) of its bank loans prohibited Mediapro from having in 2020 a gross debt exceeding 4.5 times the gross operating surplus. Given the deterioration in results, these clauses would have been violated at the end of June or at the end of September, making the credits immediately payable. But on June 17, Mediapro obtained permission from its creditors not to respect these clauses until September 2021.
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All these elements have been on the table for months, even years, but French football did not want to see them, blinded by the millions promised by Mediapro. He did not want to see that the promised 814 million euros per year seemed huge compared to the turnover of the Spanish (1.6 billion euros in 2017) and its gross operating surplus (187 million euros in 2017).
Nor did he bother to read the reviews of rating agencies, admittedly written in English and in tough financial jargon. He would then have seen that, when the LFP awarded him the rights in May 2018, the Spaniard was already heavily in debt and classified in the speculative category (junk bonds) : BB- at Fitch, and a notch below (B1) at Moody’s. The latter agency pointed to the absence of positive cash flow before 2016, and a mediocre gross operating margin before 2015. By way of comparison, the owner of Canal Plus Vivendi is classified in the investment category and rated five notches above at Moody’s (Baa2). That’s not all. Just before, in February 2018, Mediapro had landed the Italian Serie A for 1.05 billion euros per year, but had “planted” the Italians by never paying the money.
In addition, the number of subscribers targeted by Mediapro in France (3.5 million) seemed delusional. During the last season, Ligue 1 achieved on Canal Plus an audience of only 851,000 viewers on average, a figure in regular decline (it was twice as much for the 2008-09 season). Supposed to be the peak audience, the classico PSG vs OM in October 2019 only gathered 1.9 million viewers.
Finally, Mediapro’s main activity remains the trading of sports rights, which it buys only to then resell them. Most of its profits (40% of gross operating surplus in 2018) come from its marketing activity outside Spain of rights to the Spanish championship. In France, he tried in 2019 to sell his best lot to Canal Plus at cost price, according to the world.
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In the absence of Mediapro, can the LFP turn to its main shareholder, the Chinese investment fund Orient Hontai Capital Investment Co Ltd? In 2018, the latter bought out 53.5% of Catalan for 552 million euros, through a holding company registered in Hong Kong and called Kunshan Technology Investment (HK) Ltd. Founded in 2014, Orient Hontai Capital is part of the Orient Security group, a major financial company listed in Shanghai and Hong Kong. In 2016, Orient Security’s main shareholders were Shenergy Group (30%, a conglomerate specializing in energy owned by the Shanghai government) and two companies registered in the British Virgin Islands: Hung Jia Finance Ltd (9.4%, owned by Chinese magnate Zhu Lijia) and Bocom International Global Investment Ltd (9.3%, a subsidiary of the public bank Bank of Communications Co. Ltd).
In short, Orient Hontai Capital is certainly solvent. But the LFP does not benefit from any joint surety on its part, according to the world. And anyway, foreign companies are still struggling to succeed in Chinese justice. Faced with this desperate situation, some football players would think of asking for help from Laurent Wauquiez, whose region is twinned with the city of Shanghai …
Contacted several times, Mediapro never responded.