Clear Treasury and Cricket Ireland - FX Hedging For A National Sports Body
Chief commercial officer
Clear Treasury Group has a long standing relationship with Cricket Ireland and we are very proud of our partnership. Clear Currency, our direct to consumer brand, is the official currency exchange partner for Cricket Ireland and is the title sponsor for both the Irish Senior and National Cups. At Clear Treasury we work with a wide range of businesses and institutions with an international audience. We assist Cricket Ireland in managing their overseas FX revenues.
We love the power sport has to inspire the next generation and bring people together around the world. Partnering with Cricket Ireland to help them continue to deliver international success at an elite level is a great way for us to celebrate this.
Jordan Tilley – Clear Treasury CEO
Specific hedge objectives
The FX hedging requirements for many international sports bodies might appear no different to that of large commercial entities with their respective global outlooks however the objective of the hedge may significantly vary. A globally trading commercial entity is focused on maximising profit so its hedge objective would be to protect trading gross margins, whereas with a non-commercial entity such as a sporting body, the objective could be to create certainty around overseas revenues while maximising its home currency value. While the goals may differ, what both types of entities have in common is that they have to steer through the perils and nuances of the FX markets.
Typically revenue in the sporting space is made of three parts. Firstly, sponsor revenue, which is most often in the home currency. Next up is media revenues (such as tv deals) which can be more volatile and harder to forecast. These tend to be more event driven for example the ad hoc hosting of larger international games. The last revenue stream might derive funding either from the government or from the overall sporting body parent. These forms of revenue tend to be very predictable and have a known payment schedule with timeliness agreed well in advance.
A question of teamwork
Making the right hedge decision is a collective decision for many entities. It can and should require the full support of the Board. Clear Treasury’s approach is to fully understand the relevant revenues, create a hedge policy, highlight all the relevant products (plus their associated risks) and to help choose the correct product mix to achieve that objective.
With Cricket Ireland, we provide them a full analysis of the most suitable hedge products and help them to implement the execution strategy. Revenue for sporting bodies can be both predictable and unpredictable. The ideal hedge objective in this case, is to create as much certainty on the euro value of the predictable revenue streams.
This hedge objective can be achieved through a variety of different products all with relative benefits and risks. The available strategies:
Pro – No future credit or Mark to Market Risk
Con – Provides zero clarity around future revenue values in home currency. No protection against adverse currency movements
Managed Spot Approach
Pro – creates worse case currency rate (through using the likes of market orders)
Con – Can create forward contracts if timing gap between the likes of orders and value dates of actual required transactions
Pro – Provides certainty over future revenue in home currency value
Con – Can create negative and significant Credit and M2M funding risk
Pro – Provides certainty over worst case EUR whilst simultaneously able to benefit from unlimited favourable currency moves
Con – Cost of this currency “insurance” is payable via an upfront premium. The cost of this premium for an effective currency hedge can range anywhere from 0.5 – 3.0%
50:50 Hedging Structure
Pro – In a 50:50 scenario, it provides for hedge against adverse currency movements on 100% of the required hedge amount whilst simultaneously being able to benefit on any favourable movements for 50% of the underlying amount
Con – can create negative Credit and M2M risk
Creating certainty around overseas revenue
As I recently highlighted in another article it is vital to create some sort of certainty around the value of your overseas FX revenues as Netflix found to their cost.
When making and implementing a hedge decision, companies must be aware of all the potential financial market and credit risks that can arise from that decision. Adopting a prudent approach of hedging 50% of future known cash flows we feel is the right approach in the current environment.
A strong partnership
Our approach has given Cricket Ireland certainty over their overseas revenue, minimising exposure to currency volatility allowing them to plan and move forward with confidence. We’re delighted to be #BackingGreen through our partnership.
Clear Treasury is a valued member and partner of the Cricket Ireland family. From a professional service perspective, the level of detail and FX expertise Clear Treasury has brought to both myself and the wider Cricket Ireland management, has been very helpful and much appreciated when it came to making our hedge decision in the volatile FX world.
Cricket Ireland CFO – Andrew May
What is a forward contract?
A forward contract is a foreign exchange agreement to buy one currency by selling another on a specified date within the next 12 months at a price agreed on now, known as the forward rate.case study
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