In the third part of our series ‘Crisis Clubs’, examining the financial states of five European football sides, James Horncastle digs into the numbers at Inter Milan, analyses how and why things have been so perilous, and plots a potential way out.
- Everton, a club of unwelcome Premier League firsts: Record £355m losses, 10-point deduction
- Barcelona, from bust to back in two years – Neymar, Messi and ‘levers’
There’s still Lyon and Hertha Berlin to come later this week — and even more insight via The Athletic Football Podcast, too.
Last month, Inter shareholders gathered in Milan’s five-star Palazzo Parigi hotel.
Inter’s 31-year-old president, Steven Zhang, joining via video call from Nanjing, the hometown of the club’s owner, Suning, shared apologies for his absence. “Sadly, I can’t be in the room with you physically this year as important projects of Suning are keeping me in China,” Zhang said.
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But the second-youngest president of a European football club after Sunderland’s Kyril Louis-Dreyfus, 25, had good news to share: Inter’s revenues for the last financial year amount to €425million (£370m; $453m), an increase of around €60m excluding player trading. The results were attributable to Italy coming out of Covid-19, stadiums reopening, and an unexpected run to the Champions League final, which Inter were unlucky to lose to treble-winners Manchester City.
On the road to Istanbul, Inter recorded the club’s highest gate receipts and brought in almost €100million in TV revenue from UEFA, European football’s governing body. Endorsements are growing. San Siro was lit up in the colours of their new airline sponsor, Qatar Airways, for the last home game, a 2-0 win against Frosinone. Inter have also renewed a kit deal with Nike and announced a one-year front-of-shirt sponsorship with Paramount+, Serie A’s rights holder in the U.S., as well as other deals with eBay and entertainment company Konami.
A regular in the front row at Milan fashion week, Zhang proudly reposted the campaign filmed by the club’s commercial team at the city’s Arena Civica promoting the latest collaboration between Inter, Moncler and Arsham: a ‘shacket’ (a shirt-jacket, if you’re wondering) retailing for €1,400. “Inter is now once again one of the top clubs in Europe,” he boasted.
They have certainly inched back from the brink. Operating costs fell by €62.5million, while action taken in the 2022 summer transfer window (the exits of Alexis Sanchez, Arturo Vidal, Ivan Perisic, Aleksandar Kolarov and others) cut the club’s wage bill.
UEFA’s Club Financial Control Body imposed a strict financial fair play settlement agreement on Inter last year, in line with the financial regulations imposed on clubs competing in Europe. But Inter still met the parameters and no sales were necessary to be compliant by June 30. The transfers of Andre Onana to Manchester United and Marcelo Brozovic to Al Nassr happened afterwards.
“We have provided the head coach (Simone Inzaghi) with a comprehensive and highly competitive squad, all the while meeting the financial needs of reducing labour costs that underscore the club’s vision for ethical, sustainable growth and respecting the parameters of UEFA’s new settlement agreement,” Inter’s CEO on the sporting side of the business, Beppe Marotta, explained.
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Things are looking up then? Former Inter coach Jose Mourinho, playing his usual mind games, believes “Inter should win the league by 20 points” and earn a coveted second star, which commemorates a 20th league title. It would be a fourth consecutive season of silverware and Zhang has vowed to fight for it “to enter into the history books of this club forever”.
His team has won the Scudetto and back-to-back Coppa Italia and Supercoppa doubles. Inter have reached Europa League and Champions League finals during his time at the helm and the core of the Italy team that qualified for Euro 2024 is drawn from his team.
But here’s an alternative perspective. In a season in which nearly everything went right on the pitch and Inter almost won the Champions League for the first time in 13 years, the club still made an €85million loss. Sure, it’s down on €140m in 2022 and €245.6m — a Serie A record – in 2021. But it is still a jaw-dropping figure and if that’s the kind of money Inter lose in an extraordinary season, what about an ordinary one?
