How was the Inter of "Suning Prince" Zhang Kangyang "harvested" by American capital?

Bronco Finance

2024-05-26 17:50Posted on the official account of Shanxi Bronco Finance

Glory on the pitch doesn't mean success or failure off the pitch.

Author | Zhang Kaijing

Editor丨Gao Yan

Source | Bronco Finance

Love rises with the wind, and the wind stops.

On May 25, Zhang Kangyang, Suning's "young master" and former president of Inter Milan Football Club, posted a long post on social media to say goodbye to Inter. "I always knew that one day we would say goodbye. Honestly, I wasn't ready, and probably never will. ”

Taking this opportunity, Zhang Kangyang thanked the management team, players, coaches and fans who fought side by side, and lamented that Inter was "the greatest honor in his life".

Source: Zhang Kangyang Weibo

Prior to this, on May 22, Oaktree Capital announced that the fund company managed by Oaktree Capital had become the owner of Inter Milan Football Club due to Suning's failure to repay the three-year loan provided by Oaktree when it matured on May 21, totaling about 395 million euros. Soon, Oaktree Capital will restructure the Inter board of directors and elect a new club president to replace Zhang Kangyang.

At first, Zhang Kangyang was not relieved. In a public statement on 18 May, Inter said that Inter had been making every effort to find an amicable solution as the repayment date approached. "Regrettably, our efforts to date have been thwarted by unilateral legal threats and malicious actions by Oak. Not only is this deeply disappointing and angry to us, but it also destroys the gains we have made and seriously jeopardizes the future stability of the club. It also wants to launch a lawsuit battle for control of Inter.

Source: Official website of Milan Sports Newspaper

And this farewell letter seems to mark that everything has been settled.

In longitudinal comparison, Zhang Kangyang is the president who has won the second most trophies for the team during his tenure in the history of Inter. In 8 years, Inter Milan won the Serie A championship twice, the Coppa Italia twice, the Italian Super Cup three times in a row, won 7 championship trophies, and returned to the Champions League final last year after 13 years. Today's Inter Milan has the hottest ball market in Serie A, with an average audience of more than 70,000 per game. Next season, Inter players will also have a second star on their shirts (one star representing 10 Serie A titles).

Zhang Kangyang has worked hard for 8 years, but why did he make a wedding dress for others? How did Suning lose Inter on earth?

When the epidemic hit, Oaktree Capital became a "life-saving straw"

Inter's marriage with Suning began in 2016. Suning's Sports Industry Group acquired about 70% of Inter's shares by subscribing for new shares and acquiring old shares for a total consideration of about 270 million euros, and Zhang Kangyang took advantage of the situation to enter the board of directors of Inter. China's first company with absolute control of a European giant team was born.

When Suning bought Inter, Zhang Kangyang was not yet 25 years old.

From the perspective of that time, Suning was a success in "buying the bottom". Because just two and a half years ago, Indonesian billionaire Tohir bought 70% of Inter's shares for 360 million euros.

But it's not easy to get a real return on this investment. Going back in time, even the legendary president of Inter Milan, who has served for 18 years, has lost more than a profit on the club's account during his tenure, not to mention Thohir, who has a declining income and high debts during his tenure. This club, compared to the cash cow of capital, is more like the "plaything" of a rich man with feelings, which made the outside world once question that Suning was "digging a pit" for himself.

However, Suning is clearly prepared. After entering Inter, Suning and Zhang Kangyang immediately started rebuilding.

Source: Canned Gallery

In terms of management, Inter Milan switched to the co-CEO model, separating sports competition from club operations, and poached legendary manager Marotta to be responsible for sports competition, and Antonello to be responsible for the company's operations, ensuring that professionals do professional things.

In terms of operation, Suning helped Inter get rid of its historical burden by injecting capital, providing shareholder loans, and replacing high-interest debts during the Tohir period with low-interest debts; On the one hand, it uses its own resources to connect Inter and Chinese sponsors, and at the same time develops IP products such as peripherals and customization to increase income; During this period, Inter's squad also ushered in a major change, and the team gradually changed to a healthier salary structure.

After a series of combinations, Inter's revenue doubled in three years despite the decline in the commercial attractiveness of Serie A, and significantly reduced its losses compared to the Tohir period. The team's brand value has increased by 138% in two years, and it once saw hope of turning around its losses.

And the hidden danger is also buried. After more than two years of dormancy, in order to improve the team's performance, Zhang Kangyang did not hesitate to lose half of the total loss of the year to fire the head coach and introduce the famous coach Conte; At the cost of breaking the club's transfer fee record, it is also necessary to recruit big-name stars. This did have an immediate effect, and Inter quickly regained the Serie A title, but the unexpected spread of the new crown epidemic led to two serious consequences: first, the club's income plummeted, and its self-hematopoietic ability declined; Second, including Suning, it is difficult for domestic financiers to protect themselves, and it is difficult to maintain high investment and sponsorship.

Source: Canned Gallery

Inter has not yet completely shaken off the shadow of debt, and it happened to be spending heavily at a time when income plummeted and financiers were in trouble. Even so, Inter Milan is still bringing in famous veterans with high salaries. "Sports Weekly" reported that this is related to Inter's belief in the European Super League. The European Super League is a new competition created by the big five league teams, which can allow the participating teams to make a quick buck, but under the obstruction of FIFA, the European Super League is finally stillborn.

Many outlets were blocked, and funding problems erupted. In the 2021 financial year, Inter Milan lost 246 million euros, the largest in the history of the club, and Zhang Kangyang once wanted the players and coaching staff to give up two months' salary to reduce the team's expenses, while constantly negotiating with investment companies to raise funds.

Including British private equity investment fund BC Partners, Saudi sovereign wealth fund PIF, Bain Capital, etc., many institutions have had "scandals" with Inter. However, Inter's excessively high debt discouraged institutions, and the remaining institutions that were still interested in the offer could not meet Suning's expectations.

It is in this context that Oaktree Capital has become Zhang Kangyang's only hope. The world's largest distressed asset fund promised Suning €275 million in exchange for a 12% annual interest rate on the loan guaranteed by Inter's equity, with a series of restrictions. When it expires in three years, Suning will return 375 million euros with interest.

Selling is blocked, financing is difficult,

Zhang Kangyang had no choice but to hand over power

It seems that Zhang Kangyang has three years to prepare for the repayment of this huge amount. It can both find new receivers for the club and seek other financing.

Inter are also competitive enough. In the three-year cycle of Oaktree Capital's borrowing, Inter's performance on the pitch has exceeded expectations.

In order to reduce the team's expenses, Inter said goodbye to the champion coach Antonio Conte 25 days after winning the Serie A title in 2021, and then sent away a group of high-paid players. However, thanks to Marotta's exquisite management, the team's competitive level has risen instead of falling. In fact, Suning won 7 championships in 8 years at Inter, it can also be said that it won 7 championships in 3 years, and the 2021 Serie A championship was the beginning, and it has been out of control since then.

With the foundation of the record, Inter's income has been rising. In the 2021-2022 fiscal year, Inter achieved a revenue of 439.6 million euros, breaking the highest record set in the club's history before the pandemic, while in terms of losses, Inter Milan fell from 246 million euros in the 2020-2021 financial year to 85 million euros in the 2022-2023 fiscal year, and in the first half of the 2023-2024 financial year, Inter Milan turned a profit and achieved a net profit of 22.3 million euros.

Everything is developing for the better, but the fate of Inter, since the moment it borrowed from Oaktree Capital, is no longer in the hands of Zhang Kangyang.

Source: Canned Gallery

According to Sport, there is a clause in the loan contract between the two parties: if Inter are sold, Oaktree Capital will receive an immediate proceed equal to 20% of the difference between the club's expected valuation (800 million euros) and the actual sale price. The clause also stipulates that even if Suning repays on time, Oaktree Capital will still receive the money if Inter is sold within 18-24 months of repayment.

In other words, Oaktree Capital hopes that Suning will find a buyer as soon as possible and sell Inter for more than 800 million euros. In this way, Suning can get a return, and Oaktree Capital can earn a spread. The higher Inter's selling price, the more Oaktree Capital earns.

This valuation is also in line with Zhang Kangyang's psychological price. Fabrizio Biasin, a veteran reporter for Inter, said that Zhang Kangyang put a price tag of 1.2 billion euros on the club; In the market, sports business websites and commercial media also value Inter Milan in the range of 1 billion to 1.2 billion euros. But it's one thing to estimate, it's another thing to sell.

