Barca pull their levers to boost profits

The authoritative Swiss Ramble reviews Barcelona’s 2021/22 financial results, when they swung from €555m pre-tax loss to €124m profit, mainly thanks to €266m gain from sale of TV rights and no repeat of prior year’s €271m impairment and provisions. Total debt was up to €1.5bln.

This was in stark contrast to 2020/21, when Barca posted football’s highest ever loss after tax of €481m. In fairness, UEFA said that accumulated losses of European clubs in 2020 and 2021 were €6 bln, but Barca’s €689m pre-tax deficit was comfortably the worst.

Before the large losses in 2020 and 2021, Barca had reported profits 8 years in a row, amounting to a quarter of a billion. Club has budgeted a €366m pre-tax profit in 2022/23 (€274m after tax), thanks to the inclusion of €600m from activating more economic levers.

One reason for the financial issues is a steep decrease in profits from player sales, which have fallen from €208m peak in 2018 (mainly Neymar to PSG) to €28m in 2022. Indeed, their €72m profit in the 2 COVID years was only around a third of Real Madrid €207m.

Thanks to activating levers, the €124m pre-tax profit is the highest in Spain, ahead of Real Madrid €20m. The losses reported by other clubs are a bit misleading, as their most recent figures are from 2020/21, which was severely impacted by the COVID pandemic.

While fancy financial footwork has enabled them to improve their finances in the short-term and sign new players, this strategy does come at a price, essentially hoping that it will drive success on the pitch and generate more money in the future.

Pulling the levers

The figures included €267m gain from sale of 10% of La Liga TV rights to Sixth Street, their first economic lever. The  €400m gain from sale of another 15% will be booked in 2022/23 accounts. These sales deliver €667m in total, but club will pay €41m per annum for 25 years.

That means they will pay more than €1bln over the life of this agreement, but financial vice-president Eduard Romeu said the deal was better than La Liga’s CVC agreement (8.2% over 50 years), as that had no buyback option and prevented the club joining a future ESL.

In addition, they also sold 49% of Barca Studios (excluding Barca TV & Productions) to http://Socios.com and Orpheus Media for €200m. Including €400m TV rights sale, 2022/23 accounts will therefore be boosted by €600m once-off profit, giving total gain of €867m.

They have not ruled out further levers, including the sale of 49% of Barca Licensing & Merchandising, looking for at least €300m. However, president Joan Laporta said, “We cannot be activating levers forever.” Romeu added, “One lever could also be the sale of a player.”

The club would have reported €142m pre-tax loss without €266m TV rights gain, compared to Real Madrid €296m loss if €316m gain from stadium revenue sale to Sixth Street is excluded. Adjusting for once-off provisions would give similar losses: Barca €151m, Madrid €127m.

Clearly, COVID has had a huge impact on finances with Barca estimating a revenue loss of €447m in 2020 and 2021, as games were played behind closed doors, exacerbated by the closure of retail stores and the club museum. However, total losses also reflect poor management.

Revenue

Revenue is down €213m (25%) from 2019 pre-COVID €852m peak to €639m, though budgeted to rise to €780m in 2023. Using club’s definition (including player sales & economic levers), next year should be record €1,255m (Barca Studios €200m sale in Financial Income).

Despite the increase, the €639m revenue is still €83m less than Real Madrid €722m, though much higher than other domestic rivals. In 2019 the roles were reversed with Barca €84m ahead, which means that there has been a €167m revenue swing in just 3 years.

Marketing and advertising revenue fell slightly to €267m, nearly £100m less than 2019 €363m peak, and below Real Madrid €290m. This was the fifth highest in Europe in 2021. However, budgeted to recover to €369m in 2023 (Spotify deal, US summer tour, higher sponsorships).

Based on the SR’s model, Barca earned €72m from Europe in 2022: Champions League group stage €64m plus Europa League quarter-finals €8m. This was much lower than Real Madrid’s €133m for winning the CL, and less than prior year’s €85m when Barca reached CL last 16.

They have earned €432m from Europe in the last five years, only surpassed in Spain by Real Madrid €497m. If they again fail to get through Champions League group stage, they will lose €20m (budgeted to reach QF) plus lower gate receipts, offset by EL money & smaller bonuses.