Neighbours AC Milan, who Inter beat in the Champions League semi-finals, posted a €6.1million profit — without including the capital gain from Sandro Tonali’s sale to Newcastle, for a fee in the region of €70m, in their accounts.
Booking the Onana (€51m plus €4m in add-ons) and Brozovic sales (€18m) will help Inter’s next set of accounts — as will having a paying front-of-shirt sponsor to replace DigitalBits, which left Inter without €31.4m in expected revenue.
The conundrum, though, is even if Inter do continue to boost revenue and cut costs, how long will Zhang remain president?
This story takes us to New York, via the offshore tax haven of the British Virgin Islands, and legal action brought before the High Court of Hong Kong involving a claim — denied by Zhang — that he is personally responsible for a debt now ticking over $300million with interest. And in May, one of the Luxembourg-based shell companies Suning Holdings Group uses to control Inter (Grand Tower) is due to repay a loan it received in 2021 from U.S. asset management firm Oaktree Capital, which kept Suning’s investment breathing when Covid-19 threatened to take Inter under.
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At the end of last year, the 12 per cent interest rate sent the outstanding amount up to €329million (£287m). While not all of it has been drawn down, the time on Inter’s oxygen supply is almost up and that loan must either be repaid or refinanced, or the club is sold — otherwise, Oaktree can turn the outstanding debt into equity and repossess it.
How did they get into this mess?
There was a time when China was to football what Saudi Arabia is today.
Xi Jinping’s government decided to get serious about football with a view to bidding for the rights to host the World Cup in 2030. The super-rich were encouraged to help grow the game. Suning, a conglomerate set up by Zhang’s father, Zhang Jindong, bought a Chinese Super League club, Jiangsu, then Inter and the TV rights for Serie A and the Premier League.
The Inter acquisition was high profile and Suning spent lavishly on hiring and firing coaches and signing players.
This peaked four years ago when Luciano Spalletti was sacked at great expense (€25.8million). His replacement, Antonio Conte, became the highest-paid coach in Serie A and Inter broke their club transfer record twice in one summer: first on Cagliari midfielder Nicolo Barella (€49m) and then on Manchester United striker Romelu Lukaku (€65m plus €10m in performance-related add-ons) in an aggressive attempt at ending Juventus’ nine-year streak as champions of Italy.
On the pitch, the strategy worked. Inter won the Scudetto in 2021. But, in the meantime, the world changed. Capital controls imposed by the government in China made it harder to get money out. The Chinese state lost interest in football. The 2030 World Cup will be split between Morocco, Portugal and Spain with commemorative matches in Argentina, Uruguay and Paraguay to celebrate the centenary of the tournament.
Then came Covid-19, which challenged Suning’s ability to continue supporting Inter. Private equity group BC Partners unsuccessfully tried to take Inter off its hands during the Scudetto-winning season. Talks ended in the spring of 2021 shortly before the ill-fated European Super League launched with the reported promise of a €200million-£300million welcome bonus and €3.5bn infrastructure grant. It would have been a godsend, only it never came.
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The pandemic hit Suning hard in China. Its retail business suffered, property investments tanked, a rescue plan involving another of China’s biggest companies backfired and it was forced to sell nearly a quarter of its publicly-listed operation to the state. Jiangsu, the other football club in its portfolio, was shuttered only a year after winning the Chinese Super League. “We will close and cut down businesses irrelevant to the retail business without hesitation,” Zhang Jindong told his workforce.
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It was feared Inter would be next.
Italy and specifically Lombardy, the region of Milan, was Europe’s ground zero in the pandemic. Serie A was the first major league to shut down and stadiums were late to reopen compared to Europe’s other top five divisions. Broadcasters withheld domestic TV money, which hit teams outside the Premier League harder as their deals are worth less. Receivables from Inter’s Chinese sponsors dried up.