As early as 2022, there was news in the market that Suning had entrusted the Bank of America Rennes and the investment bank Goldman Sachs to help find Inter buyers. The crux of the matter is that Suning borrowed money from Oaktree Capital to support the loan with loans, and the problem of high loans and funding gaps left over the years has not been completely resolved. According to Sport, Inter's net debt remained at 437 million euros at the end of June 2023.

Going round and round, Inter still faces the same problems as before Oaktree Capital intervened. In addition, Zhang Kangyang was collected by CCB globally, and his credit plummeted, so that Rennes and Goldman Sachs were also a little powerless, and they tried hard for at least 18 months but failed to find a receiver.

It's not okay to sell the team, so what about continuing to raise money? On this path, Inter tried to renegotiate an agreement with Oaktree Capital, but the latter demanded higher interest and shorter terms than the previous contract.

In comparison, the U.S. Pacific Investment Management Corporation (PIMCO) offered Suning better terms. At one point, it negotiated a three-year loan worth 430 million euros with an annual interest rate of 15% with Suning.

Source: Canned Gallery

This is obviously something that Oaktree Capital does not want to see. Zhang Kangyang could have waited until the 24-month special clause expired before selling Inter, so Oaktree's attempt to make a profit margin would have been completely frustrated. This is also the reason why Oaktree Capital blocked Zhang Kangyang's negotiations with PIMCO.

Another provision in the loan contract between Oaktree Capital and Suning is that if a third-party institution intervenes in the transaction between Suning and Oaktree Capital, Zhang Kangyang must pay a fine of 50 million euros in addition to the principal and interest of the loan.

After repeated attempts were frustrated, Zhang Kangyang issued a statement on social media angrily denouncing Oaktree Capital. Renowned journalist Di Marzio reported that Oaktree Capital does not intend to respond to Zhang's statement, arguing that the terms of the contract have been very clear, these conditions have been set for three years, and that repayment is not a legal threat, and Suning Group must repay the loan before the deadline, otherwise Inter's ownership will change.

The capital market is not emotional

From joining the Inter board at the age of 25, to becoming the youngest president in the club's history at the age of 27, to handing over control of the team at the age of 33, Zhang Kangyang dedicated his youth to Inter Milan, and also paid an expensive tuition fee.

Zhang Kangyang's deep affection for Inter is undoubted. The broadcast camera can always capture the scene of Zhang Kangyang coming to the scene to cheer for Inter. Inter returned to the Champions League, Zhang Kangyang shed tears on the field; Inter won the championship, Zhang Kangyang and the whole team opened champagne to celebrate; Many players and coaches of Inter Milan have frequent interactions with Zhang Kangyang and have a high evaluation of him; Recently, when Inter Milan held a Serie A championship celebration at home, some fans spontaneously put up a banner in the stands saying "Thank you Steven...... Many people in the industry also have praise for Zhang Kangyang, such as market observers and big V Wang Guanxiong.

Source: Screenshot of Moments

However, from the beginning to the end, Oaktree Capital has chosen a profit-maximizing route. The restrictive clauses attached to the contract with Suning are all to allow Suning to quickly change hands to Inter.

After all, according to the financial situation of Inter and Suning at that time, if Zhang Kangyang wanted to turn the tide, it would be as difficult as ascending to the sky, and the options to stay in front of him were very limited. Regardless of Inter's performance on the pitch, a change of control in the team is almost a foregone conclusion.

Shen Meng, director of Chanson Capital, believes that even if Suning raises financing at a higher cost, it will only make it look good, and it will carry a heavier burden on itself and Inter Milan.

What's more, now is the high point of Inter's value, and the aura of 7 titles in 3 years and the turnaround in the first half of the 2023-2024 fiscal year is still a question. Shen Meng said that European football clubs, especially Italian clubs with a glorious history like Inter, have almost no possibility of operating profitably, and without exception they exchange various inputs for results. The turnaround in the first half of the year was mainly due to the various bonuses and TV rights dividends obtained from participating in the Champions League, as well as the proceeds from the sale of players, which were not continuous.

Source: Canned Gallery

In this case, no matter how emotionally inseparable the fans and Zhang Jindong and Zhang Kangyang father and son are, Oaktree Capital will not have the idea of dragging it out. After taking over Inter, he will also be more active in seeking to sell rather than wanting to hold on for the long term.

At the end of the day, the champion doesn't bring everything, and once you're on the table of capital, you're willing to gamble and lose.

What do you think of the story of Zhang Kangyang and Inter? Let's talk in the comment section!

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