Considered the best player of his generation, Lionel Messi couldn’t make Barcelona’s tally a winner.
Bloomberg took a look at what went wrong in the finances of one of Europe’s most popular soccer teams.
How bad is Barcelona’s finances?
The team’s biggest problem is still debt. The net financial debt at the end of March, when he took over the new management, was 673 million euros ($792 million). Adjusted temporary debt now exceeds €1 billion, including deferred player salaries during the pandemic. The club conducts an audit and the final number may be higher.
To address the problem, Barcelona has hired Goldman Sachs to sell 525 million euros in special bonds that will partially refinance debt, but will also provide more liquidity.
The club entered into a spring partnership with other major teams, including Real Madrid, Chelsea and Italy’s Juventus, in an unsuccessful attempt to establish the European Super League. The plan, which collapsed within days, would have given the participating clubs a more attractive income than they currently have.
Barcelona reported a loss of nearly €100m in the 2019-20 season as disruptions from the pandemic reduced their revenue on all fronts. The loss is expected to rise to 487 million euros for the just ended season.
What went wrong in Barcelona?
According to its annual report, the pandemic has had an impact of 130 million euros on business. However, the new management team said the figure was close to 42 million euros and that the previous administration had used the pandemic and its empty stadiums as an excuse for mismanagement.
In a report, credit rating agency Fitch referred to “the volatile and unsustainable financial management of the club under the previous management, including an investigation by the Spanish authorities.”
Messi’s release may not be a panacea
The rating agency sees “significant implementation risks in relation to the new management team’s strategy to reduce players’ salaries to ensure financial stability”.
At the end of July, Fitch was still rating Barcelona’s notes at BBB-, a notch above junk.
Why is Messi leaving?
Barcelona announced in a brief statement, Thursday, that after 17 seasons, Messi’s contract will not be renewed in the only professional club he played with.
Team boss Joan Laporta said Barcelona was unable to sign the Argentine star due to “financial and structural obstacles” within La Liga, despite the club and Messi’s desire to sign a new contract.
The 34-year-old made his Barcelona youth team jersey for the first time when he was 13, and made his first-team debut for the league in 2004-05. He was on track to make around $82 million annually under the new Barcelona contract that was never implemented.
Forbes estimates his 2021 income, including salary and endorsements, at $130 million, the second-highest among all athletes after Ultimate Fighting Championship star Conor McGregor.
Under La Liga rules, clubs have a salary cap to spend on players and coaches based on the difference between income and costs. In the case of Barcelona, with Messi and even with the proposal to cut their salaries, the wage bill was unaffordable at 110 percent of their income.
“The club is above everything, even above the best player in the world,” Laporta said at a news conference this week.
Due to lower revenue, the club’s threshold for talent spending is 47 percent lower than the previous season. For his rival, Real Madrid, the reduction was 26 per cent since, among other measures, the players agreed to cut their salaries by 10 per cent.
Laporta explained that Barcelona could have met La Liga standards if it had endorsed a proposal from CVC Capital Partners to buy a 10 per cent stake in the La Liga business.
The UK-based private equity firm has offered to invest €2.7 billion in the league. Barcelona refused to support the measure, which would have frozen part of the club’s broadcasting rights for 50 years. Real Madrid also opposed the deal.
Could it go wrong?
potentially. The financing operation run by Goldman Sachs should give breathing space, and with Messi out of the equation, the salary pressure will ease.
However, payroll will continue to take the uncomfortable 95 percent of revenue, and marketing revenue could be hit as sales of the No. 10 shirt evaporate—up to two million pieces a year.
A sponsorship deal with Japanese e-commerce company Rakuten Group expires in June, while a deal with US sporting goods giant Nike expires in 2023.
Ticket revenue will also depend on the number of fans allowed at Barcelona’s stadium, the largest in Europe with a capacity of nearly 100,000, as long as the pandemic continues.
Meanwhile, the La Liga is adjusting the bidding for the auction of national broadcasting rights with the aim of attracting new entrants, such as Amazon. The auction is expected to take place in September, and Spain’s main national buyer of soccer rights, Telefónica, is demanding lower prices.
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