A week after Inter last won the Scudetto, the club’s young president appeared at the training ground. He had a request: could the players help the club out either by giving up two months’ wages or spreading the payments out.
Conte quit soon afterwards. “All I can say is my project never changed,” he explained to La Gazzetta dello Sport. His implication was clear: Inter’s project did change.
The club needed a more sustainable model and this meant high-profile sales. Achraf Hakimi was sold to Paris Saint-Germain for €66.5million. Lukaku, the league’s MVP, was shipped to Chelsea in a record sale for a Serie A club record: €113m.
Banners left in protest outside Inter’s offices stated “Zhang take your responsibility or leave our city”, but Oaktree’s lifeline had bought Zhang three years to straighten things out and sell from a stronger position.
Inter have been on a strict diet ever since. Head coach Inzaghi makes roughly half what his predecessor earned. Only Alessandro Bastoni, Barella, Stefan de Vrij and Lautaro Martinez remain regular starters from the title-winning team of two years ago. Benchwarmers such as Matteo Darmian and Federico Dimarco have become starters. The rest have been sold, paid off, lost on free transfers (to the benefit of the wage bill) or have retired.
At Inter’s last Christmas party at Spirit de Milan, an event space in the Bovisa district of the city, Zhang grabbed the microphone and teased his sporting director, Piero Ausilio. “Make sure you leave €5 at the door,” he said in English. “I’m going to use it for the winter transfer for Piero because we really need it.”
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Ausilio didn’t appear to see the funny side. He put his arm around Zhang and said: “You’ve been here seven years and you still don’t speak Italian.”
But the triumvirate of Inzaghi, Marotta and Ausilio have managed to do more with less. They have shown that ownership uncertainty is not the excuse it is made out to be at clubs like Manchester United.
Inter took the title race down to the final day in Inzaghi’s first season and won the Coppa Italia and Super Cup, which they retained the following year and capped it off by reaching the Champions League final.
The trophy emojis on Zhang’s Instagram profile are a source of pride at a time when he has other things to worry about.
How bad is it?
Shortly after Oaktree propped up Inter via Grand Tower, Zhang’s father resigned as chairman of Suning.com. He lost control of the company following a government-led bailout and his net worth fell from $8.4billion in 2020 to $345m, according to the Bloomberg Billionaires Index.
Zhang Jindong’s last visit to Milan was four years ago. He has not returned since China and Italy came out of lockdown. It’s a stark contrast with Milan’s owner, Gerry Cardinale, who was at San Siro to watch his team play Paris Saint-Germain in the Champions League, his fourth game of the season.
This matters when it comes to the joint Cattedrale project to redevelop the stadium shared by Inter and Milan, San Siro, which has gone cold. San Siro has been designated as a venue for the 2026 Winter Olympics, which the city of Milan is co-hosting with Cortina d’Ampezzo. The ground is now a listed building and cannot be touched.
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But, as the mayor of Milan, Beppe Sala, said in 2021, “until Inter’s destiny is cleared up”, he would harbour some reservations about giving the project the go-ahead as “I cannot entrust a district of the city, for such a long period, to companies whose future ownership is not certain”.
Frustrated at the slow pace, Milan are now going it alone outside the city limits in San Donato and the club’s CEO, Giorgio Furlani, hopes Milan’s own stadium will be ready in five years.
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Steven Zhang, meanwhile, is being chased by China Construction Bank (CCBA), the sixth largest bank in the world, for more than $250million in unpaid debts.
Court filings in the Southern District of New York seen by The Athletic take us to the Caribbean in 2019 and the offshore tax haven of the British Virgin Islands. Here, companies “Zhang owned and controlled”, Great Matrix and Great Momentum, acquired a 65 per cent interest in one of the family business’ subsidiaries, Suning Xiaodian.
