In the second part of our series ‘Crisis Clubs’, examining the financial states of five European football clubs, Matt Slater digs into the numbers, analyses how and why things are so perilous, and plots a potential way out for Barcelona.
Read part one — Everton, a club of unwelcome Premier League firsts: Record £355m losses, 10-point deduction — and look forward to Inter Milan, Lyon and Hertha Berlin later this week. And there’s even more insight via The Athletic Football Podcast, too.
Barcelona president Joan Laporta used his customary address at the club’s ordinary general assembly last month to announce that the crisis he inherited in 2021 was over.
Record turnover, a huge profit and the “unique achievement” of six Spanish titles for the multi-talented club’s various sports teams — including, most importantly, the men’s and women’s football sides. From bust to back in two years.
“A lot of work has been done to return happiness to Barca fans as we have stabilised the club, which is once again a reference point in the world of sport,” the lawyer-turned-magician proclaimed.
And it is some trick Laporta, 61, has pulled off, up there with making an elephant disappear. From a world-record annual loss for a sports team of £418million ($510m at today’s rates) to a club-record profit of £255million.
Despite that achievement, Barcelona are here, in our series of stories about famous clubs in varying states of financial distress. They have escaped the immediate threat of the frying pan but they are still floating somewhere between safety and the flames.
Floating is better than burning, of course, and floating can be fun when you have players as good as theirs, but Barcelona would have made a fourth straight financial loss last year — and a hefty one at that — if Laporta had not pulled his ‘palancas’, the much-lampooned ‘economic levers’ of selling future revenue streams for big, but discounted, upfront payments.
So, just like a magic show, all is not quite what it seems at Barcelona, where there is nothing customary or ordinary about the club’s finances.
How did they get into this mess?
For accountants, there is a memorable exchange in American writer Ernest Hemingway’s first novel The Sun Also Rises. One character asks another how he went bankrupt. “Two ways,” the cash-strapped chap replies. “Gradually then suddenly.”
Barcelona can empathise.
Trying to pin down exactly when “gradually” started for the Catalans is difficult but if you are searching for culprits, the summer of 2017 has a very guilty look on its face. That was when Neymar shocked everyone by leaving.
Neymar: Maverick, genius, king of the ‘could have been’
The Brazilian had arrived at the Camp Nou four years previously in a move that ticks almost every box on the Barca bingo card: the hottest new talent on the block, huge fee, allegations of tax fraud (of which he was later cleared and his father called “unfounded accusations”). Adding him to a team that was already in the conversation for the greatest of all time seemed unfair and that is how it played out in 2015 and 2016, when Barca won almost every competition they entered.
Neymar, as one-third of the ‘MSN’ forward line alongside Lionel Messi and Luis Suarez, made a full and, at times, under-appreciated contribution. But 2017 did not go quite as well as the previous two campaigns, as Barcelona followed the Neymar-inspired miracle of a 6-1 second-leg victory over Paris Saint-Germain in the Champions League by losing 3-0 to Juventus in the next round. They would also finish second to Real Madrid in the league, which means they came last in that particular two-horse race.
For the man himself, however, perhaps the biggest disappointment came the previous December, when he finished fifth in the voting for the Ballon d’Or, a prize given to the player a panel of international journalists believes is the best on the planet. Having been third in 2014, Neymar was going backwards, and he was beaten in 2016 by team-mates Messi and Suarez.
So, when PSG, bankrolled by Qatari state wealth, agreed to pay Neymar’s €222million (£193m) release clause and give him a fresh canvas on which to paint his Ballon d’Or entry, the band was abruptly broken up.
Still, there was the consolation of the enormous transfer fee, right?
Yes… but Barcelona wasted it. And while they are hardly the first — or last — club to make expensive recruitment mistakes, there was an inevitability about it. Barcelona are particularly vulnerable to profligacy in this area due to the nature of who and what they are: a vibrant but fickle democracy.
The club is owned by its 150,000 card-carrying members, who pay about £180 a year for the right to buy cheaper tickets and vote on who should run Barcelona. That bit is done by a far smaller group of members who are rich enough to afford the personal bank guarantees required to run for office.
But once these guys have earned or inherited enough money to be a Barca director, or even president, they have to convince the other members they are going to bring the good times back/keep them rolling, which usually involves promising to sign superstars. Just like real politicians and tax cuts/spending promises, then.
The upshot of all this democracy is that decision-making at Barca can often be scatter-gun, short-term and self-serving. And the decision-makers can be hard-working and successful in their day jobs but hopelessly ill-equipped when it comes to running a football club. Josep Maria Bartomeu, the president between 2014 and 2020, is a good embodiment of these flaws in the Barca model.
