Barcelona face financial crisis

The authoritative Swiss Ramble reviews the finances of FC Barcelona. He states that Barcelona are facing a financial crisis, due to a combination of mismanagement and the COVID-19 pandemic, which means that they need to make significant savings to meet La Liga’s regulations.

These are tough times at Barca. As well as the financial issues, their performance on the pitch has been slipping. In fact, 2020/21 was the first season that they finished outside the top two since 2007/08. Their standard big-spending approach is no longer on the menu.

The club had a huge €173m operating loss in 2020 (i.e. excluding player sales & interest), making €432m in last 3 years. Three “Super League” clubs had higher losses (Juventus, Milan and Manchester City), but these are all supported by owners – in contrast to Barca.

These problems have not arrived overnight, as confirmed by economic VP Eduard Romeu, “COVID is not to blame for everything. Things were going badly before.” Laporta said restrictions were caused by “what we have inherited”, a reference to his profligate predecessor .

They have spent nearly a billion on bringing players to the club in the last 3 years with their €960m by far the highest in Europe, well ahead of Juventus €801m. The average of €320m in the last three years, is more than three times as much as €103m average in preceding five-year period. Player sales have also increased in this period, but net spend has still doubled from €64m to €132m.

Like many other clubs, Barca have become increasingly reliant on player sales with profits from this activity of €382m in the last 3 years, including Neymar’s lucrative sale to PSG in 2018. However, the 2020/21 budget only assumed net €28m (gains €59m, losses €31m)

The daunting financial challenges help explain why they wanted to be part of the European Super League, especially as they would have received a “welcome bonus” of €270m plus an additional €60m in the first two years, even before an estimated annual €234m.

The cash flow clearly illustrates their challenges. The €173m operating loss improved to €25m after adding back non-cash items, but club then spent €97m on players (purchases €245m, sales €148m), €58m capex and €24m interest. Funded by €205m new loans.

One consequence of the high debt is a steep increase in the amount of interest the club has to pay. This is up from less than €1m in 2018 to €26m in 2020, the highest in Europe, ahead of Manchester United €23m. This payment is budgeted to further rise to €34m in 2021.

The gross financial debt has increased by a hefty €412m from €68m to €480m in just 2 years, comprising €279m bank loans and €201m bonds.

One reason Barca have more problems with debt than others is that so much is short-term, i.e. needs to be repaid within the next 12 months: €731m for Barcelona (including €268m bank loans.

The club reported a €203m loss from COVID in 2020 (stadium €67m, TV €35m, commercial €72m & transfers €29m) and estimated a further €267m reduction in 2021, giving €470m loss over two years. It’s probably even higher, as this assumed an early return of fans to the stadium.

Also worth noting that commercial revenue is suffering, partly due to the retail closures and inability to complete deals, but it has also been reported that the value of the Rakuten shirt sponsorship extension to June 2022 reduced from €55m to €30m.

The wages to turnover ratio has actually not been too bad, though it has increased (worsened) from 52% to 62% in the last 3 years. However, this was pre-COVID, so the substantial reduction in revenue in 2020/21 would adversely impact this ratio – before any wage cuts.

The club are looking for their players to accept wage cuts, especially if Messi sets the example. Reductions have reportedly already been agreed by Gerard Piqué, Marc-André ter Stegen, Frenkie de Jong and Clément Lenglet, while others are in negotiations

Even after the fall from €501m to €443m in 2020, Barca still had the highest wage bill in Europe, €42m more than Manchester City. As Tebas said, “Barca have always been at the limit in terms of wages. When the pandemic came along, they did not have a buffer.”

Not only was the wage bill the highest in Spain, but it was far ahead of other clubs in Europe, especially in 2019 when their €501m was €124m (33%) more than the next highest Manchester United €377m. Wages surged under former president Josep Maria Bartomeu

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The Political Economy of Football V2

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