In 2020, Zhang borrowed money from CCBA, taking out a $165million loan and an $85m bond, to refinance some of the debt incurred in that transaction. The monies were due in September 2021, but CCBA called them in after the ripple effect caused by “multiple events of default” in “certain other bank loans” totalling approximately $1.7bn at Suning.com, the e-commerce arm of the Zhang business empire, according to its audited financial statements published on May 12, 2021.
In legal action brought before the High Court of Hong Kong, CCBA produced paperwork saying Zhang was personally liable for the $250m debt incurred by Great Matrix in the 2020 refinancing operation. In his defence, Zhang claimed he was neither involved in nor aware of the deal and that his signatures were forged. His argument was rejected.
The Honorable Mr Justice Anthony Chan granted summary judgment in favour of CCBA. “I am unable to accept that Zhang has shown a believable defence of forgery,” he said. “His evidence, assessed against the undisputed background circumstances, is contrary to inherent probabilities and common sense, and his explanations on various evidential fragilities ring hollow.”
Zhang had 28 days to appeal but never entered one and CCBA demanded payment. He was ordered to stump up what he owed as well as interest on that amount at a rate of 13 per cent until the debt, now more than $300million, is satisfied.
“Even though Zhang is the heir apparent to one of China’s largest companies, sits at the helm of an internationally renowned soccer club, and flaunts his expensive sports cars and watches on social media, Zhang has not paid one penny of the debt he owes to CCBA,” a court filing by the bank’s lawyers explains.
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Zhang, according to CCBA’s legal team, does not own any property or real estate in China or Italy or receive a salary and yet flaunts cars and watches worth more than $9.5million on his social media accounts. This has led to the allegation by CCBA’s legal team that “Zhang apparently hides his assets through shell companies and other nominees”.
In January, the bank’s lawyers submitted a motion for discovery in the Southern District of New York in support of four active or contemplated proceedings in Hong Kong and Milan. Discovery compels a person, business or law firm to turn over documents or evidence that could “pierce the ‘moneyless’ facade Zhang has maintained to hinder his creditors”. The aim was to “establish Zhang’s rights to assets and compensation that may be used to satisfy the debt that he owes”.
Why New York? Because it is the world’s financial capital.
The motion was granted on January 23 and CCBA began serving subpoenas to two groups. One was the ‘Inter Milan respondents’ — Goldman Sachs, Raine, Oaktree, Bain Capital and financial advisory firm Lazard — the institutions “working with Inter Milan on potential transactions”. The other was ‘Wire Transfer respondents’, five banks and a clearing house whose wire transfer records were sought for “information about financial transactions involving Zhang as well as individuals and companies associated with him”.
Inter are of interest because the club “plays a central role in Zhang’s and his family’s financial affairs”. As such, “the subpoenas also request documents concerning the soccer club’s ownership, shareholder interests, management structure, compensation arrangements and debts”.
These are considered relevant by CCBA’s lawyers to a civil proceeding in Milan that seeks to invalidate what they allege to be a “suspicious” and “highly unusual” shareholder’s resolution from February 2019, which decided Zhang would “eschew any direct compensation for his services” as Inter president. In other words, he is apparently salary-less.
An analysis performed by a chartered accountant and auditor for CCBA estimates the annual remuneration of the football club’s chairman to be equal to approximately €914,000. The resolution, CCBA argues, is “intended to prevent garnishment”, the seizure of wages to satisfy a debt.
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The discovery CCBA sought in New York was intended for use in a proceeding in Milan to recognise the debt and enforce it in Italy. While Zhang has denied Inter is for sale, lawyers acting for CCBA cited news reports claiming the club is on the market. “The potential proceeds from the sale of Inter Milan may be used to repay a $336million loan that Suning borrowed from Oaktree Capital Management Group in May 2021 to assist Inter Milan”, a court filing by CCBA’s lawyers note.
Meanwhile, in Hong Kong, Zhang was ordered to appear before a court on March 13 to “be orally examined… as to what debts are owing (to Zhang) and whether (he) has any and what other property or means of satisfying the judgment that he has in possession”. The order added: “If Zhang has dissipated assets or fails to truthfully answer any questions, the Hong Kong court may commit him to prison for up to three months.”
