Spanish football – GAME OF THE PEOPLE

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.

NO MATTER how much Real Madrid’s fans might be enjoying Barcelona’s economic discomfort at the moment, even the most ardent merengue must realise that in some respects, Real need Barca to keep them on their toes. The competition between the two football giants extends beyond matches, it also includes other elements like influence, financial power and cultural importance.

But while Barca seem to lurch from one crisis to another, Real Madrid’s financial results reveal a relatively well managed club whose status has, to some extent, cushioned them from the very worst of the pandemic. Even with a team in something of a transition period, Real are benefitting from a salary cap of € 739 million in 2021-22 compared to Barcelona’s sub-€ 100 million.

Real are top of La Liga with 33 points from 14 games and have lost just once. They have scored 34 goals, more than any of their competitors and have a four-point margin at the summit. They’re keen to make up for 2020-21 when they endured a barren season and finished runners-up to city rivals Atlético Madrid. It’s clear even at this early stage that unless something dramatic happens, Barcelona will not be challenging for the title in 2021-22. They’re already 10 points behind, so La Liga may be a fight to the death between the Madrid duo, Real Sociedad and Sevilla.

While many Spanish clubs are posting big losses for 2020-21, Real’s own figures indicate they are one of the exceptions during the crisis. They made a pre-tax profit of € 1.7 million, slightly down on 2019-20, but still impressive compared to the deficits suffered by Barca, Sevilla and others. And this is in a period when their stadium grand plan is taking shape and will cost well over half a billion euros before its completion in 2023. Excluding this project, Real Madrid’s net debt, according to the club, was reduced to € 46 million from € 240 million in 2019-20.

Real have been dealing with the problem of an ageing squad and although veterans like Sergo Ramos and Cristiano Ronaldo are no longer around, Real still have a number of players in their 30s. On the other hand, they have youngsters like the rapidly-developing Vinícius, Rodrygo and Eduardo Camavinga to call on. The squad still needs some work, but the age-reduction process has started. One player enjoying an Indian summer is 33 year-old Karim Benzema, who has become Real’s primary source of goals since Cristiano Ronaldo left the club. Up to the end of 2020-21, the France international had scored 87 goals in the three campaigns since CR7’s departure and has now passed 100 with 16 more in 2021-22. A case of coming out of the shadows?

Real Madrid have made around € 300 million on players sales over the past five years, not to mention the € 106 million profit they generated in 2020-21 – it’s now an important feature of their business model. They are also one of the biggest movers when it comes to acquiring top talent, the “go-to” destination for players at an important stage of their careers. It doesn’t always work out, Real can be a make-or-break place to earn your living. In 2021, have been linked with a lengthy list of possible signings for the next two transfer windows, including Chelsea’s Rüdiger, Liverpool’s Mo Salah and, most predictably, Paris Saint-Germain’s Kylian Mbappé.

While Real’s total revenues, at € 653 million, were at their lowest level since 2017, and represented the end of three consecutive years of € 700 million-plus turnover. The overall decline was 9%, chiefly attributable to an 85% fall in matchday income. Media/broadcasting was up by 35% to € 302 million and commercial income was down by 13% to € 335 million. Both Real and Barca, even after the tweaks made to the Spanish media deal, are so far ahead of their stablemates.

Real’s wage bill fell by 2% to € 372 million and was actually some € 60 million lower than cash-strapped Barca’s squad costs. The wage-to-income ratio is now 57% compared to 53% in 2020, which given the drop in revenues, is probably acceptable.

Real Madrid have qualified for the last 16 of the UEFA Champions League and have a 100% away record in their group. How they managed to lose at home to Sheriff Tiraspol recently is a mystery. They have one game remaining in their group, at home to Inter Milan.The club will be eager to compensate for three consecutive years of disappointment in which they were beaten by Chelsea, Manchester City and Ajax in the knockout phase. Real Madrid may not be the team that won four Champions League titles between 2014 and 2018, but they will still fancy themselves as serious contenders. Is their team, managed by Carlo Ancelotti, as robust as their financial performance appears to be at present?