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Out-Law Analysis 4 min. read

The role of strategic partners, investors and patrons in financing German football


Investments by strategic partners, financial investors and patrons offer many advantages for football clubs. Common goals and well-designed contracts hold the key to success of these alliances.

Investments by strategic partners can change the future of a football club. Proof provides the example of the 1. FC Kaiserslautern, a German football club which recently filed for insolvency. According to newspaper articles, an unknown investor has now made an offer that might save the club from ruin.

In Germany, football clubs can finance themselves in many ways. In contrast to traditional debt financing, where the lender grants a loan and earns interest on it, investors often try to achieve their own goals by allocating substantial funds. Investors can be categorised as strategic partners, financial investors or patrons.

Friedl Markus J_April-2020

Dr. Markus J. Friedl, LL.M.

Rechtsanwalt, Partner, Head of Office, Frankfurt

Common goals of the project must be defined and the legal basis must be designed reasonably to make it successful.

Strategic partners such as car manufacturers or insurance companies grant the clubs capital in exchange for shares. The aim is not a profitable financial return on investments. In most cases the partnership's main function is marketing: to generate sales or improve the company's image.

Collaborations with strategic partners are very attractive for football clubs. Nevertheless, common goals of the project must be defined and the legal basis must be designed reasonably to make the project successful.

Financial investors simply provide capital. The financial return during a specific investment period is their focus. Any other synergies, which are very important for strategic partnerships, are of less importance to them.

Although the goals of the financial investor differ from the goals of the club, the investment is still attractive for a football club, as the club can still make use of the money for new players or infrastructure.

However, German national league clubs are not very attractive to investors because of the 50+1-rule, a regulation by the German Football League which says that German football clubs must hold the majority of their own voting rights to be allowed to compete in the Bundesliga. The club's members must own 50% plus 1 share of their club. This is to protect the club from the influence of external investors.

Also, most German clubs' statutes prohibit them from financing themselves on a larger scale through this kind of investments.

Patrons are wealthy people with a long-lasting emotional connection to the club. Patrons scarcely pursue financial or economic purposes with their investment. They care for the sportive success of their club. Nevertheless, they expect a sound financial footing to some degree.

Unless the patron tries to fundamentally change the structure of a club a patron is a very attractive source of capital and only a few clubs would refuse it.

There are two ways to invest in a football club: the investor can buy shares of the club's corporation or become a silent partner.

Acquisition of shares

Strategic partners and finance investors favour the acquisition of shares, sometimes patrons also demand it.

To purchase corporate shares, the investor must take over the shares through a subscription declaration and pay the price per share to the club company.

The price consists of the nominal value of the share - usually one euro - and the corresponding premium called agio whereby the amount of the agio reflects the market value of the club.

When shares are already in possession of a third person, the investor can buy them from that person.  When the company shares of a limited liability company – in German "Gesellschaft mit beschränkter Haftung" (GmbH) – are to be sold, a notary must certify the contract. For the selling of stock, there are no formal requirements, but it is advisable to conduct them in a written form.  

Once the investor has become a proprietor of the club, it is necessary to agree on the terms of the partnership and to record that agreement in a shareholder agreement. This agreement should reflect the particularities of the football business, the 50+1 rule and the rules for financial fair play.

Due to the 50+1 rule, customary elements of shareholder agreements, such as tag-along and drag-along clauses, can  be applied only to a limited extent.

A so-called 'call option', which enables the financial investor to increase his share up to the maximum of 49.9 %, is likely to be more effective, as it is in line with the 50+1 rule.

Further, an investor can be granted the right to appoint members of the supervisory board in order to strengthen his influence. As the right of appointment must be granted by the articles of association, it is usually subject to certain conditions. Further, the right to appoint such members can only be granted for one third of the supervisory board.

Further informational right for single proprietors or shareholders also do not conflict with the 50+1 rule, extent the competence of the proprietors or shareholders and should be specified explicitly in the shareholder agreement.

Silent partnership

Where investments from patrons are concerned, a silent partnership might be ideal, as it can remain secret.

Through the silent partnership, the investor provides capital to the club in return for a certain interest rate. The interest rate can vary; it can either be a fixed interest rate or depend on the profit of the football club. The contract parties can also agree that the silent partner will participate not only in profits but also in losses of the club.

The silent partnership will not be entered in the commercial register and does not need to be made public in any other way. This allows the investor to remain secret.  

To secure his investment and his return on investment, the silent partner usually wants to gain information and control rights. Those rights can be set out in the silent partnership agreement. Accordingly, the silent partner must regularly be provided with information on the economic situation of the club company.

In addition, certain important decisions - such as significant investments or the admission of further shareholders or silent partners - can be made dependent on the consent of the silent partner. However, the silent partner is not involved in the management of the football club and has no voting rights.

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