We are skipping a few steps in this slow-motion car crash but Barca basically swapped Neymar for French winger Ousmane Dembele, who had just enjoyed a promising season with Borussia Dortmund, and Brazilian midfielder Philippe Coutinho, who had spent five years with Liverpool. Unfortunately, neither of these signings worked out, and they cost Barca about £70million more than they received for Neymar.
The impact of these (and several other) misfires in the transfer market was not immediately obvious, though. Barca won a domestic double in 2018 and retained the league title in 2019. But some dramatic defeats in the Champions League, most notably a 4-0 loss at Liverpool in 2019, suggested the team was in decline, despite the continued excellence of Messi.
The Comeback, No. 14: Liverpool deepen Barcelona’s Champions League trauma
But, in the tradition of great tragedies, even Messi was becoming a problem. Not the man or the player, but his cost. Since every board member knew that losing the totemic Argentinian to another club would ensure a vote of no confidence, they said ‘si’ to whatever Messi’s representatives thought their man was worth. Between 2014 and 2020, that figure tripled.
In January 2021, Spanish newspaper El Mundo revealed Barca had paid Messi €555million over four years from 2017. He might have been worth it but every time he got a raise, the rest of the dressing room would want more, too. In 2017, the football club’s wage bill was £296million. A year later, it was £425million and it went up again in 2019 to £437million.
The irony for Messi is his huge salary meant the club could not make a serious attempt to bring Neymar back when he might have been available in 2019, and made no effort to keep Suarez in 2020. To make matters worse, the board appeared to be forcing out players it could no longer afford.
So, that’s the “gradually” part of the equation at Barcelona. The “suddenly” moment was the arrival of Covid-19 in March 2020.
The pandemic hurt every football club but it almost killed Barcelona. Being forced to close the gates at Camp Nou deprived the club of the largest matchday revenues in Spain. But the club does not just own Europe’s largest club stadium, it also runs one of Spain’s most popular tourist attractions — its museum and stadium tour. And all that footfall usually means they sell lots of merchandise, too.
The pandemic also hit a third revenue stream, as it depressed the entire transfer market at exactly the moment Barca had an entire team of expensively assembled and well-remunerated recruits to offload.
All together, Barcelona estimates Covid-19 cost them nearly £400million in lost revenue in the 2020 and 2021 financial years, which goes a long way to explaining the disastrous accounts they posted, losing a total of £442million.
No club — even one that topped Deloitte’s Money League, a ranking of football clubs’ revenues, in January 2020, three months before the pandemic struck, when Barca became the first club to earn more than €800million (£698million) in a season — can take a punch like that and not hit the canvas.
How bad is it?
OK, you get the idea. Barca were in trouble. But, to continue the boxing metaphor, were they dazed and blowing hard, or unable to defend themselves?
According to Laporta, it was the latter, although he would not be the first president to suggest the club were half a second from being counted out when he arrived with the smelling salts. Again, Barca politics are much like real politics in that the last lot are always useless and everything that goes wrong is their fault.
There are so many lowlights from the last months of Bartomeu’s reign to the start of Laporta’s that it is hard to remember them all, but the most symbolic was the 8-2 defeat by Bayern Munich in the quarter-final of the Champions League in August 2020.
The quarter-final was played as a single-game tie in a Covid-19 “bubble” in Portugal and Bayern’s last two goals were scored by Coutinho, who was on loan in Germany because Barcelona could not afford his wages and needed to put him in the shop window.
Nine days after that defeat, which cost manager Quique Setien his job only seven months after he replaced the harshly dismissed Ernesto Valverde, Messi told the club he wanted to leave. He did this via ‘burofax’, which is the greatest endorsement this Spanish method of sending important documents has ever received.
Messi was eventually persuaded to see out the final year of his contract but the die was cast and he, too, would be off to PSG 12 months later. In tears.
Messi left Barcelona because of the club, not because of La Liga
By that point, Barca were in “everything must go” mode: including Messi, 11 players were sold or released, with four more going out on loan. They were replaced by three free transfers and two loanees. And Messi’s locker at the training ground went to Dutch striker Luuk de Jong, a man who failed to score in 12 forgettable appearances for Newcastle United in 2014.
Unsurprisingly, Barca won no trophies in 2021-22, finishing 13 points behind Real Madrid in the league and failing to reach the Champions League knockout stage for the first time since 2004.
The club’s financial report in October 2021 was terrifying. It included £236million in impairments and provisions — write-offs, in other words — related to bad contracts, legal fees and tax disputes. Barca’s net financial debt — its bank borrowings and bonds, minus cash in the bank — had sailed past £400million and most of that was expensive, short-term debt. The club paid £36million in interest that year.
The net financial debt only told half the story — Barcelona also owed huge sums in transfer-fee instalments, back tax, deferred wages and unpaid suppliers’ bills. That pile of bills almost doubled between 2018 and 2020 when it soared past £1billion.
