In the second installment of the ‘Clubs in Crisis’ series, Matt Slater examines the financial situation of five European football clubs, digs into the numbers, analyzes how and why things are so dangerous, and plots a way out for Barcelona.
Read Part One – Unwanted Premier League first club Everton: £355m loss, 10-point deduction – and expect Inter Milan, Lyon and Hertha Berlin this weekend. And there’s also more awareness through the Athletics Football Podcast.
Barcelona president Joan Laporta used his usual speech at the club’s regular general meeting last month to announce the end of the 2021 crisis.
For a club with so much talent, the high profits of various sports teams and the “special success” of six Spanish titles – including, above all, the men’s and women’s football teams. Weaned back in two years.
The lawyer-turned-magician said: “A lot of work has been done to stabilize the club and bring joy back to Barça fans, which is a reference again in the world of sports.”
And 61-year-old Laporta went out there to make an elephant disappear. From a sports team’s world record annual loss of £418m (£510m in today’s value) to a club record profit of £255m.
Despite that success, Barcelona are here, in our series of stories about famous clubs in financial trouble. They have escaped the immediate threat of the frying pan but are still hovering somewhere between safety and flames.
Drifting is better than burning, and drifting can be fun when you have good players, but Barcelona would have suffered a fourth straight financial loss last year – and at that – if Laporta hadn’t pulled his own. Palancas, multi-light ‘economy drivers’ who sell future income streams for large, but low, upfront payments.
So, like a magic show, not everything is as it seems at Barcelona, where the club’s finances are anything but ordinary and normal.
How did you get into this mess?
For accountants, there is a memorable exchange in American writer Ernest Hemingway’s first novel The Sun Also Rises. One character asks another how he went bankrupt. “Two ways,” replies the cash-strapped chap. “Slowly and then suddenly.”
Barcelona can help him.
It’s hard to pinpoint exactly when it started “slowly” for the Catalans, but if you’re looking for the culprits, the summer of 2017 has a very guilty look on its face. That’s when Neymar shocked everyone by walking out.
Neymar: Maverick, genius, ‘could have been’
The Brazilian arrived at the Camp Nou four years ago in a move that ticked all the boxes on Barca’s bingo card: the hottest new talent on the block, high fees, tax fraud allegations (which have since been cleared and his father called “baseless allegations”). It seems unfair that he was added to a team that was already in talks and that’s how it happened in 2015 and 2016, when Barca won all the competitions they entered.
Neymar made a complete and sometimes underappreciated contribution as one third of MSN’s front line alongside Lionel Messi and Luis Suarez. But 2017 saw Barcelona follow a Neymar-inspired miracle, thrashing Paris Saint-Germain 6-1 in the second round of the Champions League, and then losing 3-0 to Juventus in the Champions League. Circle. They finished second in the league behind Real Madrid, meaning they had the final spot in that two-horse race.
But for himself, perhaps the biggest disappointment came when he finished fifth in the Ballon d’Or last December, an award given to a player believed by a group of international journalists to be the best on the planet. In 2014, Neymar was lagging behind in third place, and in 2016 he was defeated by his teammates Messi and Suarez.
And when Qatari state-owned PSG agreed to pay Neymar’s €222m (£193m) release clause and give him a new canvas to paint his Ballon d’Or entry, the team suddenly fell apart.
Still, it was a consolation for the huge transfer fee, right?
Yes… but Barcelona destroyed it. And while they weren’t the first – or last – club to make costly recruitment mistakes, it was inevitable. Barcelona is particularly prone to the who and what is characteristic of this area: a vibrant but dynamic democracy.
The club has 150,000 card-carrying members who pay £180 a year to buy cheap tickets and vote on who will manage Barcelona. That small group is made up of too few members who are wealthy enough to buy the personal bank guarantees needed to run for office.
But once these guys have earned or inherited enough money to become a Barca director or president, they have to convince other members that they can bring back/keep the good times rolling, which often involves promising to sign superstars. Just like real politicians and tax cut/spending promises, then.
The motivation for all this democracy is that decision-making in Barça can often be fragmented, short-term and self-interested. And the decision-makers may be hard-working and successful in their day-to-day operations, but hopelessly out-of-touch when it comes to running a football club. In the year Josep Maria Bartomeu, president between 2014 and 2020, is a good example of the Barcelona model of these flaws.
