Deferring problems for another day: Barcelona’s gamble

BARCELONA were a club supposedly in steep decline, such was the state of their finances.  They were more or less forced to wave goodbye to Lionel Messi, their greatest talisman, they started looking at bargain buys and their level of indebtedness sent shock waves through European football and handed financial journalists plenty of dramatic copy.

Although nobody seriously believed Barca would be allowed to crumble, for all their rivalry, Real Madrid need Barca as much as fish need water, it was clear that years of dancing on a volcano had seriously burned their feet. Barca’s financial mess started to look like something of a Lehman Brothers moment.

Where are we now? Barca have been pulling “levers” all summer and have been as busy as anyone in the transfer market. In fact, they have out-bid and out-bought clubs who have not been staring into the fiscal abyss. Barca may be a systemic club in the structure of modern football, but it has become a little Aesop – they have spent € 150 million ahead of the new campaign.

Barca’s response to crisis has been to behave, to some extent, like a financial institution and use some of the sector’s sophisticated tools to solve an immediate problem. In 2021, president Joan Laporta said Barca were “clinically dead” and the club had debt of € 1.3 billion and their net worth was negative to the tune of almost half a billion euros. It’s a mystery how one of the most successful and popular clubs in the world, one that can generate a billion in revenues, can find itself almost broke. Depending on who you speak to, the problem may have started with the loss of Neymar to Paris Saint-Germain when Barca were almost bullied into submission and then proceeded to waste the proceeds of the sale.

The club has also been stymied by the salary caps calculated by the league, but they tried to get round this limitation by deferring some players’ wages and persuading some to take cuts, all with the aim of being able to accommodate and register star names. The wage bill, which ran to € 575 million in 2019, had to be trimmed substantially and this contributed to the departure of Luis Suarez and Lionel Messi, the latter sending shock waves through Spanish football.

Barca were never going to find it too hard to persuade anyone to lend money to them and it was no great surprise when Goldman Sachs restructured some € 600 million of debt via a 10-year bond with a competitive 2% interest rate. They had already borrowed € 80 million to cover wages. Barca also have to fund their bold Espace project that is going to cost around € 1.5 billion – financing again arranged by Goldman Sachs – but will make the Camp Nou a spectacular 100,000 arena. 

Barca didn’t have a good pandemic, in fact in 2020 they made a pre-tax loss of € 133 million and in 2021, suffered a terrifying € 555 million deficit. They do expect to book a € 100 million profit in 2021-22 after Laporta’s emergency surgery of the past year.

That has included what could be called securitisation of future earnings. The league, realising that the pandemic had exposed certain weaknesses in modern football’s business model, set about selling a stake in the entity controlling the broadcasting revenues of La Liga for a 50-year period to US private equity company CVC Capital Partners. Barcelona declined to take part, probably because they had their own plans.

Barca struck a deal with US investment firm Sixth Street Partners, who bought 25% of Barca’s La Liga media rights. This transaction will give the club a € 667 million gain, but this will mean a reduction in annual broadcasting income of around € 40 million. Laporta has said he would have preferred not to have sold the rights, but it was a case of needs must. Interestingly, the deal was brokered by Key Capital, who have close ties with Real Madrid.

At one stage, it was reported that Barca, rather presumptuously and with some degree of arrogance, wanted to sell UEFA Champions League rights, but UEFA were not impressed and pointed to the fact that such income is not guaranteed and is based on meritocracy.

The sale of future income to generate short-term cash is, without doubt, a gamble and if Barca decline on the pitch, the effect of the deal will merely have kicked the problem down the road and possibly created a bigger hurdle for the club.

Elsewhere, Barca have been trying to sell assets like a desperate financial institution. They have divested 25% of Barca Studios, their audio-visual unit, for € 100 million to crypto business Socios and they hope to sell 49% of their merchandising business for approximately € 400 million. Another landmark was the long-term agreement with Spotify, who have bought stadium naming rights and shirt sponsorship for four years. The media have reported the deal was close to € 300 million.

Laporta has, if nothing else, been proactive but nobody expected the club to be quite so active in the transfer market. Robert Lewandowski was signed from Bayern Munich for € 45 million, a prolific scorer but at the tail end of his career. Jules Koundé of Sevilla was signing for Chelsea, but Barca came in and snatched the player for € 50 million, and they lured Leeds United’s Raphinha to the Camp Nou for € 58 million. They have also acquired Andreas Christensen from Chelsea and Franck Kessie from AC Milan. Little wonder that some pundits, managers and journalists were questioning exactly how financially challenged were Barca?

The controversy doesn’t stop there, however. According to Cadena Cope, Barca may have falsely inflated their accounts and this is what is preventing them from registering their new players. For example, the deal with Sixth Street, which Barca have declared as around € 667 million, is being reported as € 517 million by the US company. At Barcelona, day-to-day activity is a soap opera.

As the new season gets underway, with Barca hosting Rayo Vallecano, the fans will be expecting something more compelling in the coming months. With the players they have signed to reinforce their squad, they should make a better job of challenging Real Madrid for the La Liga title. With so much of the future seemingly mortgaged, there is not much scope for error.

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