By Phil Gregory
Yesterday Untold Arsenal published the second in the series of Barca’s finances revealing how the club has lied over supposed profits, and how the prediction made previously that they were actually on the edge financially was completely true.
Having seen the story develop I wanted to know what happened in the build up to this fiasco. I figured what with them needing to borrow around £125m to pay wages despite being able to buy Villa and bid for Fabregas it’d be worth shedding some extra light on their finances.
So in this article I’m going to look at the 08-09 accounts as they are fully audited and I have data from the same year for other English sides for comparison, too.
Thankfully, Barcelona put an English translation of the accounts up, but the quality of it is poor. From a quick read through I’ve found spelling mistakes and sentences that halfway through revert back to Spanish! Not the most heinous of crimes, but does it really give an impression of professionalism and thoroughness off? Not at all. For a club that boasts that it reaches out to the world, using a proofreader on its official accounts wouldn’t seem too much to ask.
According to their accounts, their turnover for 08-09 stood at £286m, lower than I would’ve expected but still higher than Arsenal’s £225m. I’m converting figures to pounds so that you can compare easily to what I’ve written on the various other clubs previously, though exchange rates changes will have an effect on the figures.
Their wage bill stands at £168m, or £8m more than Chelsea (the highest in the Premier League). That puts wages as a percentage of turnover at 58.7%, not an unreasonable level though much higher than the top clubs in the Premier League bar Chelsea (46.2% for Arsenal, 44.2% for United and 53.5% for Spurs). As we saw in yesterday’s article it is now 64% and rising.
That in itself is not a disaster, in terms of current finance, but it raises a huge problem. Once a club gets up to that level it is very hard to come down again, without falling down the league table. At the moment quality players on the move expect Barca to pay big. If they don’t they go elsewhere, which forces Barca to pay more. The spiral can rarely be broken.
Bear in mind that this is all while Barcelona and Real Madrid have the vast majority of La Liga’s TV revenues (£112m from TV for Barcelona, compared to £73m for Arsenal). The EPLs television deal is worth substantially more than La Liga’s but the top Spanish club’s get the lion’s share of their league deal, so their top clubs get more than our top clubs courtesy of individual sale of the rights.
If they were ever to shift to collective bargaining and share the money out in a similar fashion to the EPL, my rough estimation is that they’d be looking at TV revenues falling by at least half. With the finances and competitive balance in La Liga in a dire state, a shift to collective bargaining is inevitable in my opinion.
One thing that is generally impossible to get from a football club’s accounts is details of their actual transfer spending. Even in the new Financial Fair Play criteria (article on that on its way), the only way transfers are taken into account is via amortisation. We can however get a number for transfer spending by taking a look at the cash flow statement (literally, the record of money coming in and out) and there they give us a very useful number. I hadn’t noticed it until it got pointed out to me by Andersred (a virulent anti-Glazer Man U site which is well worth reading by anyone who is able to have a civilised conversation with a supporter of a rival team).
It is basically the total amortisation charge to be paid for players bought in that window, which is of course the total transfer fee paid for players in that window, and thus very useful. According to this figure, Barcelona spent over £61m during the 08-09 financial year while Hleb alone cost them £13.5m in case you were wondering.
For a club who play up the fact they have Unicef on the front of their shirt, they seem to do more than well enough out of having the Nike logo on their jersey, earning them a minimum of EUR30m (£25m). Doing the maths, they made £36.7m from taking part in competitions and tours, while membership money chipped in a further £15m, season-ticket holders £27.5m. Commercial revenues of £93.4m dwarf Arsenal’s of £48m, and even the marketing machine of Manchester United doesn’t come close at £70m.
Amortisation (transfer fee paid for a player divided by the length of the players contract) is bundled with depreciation though the latter figures isn’t a substantial figure, so the figure of £52.5m is sky-high (over twice that of Arsenal, nearly half again that of United and a shade below that of Chelsea).
Not bad considering the 08-09 operating profit was only £18.6million, and such high transfer spending is the reason they’ve got a lower pre-tax profit £7.3m. Finance charges of £12.5m will also have played their part (a bit lower than Arsenal’s £16m but then we have a vastly larger debt because of the stadium development).
