Threat of Champions League exit fuels Barcelona’s anxiety

THE BARCELONA story is becoming as volatile as the British government’s approach to post-pandemic economics. After a summer of pulling levers, constructing virtuous circles and signing players, Barca’s president told the annual assembly that “together we have saved the club”. That statement was arguably true, but it did involve selling some of the family silver and allowing their prized asset to leave the Camp Nou.

The financial levers the club referred to involved selling part of their TV rights for a 25 year-period to Sixth Street, raising a huge sum of money that eased their financial pain. On the other hand, many felt Barca were merely kicking a problem down the road and taking a substantial risk.

Barca started the season well, but their Champions League form has not been good and they are on the brink of group stage elimination for the second successive year. The amount they could lose, which could be around € 20 million, would be offset against potential income from finishing third in the group and moving across to the Europa, but the psychological effect of being exiled to Thursday night football is just as significant. If Barca ever needed a good Champions League campaign to remind people of their elite status, it was this season.

The 3-3 draw with Inter Milan in front of 92,000 people was an exciting game that highlighted the appeal of the Champions League; when it’s good, it can be very good. But their failure to trigger another of their famous escapes also provided more evidence that Barca are a diminishing force on the European stage and the timing couldn’t have been worse. Barca are about to face Real Madrid in the first Clásico of 2022-23, and the gossip has centred on the future of coach Xavi – “The confidence in Xavi is intact” – the real agenda of Barca president Joan Laporta and the possibility the club may have to sell more assets or players to raise cash. Some of Barca’s players are long in the tooth, but essentially, the game at the Bernabéu is a meeting between the top two and Barca are on top of the La Liga table. There is not an awful lot wrong with the actual team, Barca’s problem is the past and a period of excess.

It is hard not to see the club’s finances and psyche as acutely precarious, even though they did make a pre-tax profit of € 124 million in 2021-22. Furthermore, they may have generated  € 1 billion in 2021-22, but € 344 million of that came from the sale of assets. Take the € 266 million initial TV rights sale out of the equation and revenues were € 750 million. That’s a very good figure, but the club’s sporting payroll totalled € 518 million, down from € 617 million in 2020-21, but still way too burdensome. At the assembly meeting, the club said it was working to terminate the contracts of some high-earning players who are a drain on the wage bill, but this is obviously a sensitive matter.

The club is confident, however, that it can continue to grow revenues in 2022-23 and anticipates an increase to € 1.3 billion, with a pre-tax profit of around € 366 million. At the same time, they see wages rising to € 656 million. This forecast includes the sale of 15% of TV rights for € 400 million. The club also expects to restore equity balance by 2025, slightly ahead of the five-year target they set when Laporta was elected president.

Laporta is still an advocate of a super league, but does not believe a closed league concept is the way ahead. Barcelona were one of the 12 clubs a scheme that was rightly aborted, but there has been renewed energy behind the project, although Laporta sees a structure where the big clubs repeatedly play against each other as an unattractive proposition that would soon become tiresome.

While the loss of Champions League income in itself won’t tip Barcelona into the abyss, it will raise some anxiety at the club. The securitisation of TV rights has been criticised for mortgaging the future, but its success does depend on the club being successful. In other words, Barca is something of a cash machine, but if the club endured a prolonged period of failure, it might cause problems around their long-term sale of TV rights. Hence, every setback will be the source of extreme angst, as we are seeing.

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.