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How can Barca afford signings?

Before going on a well-earned vacation, the authoritative Swiss Ramble reviews the finances of FC Barcelona.

FC Barcelona have announced the signing of Rapinha from #LUFC for €58m, while a deal to acquire Robert Lewandowski from Bayern Munich for €50m is agreed in principle. The question is how can they possibly afford these players, given their well-documented financial problems?

Even though Laporta claimed, “This will all take place under the criteria of financial sustainability and prudence”, it does feel like this approach of “short-term gain, long-term pain” means that Barca have learned precious few lessons from the mistakes of the past.

Only last month president Joan Laporta compared the club to a patient who “was practically dead in financial terms”, while the vice-president for finance Eduard Romeu said that €500m was needed “to save the club”.

This was not surprising, given the magnitude of thefinancial issues. Although things have moved on since the most recent accounts for the 2020/21 season, it’s worth reviewing these to explain why so many fans are scratching their head at this summer’s spending.

After many profitable years, Barca slumped to a €133m pre-tax loss in 2020, followed by a shocking €555m loss in 2021, which was by some distance the worst in Europe. In fact, this was the highest loss ever reported by a football club.

The growth of debt

Total debt (including bank loans, transfer fees, wages, tax authorities and other creditors) has more than tripled in the last 5 years to stand at €1.2 bn, the third highest in Europe, only below Chelsea (Abramovich friendly loans) and Spurs (funding a new stadium).

The club have had to pay a heavy price for this debt growth, as interest payments have shot up from just €1m in 2018 to €41m in 2021, which was comfortably the highest in Europe, ahead of Athletico Madrid €30m, Man United €23m and Spurs €21m.  Debt has largely been used to fund the purchase of new players with €1.2 bn spent on transfers in the 5 years up to 2021, which was only surpassed by Juventus.   Even though they managed to reduce transfer debt to €231m in 2021, this was still the second largest in Europe, again only behind Juventus.

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 major issue, as €596m had to be repaid within 12 months. This was the highest in Europe, much more than other clubs.

The loss included a €92m net impact for COVID. The revenue reduction was €219m, mainly stadium €181m and commercial €56m, while expenses were cut €127m (deferred wages €60m, savings from not opening stadium and stores €64m).    This means that the 2021 underlying loss, i.e. excluding the €271m once-off charges and €92m COVID impact, was “only” €193m, as opposed to the reported €555m. To be clear, this is still an awful figure, but nowhere near as horrific as the headline number.

However, the most problematic issue for Barca is the salary cap imposed by La Liga’s Economic Cost Control, specifying how much each club is allowed to spend on first team players, reserves, academy, coaches, physios, etc.  challenge is illustrated by the fact that La Liga has not yet allowed them to register their new signings, even though the club has already announced the arrivals of Rapinha plus a couple of free transfers: Franck Kessie from Milan and Andreas Christensen from Chelsea.

The wage bill is still miles over the salary cap with the last reported figure being €432m in 2020/21 (excluding other sports), even though this was well down from the €501m peak in 2019. This was second highest in Europe, only surpassed by PSG €503m.

One reason why the club posted such a large loss in 2020/21 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

 

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