Transcript: Football clubs are pouring billions into stadiums

This is an audio transcript of the FT News Briefing podcast episode: ‘Football clubs are pouring billions into stadiums’

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Marc Filippino
Good morning from the Financial Times. Today is Monday, January 8th, and this is your FT News Briefing.

The biggest banks in the US are set to report a pretty steep rise in bad loans. And a legal battle over a failed social media company is raising questions about SoftBank’s business practices.

Joe Miller
I think whatever happens in these cases and whatever the final outcome is, it doesn’t look good for SoftBank.

Marc Filippino
Plus, a new era of major stadium renovations is under way in Europe. I’m Marc Filippino and here’s the news you need to start your day.

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America’s largest banks seem to have a bit of a bad debt problem. Non-performing loans are expected to hit at least $24bn in the fourth quarter of 2023. This is debt tied to borrowers who haven’t made any payments in the past three months. And it’s happening at JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. Analysts estimate that this pileup of bad debt will drag down the fourth-quarter earnings for these banks. Those will be announced later this week.

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SoftBank is in the middle of a bitter legal battle over a social media app it sunk $150mn into. Investors quietly shut down the app, called IRL, in 2022 because they said almost all of its users were fake. They’re suing the founders for defrauding them, and the founders have countersued. The whole ordeal has raised more questions about how SoftBank does its due diligence before investing in a company. And I’m joined now by the FT’s Joe Miller to talk about it. Hey, Joe.

Joe Miller
Hey. How are you doing?

Marc Filippino
I’m all right. So can you walk us through the events leading up to the lawsuits?

Joe Miller
Yeah. So IRL was this small social media app that was launched in 2018 by an entrepreneur who was targeting so-called Gen Z, younger users who wanted a more, quote unquote, intimate group messaging platform. And it managed to attract some funding from some venture capitalists in Silicon Valley. This was at the height of the, you know, zero interest rate venture capital boom. And eventually they did claim to be actually attracting upwards of 10, 15, 20 million users, primarily teenagers in the US.

Marc Filippino
And this is where these fraud allegations come in, right? How did they come about?

Joe Miller
Right. So this is where it all gets a little bit complicated. Some of the former staff of IRL were beginning to suspect that IRL was really just a giant fraud. These former employees started investigating, started to look into the data behind the scenes. And what they found was quite troubling to them. They found, for example, that in some of the supposedly large groups, most of the messages were just one-word greetings. So that would suggest perhaps they were written by bots and not real users. They found that many of the images exchanged were stock photos. Eventually some of the employees blew the whistle to the SEC. And at some point, SoftBank and the other investors got concerned enough to launch their own investigation. And then they claimed that they found that 95 per cent of the users were indeed bots, and they hastily closed down the entire app. They then sued the founders of the app for fraud.

Marc Filippino
I just want to jump in and say that both SoftBank and IRL declined to comment. But some of your sources from within IRL say that there are technical explanations for those anomalies. Beyond that, what are the co-founders alleging in their countersuit?

Joe Miller
So they say, what happened was that SoftBank, in the aftermath of the WeWork debacle in which it lost billions of dollars and other investments, that it was embarrassed by what was going on at IRL, and it prematurely shut down the app because it didn’t want any further embarrassment and that the site was actually dealing with these bots, but that SoftBank wanted to get its hands on the 40mn in cash that was still in the business and essentially shut the whole thing down before they got any more negative headlines.

Marc Filippino
Joe, you mentioned WeWork and I’m glad you brought them up because it is arguably the biggest and best example of a bet gone wrong by SoftBank. How does this compare?

Joe Miller
So when I was doing the reporting, the former employees said that they were beginning to suspect that this was another WeWork and there were some of the same hallmarks, even though the investment by SoftBank was far, far, far smaller. There seems to have been a relationship with a charismatic founder here, Abraham Shafi. And some said that this guy reminded them of WeWork’s Adam Neumann. And this is also similar to WeWork in that it was targeted at a younger generation. WeWork would go on about selling a lifestyle, and IRL was about building communities. So some of the rhetoric was very, very similar, even though, as I say, you know, the amounts involved are much, much smaller when it comes to IRL.

Marc Filippino
What’s to say more largely about SoftBank and its due diligence? I mean, are people starting to worry that SoftBank may not have a good nose for the right bets?

Joe Miller
I think whatever happens in these cases and whatever the final outcome is, it doesn’t look good for SoftBank because either the company was spraying around cash without doing particularly good due diligence, or if the plaintiffs in the founder’s case against SoftBank are correct, it was overreacting to some mistakes that it had made, including WeWork, and actually shutting down good companies because it no longer fit with the public image that SoftBank wanted to portray. I think it’s fair to say that none of this looks particularly good for the company, whatever ends up being the resolution to these cases.

