What does Messi's departure say about FC Barcelona's financial chaos?
How FC Barcelona's disastrous financial management since 2014 led to seeing its best-ever player leave the club
Last Friday, every football fan worldwide must have woken up hoping they were still sleeping. The news was out, Lionel Messi was leaving FC Barcelona after a 20 years at the club.
In their official club statement, FC Barcelona declared the following: "Despite FC Barcelona and Lionel Messi having reached an agreement and the clear intention of both parties to sign a new contract today, this cannot happen because of Spanish LaLiga regulations on player registration." A not so hidden slap in LaLiga's face.
But is it really LaLiga's own fault?
The world's richest club
During the 2018/2019 season, FC Barcelona reached the top of the Deloitte Football Money League 2020 for the first time and became the first club to break the €800m revenue barrier (excluding player trading income).
It generated a revenue of €840.8m in 2018/2019 vs. €690.4m in 2017/2018, representing a +22% year-on-year growth mainly driven by its 2015-2021 strategic plan aiming at diversifying and internationalizing sources of revenue.
Here's how the club's revenue was split at the time:
In the same report, Deloitte stated that "the club could become the first €1 billion Money League club in years to come."
Of course, this was all before the Covid-19 pandemic hit the sports industry in an unprecedented way. 2019/2020 revenue dropped to €715.1m, down -15% compared to the previous season according to Deloitte Football Money League 2021. In its 2019/2020 annual report, Barcelona’s management estimated that the club suffered a €200m loss in revenue due to the impact of the pandemic.
However, sticking to the pandemic impact on an apparently wealthy club (at least when looking at their top line) would obviously be way too simplistic, and the fact is the damage had already been done before Covid-19.
2014-2020: FC Barcelona's financial collapse
When asked by the BBC right before Barcelona's presidential election in February 2021 if the club was on the verge of bankruptcy, Joan Laporta declared: "We need to control the expenses, to restructure the debt and to generate new revenues. In football these days there are very big opportunities and we have a team in place that can ensure Barcelona is one of the best-managed clubs in world football."
But how do your get from the world's richest club to a very real risk of bankruptcy?
Three main drivers have considerably impacted the club's bottom line over the past 5 years: 1/ Soaring staff costs, 2/ A chaotic player transfer policy, and 3/ A cash strategy mostly relying on debt financing.
Staff costs: KPMG Football Benchmark outlined in March 2021 that Barcelona’s staff costs had increased by +45% between 2015/16 and 2018/2019, reaching €671m in 2018/2019 as shown in the club's annual report. This number decreased to €636m in 2019/2020 "mostly as a result of salary reduction agreements and furlough schemes (ERTO) negotiated and applied during the season.". It compares to €254m in 2013/2014, which is a +150% increase in 6 years.
Player transfer policy: Simon Kuper shared last week in the Financial Times a preview of his inside story on FC Barcelona. He thoroughly describes Barça's disastrous transfer strategy and internal process of purchasing players under Josep Maria Bartomeu (2014-2020). Record-breaking player acquisitions made under Bartomeu mostly resulted in misjudged signings such as Coutinho, Dembélé and Griezmann. But beyond their lack of impact on the pitch, these transfers have considerably worsened the level of amortization of player acquisition rights. Barcelona somehow managed to spend over €1bn on transfers between 2014 and 2019, more than any other football club. When looking at the club's annual reports, it is quite striking how yearly amortization surged from €60-65m in 2012/2013 and 2013/2014 to €146m in 2018/2019 and up to €174m in 2019/20 season. N.B.: Simon Kuper's new book 'Barca: The inside story of the world's greatest football club' will be released on August 12th.
Debt: We all heard of the €1.2bn debt currently carried by FC Barcelona. But looking at this total figure is only half way towards understanding why the club's debt situation is so worrying. KPMG Football Benchmark highlights that other top European clubs show high level of debt, such as Tottenham due to their recent investments in the brand new Tottenham Stadium, and Manchester United who are structurally carrying debt since the Glazer's leveraged takeover. But the most important indicator to look at is actually the share represented by current vs. non-current debt. The club's 2019/2020 annual report showcases that out of €1,174m debt (cf. below), €731m (62%) is owed to current creditors vs. €443m (32%) to non-current ones. Current debt gathers amounts owed by the end of the season to various internal and external stakeholders including banks, sporting staff, and other football clubs.
In June 2021, the General Assembly of Delegate Members approved the proposed debt refinancing for an amount of €525m. It plans to sign this Goldman Sachs-led operation in August with one or more stable operators in the financial markets. President Joan Laporta stressed that "the loan is necessary to give the club breathing space and not to take anything from the members' pockets."
Now, as a consequence of 6 years of chaotic sporting and financial management, one of the world’s greatest clubs in history finds itself forced to let his best player go.
FC Barcelona vs. LaLiga, a devastating power struggle
In a clear and concise article which I strongly recommend, The Athletic's Dermot Corrigan explains how LaLiga's economic control department established strict regulations regarding staff costs for Spanish clubs. In 2013, LaLiga introduced a set of measures to “ensure responsible spending across all clubs," setting budgets for each club based on its earnings, revenue streams, profits and losses, investments and debt repayments.
From the largest staff costs in Spain in 2018/2019, FC Barcelona was reportedly urged by LaLiga to meet a €383m wage bill in 2020/2021 and reduce it further down to €160-200m for the 2021/2022 season. But the club’s financial situation goes beyond Messi’s sole situation. Indeed, even if Messi had stayed and reduced his salary by 50% (which he agreed upon), Barcelona’s wage-to-revenue ratio would have amounted to 110%. Without Messi, this ratio drops to 95%, which is still far away from LaLiga’s 70% recommended ratio.
Over the past few weeks, LaLiga’s President Javier Tebas and Joan Laporta, which was mostly elected on the promise to keep Leo Messi at the club, have been continuously blaming each other for the responsibility of seeing Messi leaving Barcelona. As Tebas declared its intentions to remain inflexible with regard to salary cap regulations. In return, Laporta publicly condemned LaLiga’s €2.7bn deal with CVC Capital Partners to buy a minority stake in a new entity that would manage broadcast, sponsorship and digital rights for the league - at this point it is still unclear whether this fresh investment could have been used towards signings and salaries, thus potentially offering a chance to meet LaLiga’s regulations and Messi. But it would also have put an end to Laporta’s hopes of seeing the European Super League come out of the ground someday. Some might say (and I’m one of them) that Laporta chose the Super League over Messi.
What does all this say about the state of European football?
To be honest, I’m still struggling to get my mind around the catastrophic financial state of top European clubs. Top clubs are all generating at least €500m revenue per season before player transfer income. Yet, at explained by Jordan Gardner in his amazing chronicle against the Super League in April 2020, the 12 Super League clubs (excl. Liverpool FC) somehow managed to generate a combined loss before player sales of €1.4b in 2019/2020 season - which was only impacted by 3 months of Covid-19.
Looking at the degradation of FC Barcelona’s wage-to-revenue ratio, yearly player amortization and debt levels over the past 6 years shows us that top clubs should first reflect on their operating model and how to optimize their bottom line and balance sheet, before pursuing the irrational dream of ever-growing TV rights revenue through unbelievably selfish ideas such as the Super League.
They should focus on controlling their expenses instead of fixating on generating more revenues.
This is the path towards designing a healthy and sustainable football system to preserve the football as we love.
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Best,
Achille