We’re skipping a few steps in this slow-motion car crash, but Barca have swapped Neymar for French winger Ousmane Dembele, who had a successful spell with Borussia Dortmund, and Brazilian midfielder Philippe Coutinho, who spent five years with Liverpool. Unfortunately, none of these signings worked out and they ended up paying Barca around £70 million more than they received for Neymar.
The impact of these (and many other) misfires in the transfer market was not immediately clear. Barca won the domestic double in 2018 and retained the league title in 2019. However, some surprising defeats in the Champions League, especially the 4-0 loss to Liverpool in 2019, indicated that the team is declining despite Messi’s continued excellence.
Return No. 14: Liverpool deepen Barcelona’s Champions League shock.
But in the tradition of great tragedies, even Messi was becoming a problem. It’s not the man or the player, it’s the cost. Every board member knew that losing the totemic Argentine to another club would prove a loss of confidence, so Messi’s representatives would say ‘C’ to anything they thought the man was worth. Between 2014 and 2020, that figure tripled.
In the year In January 2021, Spanish newspaper El Mundo reported that Barca had paid Messi €555 million over four years starting in 2017. He may be worth it, but every time he gets a raise, the rest of the dressing room wants more too. In the year In 2017, the football club’s wage bill was £296 million. A year later, it was £425million and in 2019 it rose again to £437million.
Ironically for Messi, his high wages meant the club couldn’t make a serious attempt to bring Neymar back when he was available in 2019 and made no effort to keep Suarez in 2020. Worse, the board appeared. Kicking out underpowered players.
So that’s the “slow” part of the equation in Barcelona. The “sudden” moment was the arrival of Covid-19 in March 2020.
The epidemic has affected every football club, but it almost killed Barcelona. Being forced to close the doors at Camp Nou cost the club the highest matchday income in Spain. But the club not only owns Europe’s largest club stadium, but also manages one of Spain’s most popular tourist attractions – the museum and stadium tour. And all that footfall means they sell more merchandise.
The pandemic has led to a third stream of revenue, as Barcelona have an entire pool of expensively assembled and well-paid recruits, depressing the entire transfer market.
Overall, Barcelona estimate that Covid-19 has cost them around £400m in lost revenue in the 2020 and 2021 financial years, which goes a long way to explaining their dismal figures, with a total loss of £442m.
No club – not even one, which topped the Deloitte Money League, a ranking of football clubs’ revenue, in January 2020, when Barca became the first club to earn more than €800m (£698m) in a single season, three months before the outbreak – could take such a punch and put it on the canvas. It doesn’t beat.
How bad is it?
Okay, you get the idea. Barca was in trouble. But, to continue the boxing style, were they shocked and blown away by the strong wind, or were they unable to defend themselves?
According to Laporta, he was the latter, although he was not the first president to suggest that the club was half a second when they arrived with aromatic salts. Again, Barca politics resemble real politics, because the final lot is always useless and everything that goes wrong is their fault.
From the final months of Bartomeu’s reign to Laporta’s debut, there are so many lowlights that it’s hard to remember them all, but the most emblematic is the 8-2 defeat to Bayern Munich in the Champions League quarter-finals in August. 2020.
The quarter-final was a one-legged tie in Portugal’s Covid-19 “bubble” and Coutinho, who scored Bayern’s last two goals, was on loan in Germany as Barcelona couldn’t afford his wages and had to bring him in. In the shop window.
Nine days after that defeat, manager Quique Setien told the club he wanted to leave Messi, who cost him his job seven months after replacing the brutally sacked Ernesto Valverde. He did this through ‘Burofax’, the most popular Spanish method of sending important documents so far.
Messi was eventually persuaded to see out the final year of his contract but his death was thrown out and he too left for PSG 12 months later. in tears.
Messi left Barcelona because of the club, not because of La Liga.
At that point, Barca were in “everything must go” mode: including Messi, 11 players were sold or released, with four more coming out on loan. They were replaced by three free transfers and two loans. And on the training ground, Messi’s locker went to Dutch striker Luc de Jong.
Incredibly, Barça won no trophies in 2021-22, finishing 13 points behind Real Madrid in the league and failing to reach the Champions League knockout stages for the first time since 2004.
In October 2021, the club’s financial report was dire. It includes £236m of deficits and provisions – write-offs, in other words – related to bad contracts, legal fees and tax disputes. Barca’s net financial debt – bank loans and bonds, minus cash in the bank – exceeded £400 million and most of it was expensive, short-term debt. The club paid £36m in interest that year.
