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Thursday 18 September 2014

FAI can steer clear of Aviva turbulence

Published 23/10/2011 | 05:00

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The FAI and the IRFU sold on their sponsorship deal with Aviva for the naming rights of the new Lansdowne Road stadium to a third party for an upfront payment of €35m.

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The associations signed a 10-year deal with Aviva in 2009 worth in the region of €44m, with the payments spread out equally over the 10 years of the agreement. However, in a bid to generate an instant return on the deal, the associations sold on their claim within months.

The Aviva Stadium is run by a company known as New Stadium Ltd, which is owned equally by the FAI and the IRFU. As a result of the deal, the new stadium company received a lump sum payment from the third party, thought to be an Irish-based investment fund, to which Aviva will now make the annual payments for the remainder of the sponsorship deal.

According to one source, the deal was agreed in order to generate a sufficiently large sum of money to help complete the stadium, which was officially opened in May of last year. However, he added that it was also felt that cashing in early on the deal with Aviva removed all risk to the FAI and the IRFU for the lifetime of the naming rights.

It is believed that the sponsorship deal with Aviva was bought from New Stadium Ltd by the Dublin-based investment bank, NCB Group, which was set up by Dermot Desmond and is now partially owned by the Quinn Group. According to a market source, NCB did the deal on behalf of "private clients of NCB and pension funds, with a bias towards domestic pension funds".

Senior figures in both the FAI and the IRFU felt it was a good deal at the right time.

"It was a good deal," confirmed the source. "We took the income stream and securitised it so that they [the FAI and the IRFU] could get paid up front. There's an attractive yield and it has the backing of Aviva."

An independent financial advisor told the Sunday Independent that the two associations had brokered a very good deal for their members in the current climate. Essentially, the investors coughed up €35m to guarantee a return of €44m after 10 years, at a fixed interest rate of 2.6 per cent per annum. In the view of some market analysts, this in fact represents a moderate return for the investors.

Details of the deal emerged during a week in which Aviva's Irish workforce was left reeling by the news that the British insurance giant is shedding up to 950 jobs here, prompting one Fine Gael senator to call on people to refer to the stadium only as Lansdowne Road. However, despite Aviva enduring turbulent times in its Irish franchise, the company "has an irrevocable commitment to pay out", according to a source close to the deal, adding that it was "iron-clad".

New Stadium Ltd has just posted its financial results for 2010 and they show a loss for the year of €7.162m. However, the company effectively only traded for seven months and a significant portion of the loss can be attributed to set-up costs and, according to the directors' report filed with the companies office this month, it has moved into profitability since the turn of the year "in line with the corporate plan".

In its first seven months, the Aviva Stadium attracted over 600,000 people to 15 different events -- including soccer and rugby internationals, the FAI Cup final, Heineken Cup and Magners League games and two Michael Buble concerts.

The development of the stadium has naturally put a significant strain on the resources of the IRFU and the FAI but it is the latter whose finances have been under greater scrutiny over the last 18 months after its very public failure to meet its own ambitious targets on advance corporate and premium ticket sales.

Chief executive John Delaney has repeatedly been forced to publicly deny the FAI is in a financial crisis.

Last year, the association recorded a modest surplus of €57,000 and at this year's agm in Ennis, Delaney (pictured) revealed that its current debt stood at €50m. "The association has invested €88.9m in the Aviva Stadium," he said, "giving us joint ownership of a €411m stadium and we remain on target to return to a debt-free status in 2020." Interestingly, that is also the year the naming rights for the stadium will be up for offer again.

Certainly there has been some over-the-top accounts of the FAI being in crisis. Even in a climate where banks are nervous about debt levels -- and although its finances are tightly monitored by its banker, National Irish Bank -- it is understood the bank remains comfortable with the repayment schedule.

NIB, as part of the security on its lending to the FAI, has registered a charge on assets and this naturally includes the association's interest in the stadium itself, plus other assets such as available funds in bank accounts and proceeds from ticket sales.

The FAI frequently requires a mechanism known as deed of partial release -- a formal agreement between itself and the bank -- so it can function freely around home internationals. Effectively, it is a temporary contract between the NIB and the FAI in which the bank then releases these reins around big games and is seen in some quarters as something of a sign of confidence. The FAI has been engaging in forward hedging -- a means of raising cash on anticipated future ticket sales -- with a small percentage of seats, again with the bank's approval, and these deeds are also related to this arrangement.

The most recent agreement was on March 28 to cover next month's home leg of the play-off and also proposed friendlies next February and May. Another dated December 14 last covered a total of seven home games, including the most recent against Armenia.

So while it is clear that the FAI must run a tighter ship than ever before -- which is hardly a big surprise -- talk of a crisis is still wide of the mark.

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