Investors are being offered a return of 6.5% a year on a bond issued by Wasps rugby club, which is hoping to tap fans for up to £35m.
The bond is secured against the club’s new home, the Ricoh Arena in Coventry. Although it can be put into an Isa, making the 6.5% interest tax-free, there is a sting: like other retail bonds there is no safety net protection scheme for investors if the club ever goes bust.
Wasps recently bought the Ricoh Arena from Coventry city council and the Higgs Charity for £20m, and some of the money raised from the bond will be used to pay off outstanding loans and tidy up the club’s balance sheet.
The bond offers a fixed gross interest of 6.5% a year until 2022, paid semi-annually. The minimum investment is £2,000 and investors who want to sell their holdings before 2022 can do so through the London Stock Exchange, but the price of the bonds can fall as well as rise.
Some recent bond offerings have collapsed, with so-called “secured” bonds turning out to be near-worthless. Nearly 1,000 small investors who put a total of £7.5m into Secured Energy Bonds, which promised to pay an income of 6.5% a year, are unlikely to get a penny of their money back after it emerged in January that the cash was siphoned off to an Australian company that later went bust.
Investors in the Wasps bond issue need to understand that the rugby club is a financial enterprise like any other and that it can fail. But in the event of a collapse, Wasps says bond holders would have first rights to the stadium, a 32,600-seater that includes a 6,000 sq m indoor facility that can host up to 12,000 people, as well as a casino, two restaurants, a 121-room hotel and more than 20 retail, food and beverage outlets on site.
But how will Wasps pay the 6.5% a year interest to bond holders, which – if the full £35m is taken up – will cost the club £2.1m a year? The Wasps average home gate was just 6,384 people when the club was at its Adams Park home in High Wycombe, 19 miles north-west of London. Early games at the Ricoh Arena have attracted larger crowds – more than 20,000 at the first one – but whether this will be sustained is another question. Currently, Wasps is sitting midway down the Aviva Premiership table.
The club will receive rent from Coventry City football club, which returned to the Ricoh stadium in 2014 after a long-running battle with then owner Coventry council. Wasps also shares lucrative television rights. In March, Premiership rugby signed a four-year extension to a 2012 deal with BT, which was £152m at the time but is understood to be significantly higher now.
Wasps’ chief executive, David Armstrong, told BBC Radio 5 Live that the club expects to become among the strongest financially in the league. “We were previously the second lowest revenue-generating club in Premiership rugby,” he said. “We are now the second highest in Europe. In terms of size of revenue, we will overtake Toulouse in the next few months. We are in a strong position financially.”
Jason Hollands of financial adviser BestInvest said: “The headline yield is certainly attractive in the current environment and will undoubtedly appeal to wealthier Wasps supporters wanting to show their support for the club as it seeks to develop the Ricoh Arena in Coventry.
“But potential investors need to bear in mind that this isn’t a guaranteed investment and the indicative size of the issue – between £25m and £35m – means it could be quite illiquid, so it needs to reward investors with a higher yield than an investment grade bond or bond fund.”
This article was amended to correct the price the Wasps paid for Ricoh Arena