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How Barca can pay for Torres

Barcelona have signed the young forward Ferran Torres from Manchester City for a hefty €55m transfer fee (plus €10m add-ons). Given the club’s well documented financial difficulties, this deal will have left many fans scratching their head.   The authoritative Swiss Ramble explains how this is possible.

Barca reported a shocking €481m post-tax loss for the 2020/21 season (€555m before tax), which is not only by far the worst in Spain, but also in Europe. In fact, it’s the highest ever loss posted by a football club. In contrast, Real Madrid delivered a €1m profit.

Total debt (including bank loans, transfer fees, wages, tax authorities, trade creditors and other creditors) has more than tripled in the last 5 years to stand at €1.2 bln, the second highest in Europe, only behind Tottenham Hotspur (who funded a state-of-the-art new stadium).

The cash for the transfer comes from a Goldman Sachs loan to FC Barcelona. The good news is that debt has been restructured with a 10-year €595m loan at 1.98% replacing old short-term debt. Before the refinancing, this was a real issue, as €731m of the debt needed to be repaid within 12 months.

That’s great, but the price to pay for debt growth is interest shooting up from just €1m in 2018 to €41m in 2021. The €26m they paid in the prior season was already the highest in Europe. In fairness, payments should fall with the new financing arrangements.

The other way that the club have used credit is by paying the transfer fee in stages (as done by all football clubs). They are reportedly paying the fee in four instalments with the first due this summer. Assuming these are equal, they will only have to pay €13.75m in 2021.

One reason why Barca  posted such a large loss in 2021 was generating only €4m profit from player sales, which they will look to address, as this activity produces a “double whammy” in terms of meeting the salary cap: the gain from the sale plus savings on the wage bill.

There is yet another hurdle for Barcelona to clear, as members have recently approved the ‘Espai Barca’ project to remodel the Camp Nou stadium and develop the surrounding areas, which will require an additional €1.5 bln loan from Goldman Sachs on top of existing debt.

One possibility for the club to ease their financial problems is for them to sign-up to La Liga’s €2.7 bln deal with CVC Capital partners. Laporta has not completely ruled this out, but the club is not keen on giving up 10% of its TV revenue over the 50-year agreement.

Barca would clearly love to return to their traditional business model, where they spend big to deliver success on the pitch, thus generating more revenue to spend, but instead they currently have to focus on a series of “quick fixes” to meet financial fair play targets.

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