The net financial debt only told half the story – Barcelona were heavily indebted in transfer-payment fees, back taxes, arrears of wages and unpaid supplier bills. That bill is set to double, rising to £1 billion between 2018 and 2020.
Current chief executive Ferran Reverter said: “When we came in this March, we found a technically bankrupt club. If it was PLC, Barça would be dissolved.
What is the way out?
Many in that situation would have ordered austerity measures where the men’s team would rely on the club’s famed academy and perhaps focus on trophies. They postponed plans to redevelop the Camp Nou and build a Barça-themed amusement park around the stadium until the debt was reduced.
This was prudent, orthodox and logical. Laporta, however, took a more Keynesian view of the club’s economic woes and decided to spend, spend, spend.
Now, you might think that we are suggesting that this is the wrong thing to do, as we have already mentioned that Barcelona presidents have a habit of doing what is popular as opposed to rational. Choice.
But we are not saying that. We’re just pointing out that Laporta – and by implication Barca – had a choice and they chose to double down.
The reasons are that Barcelona should never want to be a tricky experimenter, they should try to win. It brought them hundreds of millions of fans, kept them in the top tier and helped them win four Champions League titles between 2006 and 2015.
Having chosen to pursue a “virtuous circle” strategy, Laporta had another choice: how to do so while satisfying UEFA’s Financial Fair Play (FFP) rules and LaLiga’s more restrictive spending limits.
The obvious choice for most clubs was to sell their stake in the business and bring in new investment. If Barcelona consider moving away from their fan-ownership model, they won’t miss out on offers, even with a small stake for a partner.
In fact, we know that Laporta has politely asked Sir Jim Ratcliffe, one of Britain’s richest men, to spend “two or three billion” to “renovate the stadium and put in 50 percent ownership.” That revelation came in a book about Ratcliffe’s company INEOS, published earlier this year. The English businessman has since offered Manchester United owners a similar offer.
Laporta went another way. He decided to sell future earnings and shares, his so-called ‘livers’.
The first was in June 2022 when it sold 10 percent of Barcelona’s domestic television revenue for the next 25 years to US private equity firm Sixth Street for £230 million. This allowed the club to post a profit of £85m for 2022, up from a record loss of £500m in 2021.
That was enough to protect UEFA’s FFP police and erase some red ink on the balance sheet, but more money is needed to satisfy La Liga’s forward-looking spending controls, particularly as Barcelona spend more than £130m on new signings Raphinha, Robert Lewandowski and a trio of talent Jules Conde. So, in July, Barca announced they would sell another 15% of their 25-year local TV revenue to Sixth Street for £350m.
Combined, Sixth Street will earn around £900million from the deal, with Barcelona having to sacrifice more than £320million to get the pair.
But new signings mean the wage bill will rise again, meaning more managers are needed. Number three and four have sold two 24.5 percent stakes in Barça Studios, the club’s media production arm, to blockchain-based “supporter engagement” firm Socios.com and Orpheus Media, a production company run by Catalan media magnate Jaume Rures. As a bonus, the deal could include another £180m profit, valuing the club’s 51% stake in Barca Studios.
Am I confused? As we tell you, Socios and Orpheus paid only 10 percent of their outstanding shares this June, which means Barca may sell some of the outstanding shares to previously unknown parties.
Investigation: Barcelona’s financial crisis and what the rest of football thinks
Both companies denied that they could not fulfill their obligations and instead agreed to delay the payments until December, Barca could find a new “partner” to do them instead.
And Barca did not end there. Within weeks, new plans were announced for Barça Studios to become Barcelona Media, home to all kinds of unspecified digital and media offerings, and to float on the Nasdaq stock exchange. The target price is $1 billion, which is a suspiciously round number for a business that no one understands.
However, there were other more tangible takeaways, such as tying shirt sponsorships to stadium naming rights and whipping up Spotify. The club has asked Goldman Sachs and JP Morgan to arrange a 25-year corporate bond worth £950m against the expected revenue boost from the redevelopment of the Camp Nou and surrounding area.
All this wonderful financial walk in 2018. Big annual profits posted in 2022-23, another La Liga title, a drop in media revenue and the club’s net financial debt of nearly £1.2 billion, the highest in European football.
Laporta ended his speech at the regular general assembly with another well-worn applause: We are with them, folks. Blessings to the world. That’s not usually a strategy that finance chiefs recommend, but Barcelona are ‘mes que un club’ so it can easily work. It should be – Laporta played the house on him.
(Top photos: Getty Images; Design: Sam Richardson)