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By Tony Attwood
An opening word of warning. This is a long piece, and it is nor about Arsenal, but is about what can go wrong when a club is driven to get bigger and bigger just to keep up with the rivals.
For as you may have noticed, if you are a regular reader, I am fascinated by the issue of football finances, quite simply because to me, more and more clubs are living in a land of make believe. A land of growing debt, with no way out of this debt, and yet everyone just plodding along as if nothing untoward is happening.
In fact so bizarre is this situation I was relieved to find a review of Barcelona’s financials in “The BookKeeper: Barcelona’s wild finances made clear”. Not because I have any good feeling towards Barcelona, but rather because in that article it quickly becomes clear that Barcelona has debts of approaching €2bn and no way of paying them off. If you want to read about this in detail, the link is here Barcelona’s wild finances made clear .
And to be clear about my position in this, I am not producing this piece to crow over Barcelona’s plight, but rather to emphasise a point I have made in the past: football cannot go on like this. One day a very big club is going to fail, and it will bring down 100 or more clubs to whom it owes money. Of course it there is someone else who thinks that he is God’s gift to financing, and he might well take over the club, and might stave off the disaster for another few years. But in essence the majority of clubs are losing money and have no way out of that situation, and the banks only continue to support them because they (the banks) know that if they pull the plug on (say) Barcelona, then not only will they lose the money Barcelona owest them, but also all the Barcelona fans they have as customers, will move to another bank.
And so the crisis begins.if you want the details of loans etc you can read the original article here – you just to log in, and it is free. I offer a brief summary.
Barcelona has a massive turnover (over €1billion). In theory profit comes from winning the competitions they are in. But to do that they need more money to build a new stadium, but that has cost a fortune, so they need more money. You might have spotted the problem: it’s a bit cyclical.
So in a couple of years their new ground will be holding over 100,000 spectators per game. Except that by then the debts will be huge and TV income won’t increase enough, so they need other income to fill the gap, such as more sponsorship, but they’ve really got most of that covered.
For example, Spotify, the music service, is the ground’s sponsor which is great for the club. But Spotify arose in 2008 out of an internet development, and although I have no inner knowledge of such things it does seem to me that another innovation can come along at any old time. So in reality the club is dependent on nothing happening which makes Spotify look rather dated because everyone has turned to something new. And that”s tough to predict.
The trouble is each time a gigantic funding sources comes to an end (like the money brought in from people buying the right to buy a season ticket – which doesn’t actually give them a season ticket, but gives them the right to buy one) they need replacing. Yet even ardent fans can get fed up with being fed new ideas all the time.
So Barcelona’s TV revenue is now actually in decline, in part because they sold a quarter of a century’s TV money in advance to an equity firm to help pay for the new ground. They’ve spent the money before they got it.
Maybe it will all work and in 20 years time maybe the debts will be down so that any marketing mistake means another idea can come in, rather than the club being left with a huge debt.
Barcelona have survived so far through having huge additions of cash from friendly sources, some of which needs to be repaid in the next few years..
The massive cash injection of four years ago was much needed, but Barca will be paying it back with interest over the next two decades. And as I always admit, I am not an accountant but I can tell you Barca has ended up with less money than it started with for seven years running. Those clever-sounding ventures like their TV and film studios never made money and were written off.
So now the impossible is happening, the money Barcelona spends on football, particular player wages, is being reduced. Indeed some players have been sold for a loss, simply to get their salary off the books. Indeed, the amount that the club has paid to put its squad together was actually less than Arsenal have paid. But Arsenal is on the edge of making a profit.
Meanwhile there are also reports that the club has either started deferring agreed payments (something that always invokes a penalty clause) while Barcelona is also taking out bank loans. Which means they don’t have any extra money in the bank to buy new players. In fact there are reports that Barcelona’s debts with some clubs are increasing, because payments of transfer installments have not been made. Thus they buy a player for €50m and a year later actually owe €58m as they had to borrow the money from the bank. Overall they are buying fewer players, but even then are having to plot ingenious courses to manage the interest payments.
Where work is delayed on the stadium, Barcelona cite cash flow as the issue, which is nice and nebulous and actually means debt, for as the Athletic revealed Barcelona held the highest debt in world football. That was a year ago, now it is worse.
The estimate is they owed €1.84 billion this past summer. Now it is €2bn and the stadium costs are still rising. In fact they are still using borrowed money to buy players – which is the riskiest way of using borrowed money that football clubs ever indulge in.
But Barcelona are now of the mindset that means they don’t declare what each new borrowing is for. The club merely talks of transfers and construction delays – both of which are inevitable. Meanwhile it is estimateed is that it is paying approaching €100million a year in interest.
