By Tony Attwood, king of the predictive arts, emperor of the future, master of the middle-distance, irony champion 2010, and knower of all sorts of stuff.
No one likes a smart-arse. So I am preparing to be disliked.
FC Barcelona, who have just signed David Villa, is attempting to negotiate a 150 million- euro bank loan after falling behind with salary payments to players, (according to Bloomberg, one of the few sources of news that I would generally trust).
They hope to secure the loan in a few days, the new Barcelona President S Rosell has said.
“We have to finance our short-term obligations such as wages,” he said, before adding the team also plans to sell defender Dmytro Chygrynskiy back to Shakhtar Donetsk for 15 million euros, 10 million less than it paid for him in August 2009.
Now that doesn’t quite seem to me to be good, well-planned, and well-thought-through transaction. A bit like the Hleb deal in fact.
“Club members can relax,” Rosell added. “The club isn’t bankrupt.”
So, the question is, is that true? And if so, what the hell is going on?
Last week, Barcelona said it had become the world’s biggest sports team by sales, overtaking Real Madrid. Revenue rose 16 percent to 445.5 million euros for the year to June 30 following its 2009 Champions League title. Net income was 9 million euros.
So how can it possibly be in trouble?
Until now, aside for the oddball characters who reckon that all of football is about to implode (that would be the Untold Arsenal staff), no one has believed that this will really happen. Even though there is firm evidence that Liverpool has now been taken over by the banks who have forced in their own chairman with a remit to sell the club, and even though Rangers, champs of Scotland have suffered the same fate, there is a feeling that this can not be happening. Big clubs don’t go bust. It is not real.
Yet it is.
On June 16, Mediaproduccion SL, owner of the broadcast rights for the domestic league in Spain, said it sought bankruptcy protection – and that has hardly been reported anywhere. (You might think of Setanta going bust, and before them the scurrilous idiots known as ITV Digital. Add Setanta to ESPN to Sky and you have in footballing terms, Mediaproduccion).
Barcelona’s seven-year, 1 billion-euro contract with Mediapro isn’t secured by a bank guarantee, unlike Real Madrid’s deal. While Barcelona has had assurances from Mediapro, concern over the contract remains. A whole new hole might be appearing. Assurances are cheap. Actually they are free. You don’t need a licence to issue them.
Rosell also played down speculation that the club is poised to sign Cesc Fabregas.
He “denied adamantly” that there was any possibility of Barcelona paying 50 to 60 million euros for the midfielder. Publicity about the possible deal was “the worst thing that could have happened,” he said.
(If you find yourself choking on your beer you might want to stop at this point. It gets crazier.)
Back in April football in Spain just about came to a stop because of unpaid wages.
Then in May it was stated that the 20 La Liga clubs, will be subjected to financial regulation by a new independent body established by the Spanish government to ensure that teams are living within their means.
Clubs won’t be allowed to spend more than 70% or 75% of their income on player wages or transfer fees under new proposals from Jaime Lissavetzky, the country’s secretary of state for sport. The new plans are expected to be introduced in 2011.
The combined debts of Spain’s 1st division clubs is now €3.53 billion with only Barcelona, Real Madrid, and Numancia showing a profit in 2008-09 season. (For Barca this was an exception – the don’t normally show a profit). Eight clubs in the first division are now in administration including Real Mallorca, which finished fifth in the league last season. Real Mallorca are the latest to join the list.
So, how can Barca, who are giants and who made a profit in their last accounts, run out of money?
The issue is one of cash flow – and it is common to see companies fail not because of losses but because of cash flow. You make a profit on paper, but simply don’t have the money in the bank to pay for things. So you start borrowing. And then you borrow some more.
Now when that happens the first thing you do is stop paying people to whom you owe money – like the contractors who print the programme, the firm that sell you bulbs for the floodlights – that sort of thing.
The point is that these people will be agitated, but they know that there are other suppliers out there, so they are anxious not to lose the trade. So they don’t sue you – they accept that payment will be late.
So instead of paying the contractors 40 days after the bill comes in, you pay them on 50 days, then 60 days, and so on. This is the first step of all companies with cash flow problems. The second step is you ask the bank to extend your credit.
The third step is you start making people redundant (or in the case of Barca, you sell Yaya and ask Thierry if he wouldn’t like to go and play in the USA).
Only after all this is done, do you stop paying your staff – even for a day.
And that is what is going on here. Barca must have been turned down by their banks at least once already, for it to have come to this. They must also have delayed paying their suppliers until the suppliers are taking court action, and must have made everyone they can think of redundant.
And still they are short of money.
They are in the same boat as those big time operators Portsmouth, Cardiff City and Southend United. And it is about to get worse, because they have no escape route. 33m euros for Yaya is ok, but it doesn’t really sort out the depth of crisis that Barca must have to have got into the non-payment of players situation. Besides which the money may well not hit the bank for several years (remember how Barca still owe us for Hleb and Henry).
It also shows the truth about the Cesc situation. The whole thing is puffery to answer Real Madrid who endlessly laugh at Barca for not being able to keep their children under control.
I wonder if Cesc would mind being paid late.