On the topic of debt, be wary of any figures quoted in the sports media, as most of the journalists don’t have much of a clue about finance, or life in general for that matter. They tend to pick the biggest, headline grabbing figure which includes all sorts such as outstanding fees to be paid for players as a result of long-term payment agreements. Clearly, we can’t compare such a figure to the circa £200m that is Arsenal’s debt, as the latter figure doesn’t include what Arsenal owe to other sides, so it’s an unfair comparison.
On the topic of these liabilities, they owe £18m, during 10-11, as well as £15m in 11-12 to other football clubs. This is actually fairly low, which points to many of their recent transfers being done on a cash up-front basis. Given Inter’s spending the summer that they sold Ibrahimovic, it wouldn’t be unrealistic that they demanded the majority of the money up-front, while they apparently paid for Villa in a lump payment due to Valencia’s financial problems.
They’ve also got a EUR29m loan listed on the accounts to be paid back to La Caixa on the 18th Feb 2010 (which was probably the tipping point of the current round of disasters, and the not paying of players in June this year) of which EUR15m has already been paid back apparently. Part of the reason for this loan was to cover the deficit of non-payment of the TV money by Audiovisual Sport, who apparently have been told to pay up by the courts, so that should in theory pay off the debt.
This loan does make one thing very clear: Barcelona are dependent on TV revenue. As soon as the TV money didn’t come through, they had to rush to the bank, hardly the most sustainable and resilient of business models. After such an event, if I were running them I’d be looking to cut my costs or keep more cash in the bank to somewhat mitigate any future issues with the TV companies, but can you really see Barcelona applying some restraint to wages?
I also stumbled across something they called a “syndicated finance contract” which is basically a line of credit that totalled EUR150 in two phases. Phase one consisted of EUR92.5m, all of which was used and then paid back in 2008. Phase two “consists of a line of deposits to warrant guarantees of maximum EUR113.9m”. Most interestingly, the club have failed to stay within financial parameters set out in the contract which should serve as a warning shot to lenders. However and most confusing of all, apparently there are no consequences as a result of them not meeting the parameters. That’s Spanish banks for you. I didn’t dig too deeply into this syndicated finance contract as I don’t feel qualified to do so adequately, but this is effectively Barcelona supplementing their transfer spending with credit, hardly a sustainable business plan and one that will hopefully come back to haunt them if Spanish banks start to get cold feet.
The section in which they spoke of the risks facing their business also made for some interesting reading. My personal favourite has to be “the Club, for purposes of ensuring liquidity [literally, having sufficient cash in hand] and enabling it to meet all the payment obligations arising from its business activities has the cash and cash equivalents disclosed in its balance sheet…” Well, they clearly didn’t have enough to cover the current summer’s wages given the £125m bank loan they needed, did they!
What is most confusing is how they managed to put sufficient cash aside for wages in the summer of 2009, with all the bonus payments of that highly successful season, and yet in the slightly less successful 2010, they didn’t have enough money. My educated guess is that the money that was paid to Valencia for Villa was originally put aside to cover summer wages, though it was a lot less than the £115m that they eventually borrowed, and surely Barcelona wouldn’t be that negligent?
The fact however that their future liabilities to other football clubs (literally, what they owe on transfer spending still) is relatively low despite their high transfer spending suggests to me that they’ve been paying for a recent purchases up-front. If they did so, it would back up my theory about why they didn’t have money budgeted for wages.
They probably have been paying up-front or nearly up-front for players in order to persuade clubs in financial trouble to let a player go. When Chelsea got the Abramovich money they did exactly the same, which is why clubs flocked to their door to flog off the goods. It was only a little later that these same clubs realised how much damage they were doing to themselves by letting such top players go in this way, and it may be that in Spain the same is happening.
Either way, it is shockingly bad planning, especially when they apparently take steps to avoid any such cash flow issues.
The Barca and Cesc story: revealed
Cesc signs five year deal in Barca
Who is lying and why: the Cesc interview with translation
How Barca lied over supposed profits,
Barca on the edge financially – the first crack in the facade.
Analysis of Arsenal’s finances, and those of other top English clubs.
