Another historic season comes to an end with FC Barcelona winning what is now its fourth UEFA Champions League and 21st La Liga title, only missing out on the Copa Del Rey in extra time and crushing Jose Mourinho’s ‘Galacticos’, the costliest squad ever to have been assembled, 5-0 in the process. A victory that will surely be etched into the history of Spanish football. Today though, we’re not here to discuss our club’s on-field brilliance, but rather the more controversial aspect of our club, the financial situation. In this article we’ll discuss in detail the 09/10 accounts, the upcoming financial accounts, transfer budgets, reducing the debt, and what the future holds for this club.
I’m sure by now everyone is familiar with the club’s previous season’s (2009/10) accounts, a topic that created so much debate amongst not only cules, but the entire footballing world alike. Just one month after outgoing president Joan Laporta presented record breaking revenues of €446 million and a commendable profit of €11 million to go with it, newly elected president Sandro Rosell shocked the footballing community by announcing a completely different financial statement. The new figures not only reduced the revenue generated by 31 million to €415 million, but also increased the expenses from €435 to €484 million, an incredible €80 million difference. The total pre-tax loss thus amounted to €70 million for the year 09/10, while the net debt was revealed to be at €430 million. As if to add salt to the wound, Rosell also confirmed the club were borrowing a bank loan of €155 million as they were struggling to pay the players’ salaries, due to liquidity problems, while also selling the likes of Chygrynskiy for the same reason.
This caused a lot of rage amongst frustrated cules, fuming over the obvious political and partisan intent hiding behind these numbers. Before he even completed a month in charge of the club, a majority of the fans had already started calling for Rosell’s head, while the rest had simply succumbed to the effects of aftershock. Some meanwhile started questioning the board’s credibility, what with the announcement they still have a budget of €50 million set aside for transfers, despite the losses suffered. What we are trying to analyse here though, is to what extent was Rosell really guilty for this entire drama. Was he the only one to blame or was Laporta equally (or perhaps even more) responsible for leading the club to these dire straits? Before starting, we want you to understand that most of the adjustments we discuss below are one-off payments and will not affect the club’s books every year and neither did they affect the club’s cash flow last season, which explains the money that was available for new signings. To further simplify these adjustments, we divided them into two main categories -‘Revenue’ and ‘Expenses’- and have examined each one in further detail:
1. +€38 million, Sogecable: The biggest adjustment of all was a legal case (worth 38 million) the club has been running for years now with media company Sogecable, who used to own part of the TV rights for the club during the early part of the 21st century.
In exchange for regular income, F.C. Barcelona gave the exploitation of part of its TV rights between the 2003-2004 until 2007-2008 seasons to Sogecable. One of the key aspects of this deal meant that Sogecable would pay Barca the entire annual amount agreed upon, regardless of the club’s qualification for the Champions League. In exchange, Barca gave part of the income to Sogecable, including the Champions League whenever the club returned to the elite group.
The club benefitted from the first year of the Sogecable deal since there was no Champions League football. But only once they returned to the UCL did the effect of this deal started showing on the club’s coffers. The agreement meant that a big chunk of the income from the Champions League had to be transferred to Sogecable, something Laporta clearly didn’t like.
Still, a big part of the money the club owed Sogecable has already been paid out. Nevertheless, €26.7 million, which accounts to roughly €38 million once interest and tax are included, due from the last season, 2007/2008, had not been paid out because the club considered that the award should be examined independently.
Clearly there isn’t a case for Barca in this, we certainly owe Sogecable that money and it’s only fair we pay them back. You can’t sign crappy deals and refuse to pay up for it once you realize your mistake. So I definitely agree with the new board’s decision to include this money in the expenses.
It is also to be noted that 2 months after the board had re-audited the accounts, Barcelona in fact lost their case against Sogecable. The court had indeed ordered us to pay back the money we owe them.
2. +€8 million, Thierry Henry: While it is true Henry left after the 09/10 season, the club still had to include his remaining amortisation value in the books. Laporta’s board obviously tried to include him in the next year’s book, while Rosell’s board included him in the previous year’s books, claiming the contract was agreed in May. This is a confusing case, the truth is we’ll never know which date the contract was actually agreed upon. One thing it does reveal though, is Henry’s transfer fee to Barca. Multiplying the €8 million times 4 it figures out at €32 million, a considerably higher sum than previously quoted in the papers.
1. -€18.5 million, Mediapro: This is a sum of two different cases, one is a legal dispute with Mediapro worth 13 million, which the new board decided to include only 50% of the amount. This resulted in an adjustment of €6.5 million, mainly due to the uncertainty over the case.
The other issue is regarding the timing of the payments. Mediapro owes the club €16 million in bonuses, but the payment of this amount is stretched over a period of 4 years from 2009-2013, figuring out at €4 million each year. Laporta tried to include all of it under the 2009/10 season, while Rosell obviously decided to include the income as €4 million yearly.
2. -€4 million, Baena: This is an adjustment I completely disagree with the new board. The case has already been won, courts have already ordered the player/Espanyol to pay up the sum, and including that sum in the books is clearly justified. If the player cannot pay up the sum, then the club has every right to book a case and prevent him from playing for Espanyol.
3. -€15 million, Sant Joan Despi: The Laporta board had agreed to the sale of a plot at Sant Joan Despi to an MCM group. The MCM group meanwhile seems to have gone bankrupt and thus lacked resources to pay the 15 million required. Rosell’s board are willing to undo the operation meaning the club can retain its assets.
4. -€7 million, Devaluation of Viladecans land: Purchased on 26/05/2008 at €18.5 million, out of which an intermediary received a handsome €3 million (a 16% commission!). According to a separate report, the actual worth of this land was around €5.5 million, so the new board decided to value it at 11.5 million. The adjustment results in this case seems about right, the depreciation of assets seems clear.
So how to reduce the Debt?
Now that we have all the adjustments out in the open, we can estimate what the club can spend on transfers each year while also reducing debt at the same time. Last season’s accounts revealed an EBITDA (Earnings before Interest, Taxes, Depreciation and Amoritsation) of €10 million. Adding the one-off expenses due to adjustments, it is safe to say the club can generate an annual EBITDA of €70-80 million. Considering the new board has also decided to add a new shirt sponsor (Qatar Foundation) which generates an additional €30 million a year and assuming the rest of the revenue and expenses remains similar, the EBITDA could rise to over €100-110 million in the future. Negating the taxes and interest of around €10 million yearly, and keeping the transfer budget tight at 45 million, the debt could be reduced by about 50 million per year. This number could increase further considering the incredible sporting success by the first team, which inevitably results in an increased revenue and considering Rosell’s austerity policies like saving money on colour toner.
Although, last year the net debt was revealed to be at €431 million while the gross debt was valued at €533 million, it is to be noted that this value is highly misleading as it considers the total liabilities of the club and not what the other clubs or even UEFA define as debt.
Economic Vice president Javier Faus revealed in a recent interview that during the course of the 10/11 season, the club has managed to reduce its net debt by €67 million to €364 million while the gross debt was reduced by €50 million to €480 million, indicating an increase in assets worth €17 million. Considering the net debt at €364 million and EBITDA at €100 million, the net debt is still at a dangerous 3 to 4 times the EBITDA. It is thus advisable to reduce the net debt by at least another €150-200 million leaving it at a safe 1.5-2 times the EBIDTA.
So how to increase revenue further?
There are three main streams of generating revenue for a football club, namely Television, Matchday and Commercial. Selling players is another way, but its something too inconsistent to rely upon as a regular source of income. So we’ll focus more on the first three streams.
This is arguably the area with the most scope for improvement in the future. In 2009/10, the club generated a handsome €97.8 million from matchday revenue. At first glance this sum may look great, but when analysed closely you realise that almost €40 million of that sum was actually generated by the club’s world famous museum (€17 million), yearly membership fees (€17 million), Palau Blaugrana (€4 million) and the Mini Estadi (€2 million). So the revenue generated purely from the Camp Nou was actually closer to €60 million. To put this into perspective, arch-rivals Real Madrid generated a matchday revenue of €129 million (>€100 million from the Bernabeu), the Premier League’s Manchester United and Arsenal were second and third having generated €122 and €114 million respectively from matchday revenue. The increased season and normal ticket prices may be a reason behind this but the main reason lies in the corporate hospitality services in these stadiums. Real Madrid for example generate more than 40% of their matchday revenue from 4,500 corporate seats while Arsenal generate more than 35% of their share of matchday revenue from 9,000 corporate seats. Coming to the Camp Nou, it barely has 1,000 seats dedicated to these services, most of which are already leased out. This explains the huge difference in revenue generated from the Camp Nou and other similarly rated stadia in Europe.
The Camp Nou may be the biggest stadium in Europe and may have been graced by legendary figures like Ladislau Kubala, Johan Cruyff, Diego Maradona, Romario, Rivalo, Ronaldinho, Xavi Hernandez, Andres Iniesta and Lionel Messi. But it has been long overdue to get a redesign, a complete facelift if you will. The stadium may look wonderful on television, but in reality it is anything from the truth, the corridors are old and worn out, same with the exterior, and neither can the seating or technology be compared to the other high profile stadiums. Corporate seats are barely sufficient and 70% of the stadium is not even covered by a roof!
There was a plan in place to redesign the stadium in 2007, at a cost of €250 million, which would not only increase its capacity to 106,000 but also increase the number of corporate dedicated seats to around 10,000. It would also hold a retractable roof, supported by cables, which the world famous architect Norman Foster described as a “flexible, sustainable and ecological solution.” The exterior, made of a mixture of polycarbonate and glass panels, will be able to change colour, allowing the outside of the stadium to be used for light displays at night or as a giant TV screen. Perhaps the most important element of this new-look Camp Nou is that it is guaranteed to keep football fans happy: the work will not affect any matches.
Construction work was due to begin in 2009 and be completed by the start of the 2011-2012 season which would guarantee the club an increased annual revenue of €50-60 million. The work would be financed by money generated from the reclassification of Mini Estadi, around €300 million, enough to renovate the Camp Nou as well as build a new Palau Blaugrana (Basketball stadium). Unfortunately, with the economic crisis hitting Spain hard, followed by the change in presidency in 2010, the plan never really took off.
Of course, that doesn’t mean the new board won’t renovate the Camp Nou, in fact both Rosell and Javier Faus confirmed in recent interviews that the club intends to build the ‘New Camp Nou’ and ‘Palau Blaugrana’, but the main focus now remains on reducing the debt and in 2013, when the debt has been reduced to ‘sustainable’ levels, they will go ahead with the stadium plans. Faus also mentioned that the board is not interested in selling the Mini Estadi as it holds a historical significance for the club, and that they would rather use the money generated by the club for this purpose.
Barcelona generated commercial revenues of €122 million during the season 2009/10. Comparing that to Bayern Munich’s €174 million and Real Madrid’s €149 million from commercial revenues, proves that this is another area with further scope for improvement.
The new board has already started working on this as they have recently decided to execute arguably the biggest ace in its sleeve. For the first time in its 111 year history, the club has a sponsor on its shirt in the form of Qatar Foundation. A deal which would generate an additional €30 million in annual revenue for the next five seasons. This number could rise to €31 million based on performance bonuses.
The club needs to capaitalize on this incredible sporting success by the first team, and establish Barcelona as an even bigger global brand. The board can work on signing new international sponsorship deals while they could also work on improving the currently existing contracts. Currently the deal with the shirt manufacturer Nike generates around €25 million per season. Rumours have it that Premier League champions Manchester United are about to sign a new improved €400 million deal with Nike for 10 years, earning them around €40 million a year, setting a completely new bar in this area. Considering Rosell’s history with Nike and the club’s global reach, you can expect FCB to renegotiate their deal to a similar amount, if not higher.
The club generated an incredible €167 million from TV revenue in the 2009-10 season, higher than any other football club. With the collective TV rights set to kick-in, there isn’t much scope for improvement in this area. The new TV deal in La Liga means the big two (i.e Real Madrid and FC Barcelona) receive the chunk of the income. 34% of the €900 million expected annual revenue goes to the two eternal giants of Spanish football. