First Everton takeover collapses now Hertha Berlin at risk as a result of 777 Partners turmoil, will a new investor be needed by the end of the year?

Hertha: Will the €100m 777 Partners stake in Hertha Berlin be sold for less than €70m?

The turbulence at US investor 777 Partners is also affecting Hertha Berlin. The investment bank mandated by the main creditor is examining a sale of the shares. The question is becoming increasingly urgent: what happens next, with whom - and at what price?

Co-founder Josh Wander exuded serenity as he announced the investment in Hertha BSC: “ this is for the long term”, explained the founder and CEO of 777 Partners, when the financially struggling capital city club made the investment by the US investor official. Wander announced an investment volume of €100m at the time and did not rule out further investments: “If it makes sense to invest more, then we will invest more”, that was on 13 March 2023, the 777 Football Group however, just one year later, is now in danger of being broken up.

As we now know, things have turned out a little differently than planned. 777 Partners, which holds stakes in seven clubs on three continents worldwide and recently failed in a takeover deal reported by The Guardian to be in the region of €200m of Everton, has got itself into such a financial mess that the company's football group is threatened with being broken up.

Multi-club owner 777 Partners face lawsuit by London-based lender Leadenhall Capital Partners

One of the catalysts for the crisis was a fraud lawsuit filed in New York federal court in early May by Leadenhall Capital Partners, a London-based asset manager and one of 777's main lenders. Leadenhall accused 777 of having secured loans of USD 350 million with assets that 777 allegedly did not own or had allegedly already pledged to other creditors.

A few days earlier, the Australian 777 airline Bonza, whose main backers were the same 777 Partners, filed for insolvency with debts reported by ABC News in Australia to be in the region of $118m. Also at the beginning of May, the company founders Wander and Steven W. Pasko were replaced as heads of the 777 Football Group, while B. Riley Advisory Services brought in several insolvency and restructuring experts.

777 Partners CEO Dransfield switches sides to main lender

The impression that has emerged: 777 is no longer master in its own home. The New York insurance company Advantage Capital Holdings LLC (A-CAP), which is the main creditor of 777 and asserts a lien on all 777 assets, commissioned the New York-based investment bank Moelis & Company weeks ago to examine the market for the 777 soccer holdings with a view to possible sales. This is fitting: Don Dransfield, CEO of the 777 Football Group until the end of June, is now working as a consultant for Advantage Capital.

Of the seven clubs in which 777 Partners holds shares, which includes Genoa, Red Star, Melbourne Victory, Standard Liège (Belgium) and Vasco da Gama (Brazil) are the first candidates to be sold. A buyer is also reportedly being sought for the stake in Sevilla FC, which amounts to less than 15 percent. At Hertha BSC, things seem calm on the surface, but behind the scenes the issue of how and with which strategic partner to proceed has long been the intensively discussed key question for the near future.

“We currently have no concrete and official information that the 777 Football Group intends to sell the shares in Hertha BSC GmbH & Co. KGaA,” An unnamed Hertha Berlin spokesman told Kicker at the start of the week in response to a corresponding query. Several sources have independently reported that 777 is not actively pushing for a sale at the moment. Nevertheless, there are discussions ongoing.

According to Kicker Sportmagazin, Moelis, the private bank mandated by A-CAP, is looking for a buyer for the shares that 777 Partners holds in Hertha. In March 2023, 777 Partners not only acquired the 64.7% of shares in Hertha BSC GmbH & Co. KGaA (partnership limited by shares) from predecessor embattled Property magnate Lars Windhorst - or more precisely, from Peil Investment B.V., a subsidiary of Windhorst-Holding Tennor - but also increased its stake in Hertha BSC KGaA to 78.8% in the course of a capital increase via a mixture of ordinary and preference shares. The shares are held by the Belgian company 777 SDL B.V., whose shareholder is the 777 Football Group.

The 777 Partners Hertha stake has been under DFL scrutiny, is all what it appears to be?

In the meantime, however, 777 is clearly only in the passenger seat. The current development is being driven by the holding company A-CAP, which is said to be under enormous pressure from the US insurance supervisory authorities, as recently reported by the Norwegian investigative portal Josimarfootball.

According to the Kicker report, the 777 shares in Hertha BSC are currently being traded on the market for well under €100 million, with some sources even reporting less than €70 million as a realistic figure.

For comparison: Windhorst paid a total of 374 million euros for 64.7 percent of the shares in Hertha's professional football division, which was spun off into a stock corporation, a KGaA. It was the largest single investment in Bundesliga history - in 2023, four years after Windhorst's investment, Hertha was relegated and only averted the threat of insolvency thanks to the immediate financial injection from 777 Partners

Share buyback: The 40 million bond limits Hertha's room for manoeuvre

Although the restructuring course adopted by the club leadership led by managing director Thomas E. Herrich is now bearing fruit, the situation remains tense and the pressure to reduce costs remain, even in the second tier, high. Many doubt that Hertha will find a justifiable way to buy back the shares, which have fallen massively in value from a high of 98 in August 23 to a low of 82 in May, before rising again to 92 this week, given the financial conditions and the rather unfavourable timing.

At the general meeting at the end of May, acting Hertha president Fabian Drescher, who took over the position following the death of former Ultra leader turned club president Kay Bernstein in January and is standing for election in the fall, said: “If the investor wants to sell, we have a right of first refusal and a right of veto. If it comes to the point that there are opportunities to acquire shares again, it's our job to examine internally how Hertha BSC can regain majority ownership or, ideally, 100% ownership of the shares.”

Internally, all eventualities with regard to a possible insolvency of 777 and a possible share buy-back have been examined in recent weeks. When asked by Stefan Rohr of leading German football magazine Kicker how realistic a possible buy-back of the 777 shares is at present, Hertha now stated: “In the current situation, Hertha BSC does not need to make any considerations in this regard.”

The club's situation has many variables and many outcomes are possible

It is currently a game with many variables, different interests - and an open outcome. Investment bank, key lender Moelis is possibly aiming for a bidding process. If Hertha were to pull off the buyback in a show of strength - for example by taking out new bank loans, issuing profit participation certificates or setting up its own fund - it would presumably be at the expense of the club's sporting substance.

Hertha, who are in the process of building a stadium of their own which is scheduled to be ready by 2030, must get promoted back to the Bundesliga at the end of the 2024/25 season. In addition, the repayment of a €40m bond issued in 2018, which the club extended by two years and at a significantly higher interest rate in June 2023 as part of the battle for the second tier license, is due in November 2025. That limits Hertha's room for manoeuvre.

And further controversy has arisen; when 777 Partners invested, a total investment volume of €100m was agreed. €75m have been paid, even if not all tranches arrived on time. According to Kicker sources, the missing €25m are linked to conditions. Specifically, according to the shareholder agreement, it can optionally be used as compensation for any negative equity of the club or as a rescue parachute in the event of imminent insolvency.

According to reports, the club had already claimed €5m from the equity equalisation fund, a mechanism which ensures that all lenders have the same risk, in 2023. In May, an unnamed Hertha Berlin source told Kicker: “The equity commitment agreed with 777 Partners basically amounts to a total of up to €100m. Should it be necessary in future to make use of any compensation for negative equity, this would be possible in accordance with the contractual mechanism.”

Whether this fall-back position would actually still be feasible in view of the current developments at embattled 777 Partners is at the very least doubtful - and what this means for the liquidity of the capital city club, which recently acquired three comparatively expensive new signings in midfielder Diego Demme (Napoli), Michael Cuisance (Venezia) and Kevin Sessa (Heidenheim) is questionable.

The Everton takeover by 777 Partners collapsed in February amid recriminations, and the Liverpool-based club are still seeking an investor, the fall out at Hertha Berlin, who finished 9th in 23/24, a whopping twenty points off an automatic promotion spot, resulting from the 777 Partners crisis could, if not addressed, be felt in the months to come.