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How Macquarie is becoming the Afterpay of English soccer

Two of my greatest passions are investing and soccer.

Unfortunately, it isn’t often that these two passions combine, but when they do it usually grabs my attention.

How have they combined?

Next month when Macquarie Group Ltd (ASX: MQG) releases its half year results, some of its profits will have been generated from the English Premier League.

Macquarie is currently playing an integral role in the English Premier League through a practice called transfer fee factoring.

Transfer fee factoring is a bit like Afterpay Touch Group Ltd (ASX: APT). It is where a bank helps a soccer club get paid early, by lending against payments due from a customer.

This is extremely helpful for clubs because there is a growing trend for transfer fees to be paid in instalments.

Whilst instalments are great for the buying club, they are less so for the selling club. This is because of VAT (GST), which currently stands at 20% in the UK.

Clubs must pay VAT on player sales immediately. Which means that if a club were to sell a player for £100 million, it would immediately be hit with a VAT bill of £16.67 million.

If the transfer fee has been structured to be repaid over five equal instalments of £20 million, that leaves just £3.33 million for the club to sign a replacement with in year one.

But by transfer factoring with Macquarie, the club can receive the transfer (less the bank’s fees) upfront. Macquarie is believed to command anywhere from 5% to 7% of the fee in exchange for the repayment risk.

Which deals have Macquarie been involved in?

Macquarie is believed to have been involved with a number of high profile transfers in the English Premier League.

These include Riyad Mahrez’s £60 million move from Leicester City to Man City, the £26 million transfer of Tyrone Mings from Bournemouth to Aston Villa, and Richarlison’s £50 million transfer from Watford to Everton.

Should you invest in Macquarie?

Whilst transfer factoring is not likely to be material to its overall results, I believe it demonstrates how the bank is always on the lookout for a good deal. Something which has clearly played a role in its success over the last decade, which has resulted in strong returns for shareholders.

All in all, I think it is a great alternative to Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four banks and would class its shares as a buy at current levels.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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