Skip to main content

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.

Labels:

Comments

Post a Comment

Popular posts from this blog

Threat of financial calamity removed from Baggies

West Bromwich Albion had effectively been in decline ever since the club was sold to a Chinese consortium in August 2016, paying a figure north of £200m to buy former owner Jeremy Peace’s stake. Controlling shareholder Guochuan Lai’s ownership was fairly disastrous for the club, but his unloved tenure finally came to an end after Bilkul Football WBA, a company ultimately owned by Florida-based entrepreneur Shilen Patel and his father Dr Kiran Patel, acquired an 87.8% shareholding in West Bromwich Albion Group Limited, the parent company of West Bromwich Albion Football Club. This change in ownership was urgently required, due to the numerous financial problems facing West Brom, including growing high-interest debt and serious cash flow concerns, following years of no investment from the former owner. Indeed, West Brom’s auditors had already rung the alarm bell in the 2021/22 accounts when they cast doubt on the club’s ability to continue as a going concern without making player s...
1 comment
Read more

Spurs to sell minority stake

Tottenham Hotspur is in talks to sell a minority stake in a deal that could value it at up to £3.75 billion and pave the way for Joe Lewis and his family to sever ties with the Premier League football club. Tottenham chairman Daniel Levy is seeking an investment that values the club at between £3.5 billion and £3.75 billion, including debt. While the terms of any deal have not been finalised, City sources expect Spurs to sell about 10 per cent. The club is being advised by bankers from Rothschild on the sale. Tottenham wants to raise fresh capital for new player signings and to help fund the development of an academy for its women’s team, as well as a 30-storey hotel next to its north London stadium. The financier Amanda Staveley, who brokered the deal for Saudi Arabia’s Public Investment Fund to take over Newcastle United, is understood to be among the parties to have expressed an interest in Tottenham. Staveley’s fund, PCP Capital Partners, has raised about £500 million to ...
Post a Comment
Read more

Millwall punch above their weight

Millwall’s season was overshadowed by the tragic death of owner John Berylson following a car accident. The American had been an exemplary owner, beloved by the fans for his leadership, passion and generosity. Millwall’s finances had been pretty good during his tenure, which we shall explore by looking at the most recent accounts from the 2022/23 season, when the club narrowly missed out on a place in the play-offs after finishing 8th. Millwall’s pre-tax loss slightly reduced from £12.6m to £12.2m, as revenue rose £0.8m (4%) from £18.6m to a club record £19.4m and player sales improved from a £0.1m loss to £2.5m profit. However, other operating income dropped from by £1.1m from £1.3m to £0.2m, while operating expenses increased £1.7m (5%) from £31.6m to £33.3m. The main driver of the revenue increase was broadcasting, which rose £1.1m (12%) from £9.1m to £10.2m, though match day was also up £0.4m (7%) from £5.8m to £6.2m. In contrast, commercial fell £0.7m (19%) from £3.7m to £3....
Post a Comment
Read more