Court filings by CCBA’s counsel claim he was a no-show for the hearing. Sky Italia footage showed Zhang flying to Porto for Inter’s Champions League tie instead.
The stakes are high for Zhang, even if his lawyers contend the CCBA case “is nothing more than a fishing expedition of potential assets and claims” and the bank’s application was too broad, unduly burdensome and fatally flawed.
In mid-May, the Court of Milan “issued a decision that rejected certain of Zhang’s and Inter Milan’s preliminary objections” and set a deadline of July 7, 2023, for CCBA to submit evidence. “Based on the information available to date, the Company believes that it has good grounds to have the counterparties’ claims dismissed,” said Inter’s latest financial report. Nevertheless, CCBA’s claim against Zhang raises questions about the family’s ability to satisfy their commitments to Oaktree and keep Inter.
The next hearing in Milan is scheduled for this Friday, November 24. A debtor examination is due to take place in Hong Kong at 10am on November 28. In between is the Derby d’Italia, Inter’s top-of-the-table clash against Juventus.
What’s the way out?
On the eve of the Champions League final, Zhang was candid about his plans. In relation to Oaktree, he said Inter’s “intention is to renegotiate the loan. We’ll find a solution for the refinancing together”.
Rumours of Inter being up for sale have regularly been denied by Zhang. In June, he recommended fans treat them like transfer gossip. “Just ignore them,” he told Gazzetta.
But Raine, the bank that sold Chelsea and is overseeing the sale of a stake in Manchester United, appears to have had a mandate to find a buyer for Inter for more than a year. As yet, the club remains unsold despite Finnish entrepreneur Thomas Zilliacus claiming he is ready to make an offer.
Selling would presumably be preferable for Zhang rather than potentially losing Inter in a repossession by Oaktree. AC Milan’s takeover by RedBird Capital in 2022 for €1.2billion set a benchmark in the valuation of Italy’s elite clubs, but achieving a price that high appears difficult. The economic landscape has changed, with central banks hiking up interest rates to curb inflation. Money has become more expensive.
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A prospective owner of Inter will have to price in a number of things. First, despite the departures of veterans like club captain Samir Handanovic and big-game goalscorer Edin Dzeko, the average age of the squad is 29.8. Marotta and Ausilio have proven adept at creating value — for instance, by signing Onana for free and flipping him a year later for €51million – but the squad will need investment as Inter have 10 players aged 30 or over, five of whom are starters.
Then there is the stadium. Inter’s corporate CEO, Alessandro Antonello, claims this is “our most important mid-to-long-term goal”. Building one is more expensive in the current economic climate, so while a new home will add value to the club — and Inter have plans to do so in Rozzano — it is a major undertaking unless a new investor teams up with cousins AC Milan.
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Last but not least, there is Inter’s debt load. The club refinanced a €415million bond with an annual interest rate of 6.75 per cent. While S&P Global Ratings affirmed Inter’s B status and removed it from CreditWatch negative, the club’s total liabilities are a lot to take on for any prospective new buyer, who must know that Oaktree’s arrangement with Zhang places the Californian fund in pole position.
Oaktree is Inter’s backstop, the safety net if Zhang is unable to sell, refinance or repay the money Inter’s majority shareholders owe the fund. Otherwise, Oaktree can enforce the debt and take over the club in May, just as investment firm Elliott did with AC Milan in 2018.
Elliott provided a model for how private equity can work in football. It stabilised Milan, reactivated the club’s aura and sold up for a big return on the high of winning a first league title in 11 years. It remains to be seen if Oaktree follows the same playbook.
For now, Inter remains in the hands of Suning. The question is: for how much longer?
May 20, 2024, is when the Oaktree loan matures. The clock is ticking.
(Top photos: Getty Images; design: Sam Richardson)