Marc Filippino
Joe Miller is the FT’s US legal correspondent. Thanks, Joe.

Joe Miller
You’re welcome.

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Marc Filippino
Construction is booming across Europe, but maybe not in the areas you might expect. Stadiums are getting a serious facelift. Top soccer clubs are pouring investment into renovation projects, and it’s resulting in a bit of an arms race. Here to talk to me about it is Josh Noble. He covers sports for the FT. Hey, Josh.

Josh Noble
Hey. How are you doing?

Marc Filippino
I’m doing all right. So what’s going on here, Josh, for these, you know, soccer, football stadiums? What’s the big interest in stadium renovations?

Josh Noble
So I think we’ve got a couple of things happening here — sort of a push and pull. In European football, there’s been this wave of investment coming in from the US, typically from people with a background in sports, you know, baseball, NFL, because they see the opportunity to make money. And a key part of that is upgrading the facilities and trying to bring some of those US practices of turning a stadium into a kind of year-round entertainment district. So that means getting Taylor Swift to play when the football team is away from home. There’s also been a bit of a pull, I think, within football, because we’ve seen a bit of a slowdown in growth there in terms of the money coming in for TV rights. So clubs are looking for anywhere they can eke out a bit of extra money from assets they already own.

Marc Filippino
So, Josh, can you maybe give me an example of one of these stadiums going through a major renovation? Like what are some of the features that they’re building?

Josh Noble
Well, I guess Real Madrid is the one that is likely to catch people’s eye in the next few weeks and months. They’ve stayed in the current stadium, the Santiago Bernabéu. And the one that people really talk about is the pitch, which at the press of a button or maybe a few levers, splits into six sections and then disappears underground, where the grass then goes and sits in a light- and temperature-controlled vault where it can carry on growing. Meanwhile, up above you have Rihanna or Beyoncé or whoever, playing their gig upstairs. But the grass, you know the sacred grass, is protected down below. And then the big thing, actually, from a sort of slightly more mundane business point of view, is these places are all gonna have restaurants and bars and retail outlets so that when the football’s not on, people still have a reason to go there and spend money.

Marc Filippino
Yeah, but are all these upgrades gonna make it more expensive to go to an actual game?

Josh Noble
Well, it sort of depends who you speak to, because a ticket for an average fan to a European football match, it’s been sort of relatively steady, depending on kind of which club you go to. So there is a kind of element here where a club must have to, must weigh up, like, is it worth us squeezing 20,000 fans dry when actually there’s more money to make in other ways. Whether that’s through getting people to come to restaurants on different days or, more importantly, hospitality. If you can get rich people to come and pay loads of money to sit in a nice box, have a meal and watch in a very, in a heated seat . . . Actually, I had my first experience of a heated seat . . . 

Marc Filippino
No, you did not. You had a heated seat at a game?

Josh Noble
Yes. I didn’t know they existed, but I got one and it was lovely actually.

Marc Filippino
That is amazing.

Josh Noble
And so if you can get people to fork out loads of money to get a heated seat and a nice glass of champagne at halftime, that means you can keep the seats for Average Joe basically where they are now. At least that’s what some of the clubs say when you ask them about this.

Marc Filippino
I would certainly pay extra for a heated seat. I am not gonna lie. So all these amenities sound nice, and building towards it could ultimately be a good thing. But how are they funding these things?

Josh Noble
Yeah. It’s interesting. What they’ll typically do is they’ll go and get financing, perhaps from a commercial bank who will fund the cost of the actual construction, and that can run into the hundreds of millions of pounds or euros or whatever. When the stadium is actually finished, the entire financing picture changes because then you have an asset that you can borrow against. So suddenly your ability to access cheap funding changes dramatically, at the moment you get the keys to the stadium.

Marc Filippino
I got to imagine that this leaves out smaller teams who may want renovations, but can’t necessarily afford it, or figure out the financing model for it.

Josh Noble
It’s certainly harder for smaller teams to make the numbers work, but it’s just a necessity. You know, you can’t play in a stadium that was built in 1925 forever. At some point you either have to take the plunge, spend the money and get fit for the 21st century, or you’re just gonna get left behind. It’s just something you have to manage the risks of as best as you can and go for it.

Marc Filippino
Josh Noble is the FT’s sports editor. Thanks, Josh.

Josh Noble
Thank you.

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Marc Filippino
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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