As then-chief executive Ferran Reverter put it: “When we came in this March, we found a club that was technically bankrupt; if it was a PLC, Barca would have been dissolved.”
What’s the way out?
Many in that situation would have prescribed a dose of austerity, a period when the men’s team could lean on the club’s famous academy and perhaps focus on the cups. They would also have probably postponed plans to redevelop the Camp Nou, and build a Barca-themed entertainment park around the stadium, until the debt had come down.
This would have been cautious, orthodox and reasonable. Laporta, however, took a more Keynesian view of the club’s economic predicament and decided to spend, spend, spend.
Now, you may think we are suggesting this was the wrong thing to do, as we have already explained that Barcelona presidents have a habit of doing what is popular, as opposed to sensible, and their investment horizons tend to extend as far as the next election.
But we are not saying that. We are merely pointing out that Laporta — and, by implication, Barca’s members — had a choice and they chose to double down.
The rationale is that Barcelona should never aspire to be plucky triers, they must try to win. That is what brought them hundreds of millions of fans, took them to the top of the revenue rankings and helped them win four Champions League titles between 2006 and 2015.
Having chosen to pursue a “virtuous circle” strategy, Laporta had another choice to make: how to do it while satisfying UEFA’s financial fair play (FFP) rules and La Liga’s even more restrictive spending limits.
The obvious choice for most clubs would have been to bring in fresh investment by selling a stake in the business. If Barcelona were ever to consider moving away from their fan-ownership model, even with just a small stake for a partner, they would not be short of offers.
In fact, we know Laporta received at least one, as one of Britain’s richest men, Sir Jim Ratcliffe, made a polite inquiry about putting in “two or three billion” to “renovate (the stadium) and have 50 per cent ownership”. That revelation came in a book about Ratcliffe’s company INEOS published earlier this year. The British businessman has since made Manchester United’s owners a similar offer.
Laporta went another way. He decided to sell future revenues and stakes in subsidiaries, his so-called ‘levers’.
The first was pulled in June 2022 when he sold 10 per cent of Barcelona’s domestic TV revenue for the next 25 years to U.S. private equity firm Sixth Street for £230million. This enabled the club to post a profit of £85million for 2022, a £500million swing from 2021’s record loss.
That was enough to keep UEFA’s FFP police at bay and erase some red ink in the accounts, but more cash was going to be needed to satisfy La Liga’s forward-looking cost controls, particularly if Barcelona wanted to register new signings Raphinha, Robert Lewandowski and Jules Kounde, a trio of talents who cost more than £130million. So, in July, Barca announced they were selling another 15 per cent of their 25-year domestic TV income to Sixth Street for just short of £350million.
Taken together, Sixth Street will earn almost £900million across the deal, with Barcelona sacrificing more than £320million to receive their two injections of cash.
But new signings meant the wage bill would be going up again, which meant the need for more levers. Numbers three and four were the sale of two 24.5 per cent stakes in Barca Studios, the club’s media production arm, to blockchain-based “fan engagement” firm Socios.com and Orpheus Media, a production company run by Catalan media magnate Jaume Roures. As a bonus, the deal meant the club could also book another £180million gain thanks to the revaluation of its 51 per cent stake in Barca Studios.
Confused? You will be when we tell you Socios and Orpheus had only paid 10 per cent of what they owed for the shares as of this June, which meant Barca could sell some of the shares not paid for yet to some other previously unknown entities.
Investigation: Barcelona’s financial crisis and what the rest of football thinks of it
Both companies denied failing to meet obligations and instead said an agreement was made for payments to be delayed to December, while Barca could look for a new “partner” to make them instead.
And Barca were not finished there. Within weeks, a new plan was announced that will see Barca Studios become Barca Media, a home for all manner of unspecified digital and media offerings, and floated on the Nasdaq stock exchange. The target valuation is $1billion, which is a suspiciously round number for a business that nobody understands.
No matter, there were other more tangible levers, too, such as bundling the shirt sponsorship with the stadium naming rights and flogging them to Spotify. The club also asked Goldman Sachs and JP Morgan to arrange £950million worth of 25-year corporate bonds secured against the increased revenues it is expecting from its redevelopment of the Camp Nou and the surrounding area.
The upshot of all this fancy financial footwork is the big annual profit posted for 2022-23, another La Liga title, reduced media income and a near-tripling in the club’s net financial debt to almost £1.2billion, the highest in European football.
Laporta finished his speech at the ordinary general assembly with another well-worn motif: it is us versus them, folks; Barca against the world. That is not usually a strategy chief financial officers would recommend but Barcelona is ‘mes que un club’ so it might just work. It will have to — Laporta has bet the house on it.
(Top photos: Getty Images; design: Sam Richardson)