The story of our administration, and the rise from the tomb.
- Congratulations Arsene: welcome to the hall of fame
- How will the final league table look? Our laptop computer reports
- If Arsenal go on like this, what will the final table look like?
- Only a handful of teams can win the league: but nothing has changed.
- The set of predictions that tell us exactly how the final table will look
16 Replies to “Barca: how a once great club has collapsed under the demands of its fans”
well there ya go! now all those gunners fans that continually complain about not signing over priced ego players…thats what it does! Gunners are a sustainable club and good on them. in the current financial climate many many many people could take a leaf out of this book of financial management! a sustainable economy…imagine that!
If you’re selling anything it’s always a good idea to make sure that the buyer can actually pay you the money. And if what you’re selling is a player that you actually care about as a person then you equally want to ensure that the buyer will be able to pay his wages for the period of his contract. Spurs didn’t do that when they sold Robbie Keane to Liverpool and ended up having to take him back and farm him out on loan to get back some of the money that they’d ‘lost’.
By the look of these figures from Barceloaner, Arsenal are potentially saving Cesc from a substantial risk by not selling him -and saving themselves from the risk of not actually being paid the agreed sum. Barca can’t lose face by backing down forever so we can only assume that he will go – but only when all of the money is paid upfront and, maybe, when his own wages are held in escrow for the next x years.
And how will his new team mates feel about that?
Nice post. But let’s be realistic teams like barca real and man u are never foing to go bust. They will always have. People looking to buy them out
Actually working as an auditor as my living, the massive loss recognition does remind me of a big bath accounting to me. But I haven’t read the full audited report nor do I know how to read Spanish anyway. Back to the topic: big bath accounting is quite a common phenomena in US. When a new chairman or new CEO is appointed, he always demand massive write downs of assets of the company. With smaller base of assets and more or less the same level of profit and revenue, his performance will be viewed favourable. He then can use the result to justify the the lavish bonus he paid himself.
Knowing Rossell and Laporta has a frosty relationship between them. Rossell certainly have the motive to demonize his foe and glorify himself.
Very interesting piece.
My feeling is that Barça’s financial losses have to be put in the context of the problems of the Spanish economy as a whole, since Spain, like many other developed countries around the world (US, UK, Australia, Eire) is suffering badly as the result of the recent collapse of the vast boom in property prices in the past decade, which had the knock-on effect of inflating prices for almost everything else.
As this article from today’s FT makes plain, the crisis has a long way yet to run:
Denial is also all too much in evidence with respect to the Spanish banks. The Spanish authorities keep up the pretence that their banking system is sound and they engage in shameless loan-loss forbearance to paper over the system’s difficulties.
This can only end in tears, and 20% unemployment and rising in Spain will undoubtedly have an impact on clubs’ ticket sales, sales of merchandise, and ultimately on ad revenues for TV stations.
Debt deflation all the way, baby. Not pretty, not clever.
I agree with Richard B- selling to a virtual bankrupt is not a wise sale at all. The Ibrahimovic transfer- does, however seem to be an extraordinary piece of financial irresponsibility- given Barcelona’s situation in 2009 – a salary of 9m euros per year and a transfer fee of 65m Euros is clearly not affordable or represents even vaguely reasonable value for money- maybe it was more about keeping up with the galacticos whatever the reason- it was crazy.
What we want is another very successful season for Barcelona- paying the maximum out in salaries and bonuses-at a time when there is a real squeeze on credit in Spain. Barcelona might get closer to the edge than they care to imagine. Somehow though we might not get it- the world cup may have taken too much out of their players.
It does raise the question about the price of success- with a team full of expensive players- can it be afforded? The temptation of many clubs as you have suggested is to try to achieve success at any price. At Arsenal we just have to be patient.
Tommy, assuming you are correct, surely it is concerning that there is so much flexibility in the accounting standards that if they so desired, Barcelona could cover up substantial losses.
Clerkenwell Gooner: Good comment. As an industry, football is very resilient to recession but with the depth of the structural problems in Spain’s finance sector and wider economy, they could well start to feel the squeeze.
I don’t believe however that this is the cause of their losses, the reason for that is much, much more simple: transfer spending. Barcelona have been consistently spending more on players than their operating profit, which for me is a level beyond which spending is risky unless substantial player sales occur too. They rely on credit to fund this, and hopefully this credit will dry up as the Spanish bank sector suffers.
Goonergerry: What always confuses me is why these clubs give their players performance bonuses that are greater than what the club earns through actually achieving the success. Naturally, a good cup run either domestically or in europe brings extra TV money and more matchday revenue, but forecast these revenues and ensure bonuses are always less than what they expect to make. This is exactly the same mistake Pompey made: the bonuses for the FA Cup success were far, far more than what the cup run ever made them.
It isn’t rocket science.
It will be most interesting if that TV company wnet bust the way Setanta did.
Then Barca will have a severe shortfall of funds and will need another bridging loan to tidy up players salaries again.
And if “Black October” rears its ulgy head this year, with many Spanish banks go to the wall, and Barca approaches the bank again for another “bridging loan” in November/December 2010……..
Guess what is going to happen in Janary 2011?
Clerkenwell, Agree with your basic point about economic conditions influencing the impact of debts on football clubs-The level of unemployment in Spain- 4.6m-if it keeps growing must eventually impact on its football teams. However I would not crow too loudly because , unemployment in England is set to increase sharply in England in the next couple of years- and the impact on demand may well significantly affect your credit rating as well-just look at Ireland- which could ultimately impact on Arsenal- and not just through ticket sales.
For your information not all economies are in crisis-China is booming, India is growing at over 8%, Australia has not been in recession,- most of these economies do not seem averse to fiscal stimulus packages- unlike Britain. Maybe you just don’t understand Keynesian economics in Britain.
Great and thought provoking article.
How much do BarceLOANus owe us for previous transfers?
If we sell Cesc I assume there is nothing to prevent us demanding Cash On Delivery?
Kiwigooner: It’s impossible to get a figure for that, though the Swiss Rambler quoted around £16m if i remember correctly.
As the selling club, we can demand whatever terms we like and Barcelona have to meet them, so if we demanded money up-front they wouldn’t have a choice unless they were to walk away completely. Such a demand may push the price down (as it would with commercial deals) though this too rests with us accepting such terms.
In short, if we tell Barca to piss off or pay £70m up-front, they either do so or lose out on the player. even next summer he has four years left on his contract… value only starts to fall after two really.
Was wondering what impact a hypothetical loss of TV revenue would have on bpl clubs like arsenal? (recognizing i’m not a finance guy but am now among the accountants, if “revenue” is the wrong word, i’m assured of swift correction.)
If English clubs lost their TV revenue together, then they would all suffer in the same way, and they would have to cut wages.
But players on four year contracts would demand their wages continue – so there would be a massive fire sale to other leagues.
Arsenal would do better than most for two reasons – their TV audience levels are always high worldwide, and they are not living in debt, so they could adjust more rapidly. It would be hard for all clubs, but Arsenal less than most.
A good question. The implication for lower-table sides is much, much worse, see this article I wrote whioch touched on it amongst other things:
They are worse off as TV revenue is a much larger % of turnover for them. Top clubs in the EPL have TV as around 30-40% of revenue, it’s 32.5% for Arsenal. TV money was £73m from my figures, so if you remove that you quite clearly throw a spanner in the works. However TV revenue contributes 39% of Barca’s turnover, so they’d face a much bigger shortfall than we would.
This situation is more likely to befall Barca, as there are issues surrounding their TV companies. They could also face a fall in TV money (as I touch upon in this article) due to issues of competitive balance in their league (ie there is none). Oh, and they don’t turn much of a profit in this set of accounts I’ve looked at and make a big loss the following year, so they don’t have any flexibility either.
Wenger is a Tory in the Maggie Thatcher mould-Don’t spend your way out of a mole hole and do not spend what you do not have- This is a lesson for all especially clubs like Barca who have left their fans with eggs all over their faces!
They remind me of the last govt in Britain or their present govt in Spain which almost went burst or is now about to go burst. Serves them right!! And yet they still want to buy Cesc! What share nonsense. Please Cesc be warned…..
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