AFL puts clubs first in debt crises

The AFL has made it easier for clubs to overcome their financial crises by allowing them to repay other creditors before repaying the millions they borrow from the league.

In what is an important concession to the clubs that already carry major debts, such as St Kilda and the Brisbane Lions, the AFL has protected those that borrow from the league.

In effect, the AFL has placed the league – as the protector of all 18 clubs – behind the other creditors, such as the banks that clubs have borrowed from. Clubs view this step as essential in order for some of them to survive and trade out of their difficulties in future.

In the document signed by the clubs as part of the AFL's emergency rescue package, the AFL specified that the league did not have to be repaid by the clubs until the boards of those clubs determined that they could make the repayments.

St Kilda owes the AFL about half of their estimated $12 million debt – with the rest owed to the bank – a liability that is set to increase significantly in the course of 2020, while Brisbane owes the AFL about $10m, with a further $7m owed to Westpac. The Lions have a gaming asset that earns about $2m per annum as security for the bank loan.

The AFL document that sets out terms of the AFL funding – which will be initially an interest free loan, with interest charged from October – would be "subordinated to all other liabilities incurred by the club".

"Funding will be provided on the basis that the AFL will not require payment of the AFL funding except at such time as the board of the club determines that the club is able to make that repayment and continue to pay other debts as and when they fall due for payment," the document read.

"All AFL funding will be subordinated to all other liabilities incurred by the club in the course of ordinary operations."

The AFL is acting as a virtual administrator and financial guarantor of the clubs, although the clubs have split into the camps of assisted – the majority, who will be given loans to fund all their operations – and "unassisted" , who will fund themselves, outside of player payments (which the league pays entirely).

Hawthorn, Collingwood, West Coast, Richmond and the Western Bulldogs have decided to be unassisted while Essendon's position is not yet determined, with the remainder of the clubs opting for the AFL full assistance at this stage.

Clubs can, however, switch from assisted to unassisted at any stage if their financial position improves, or conversely, the clubs that are "going it alone" can put their hand up for AFL loans, though they will be charged a penalty if they are later.

Club sources suggested that this leniency for clubs on debt repayment was absolutely essential to protect both the clubs and the directors of those clubs, who can otherwise be liable for trading while insolvent if the clubs cannot meet their debts.

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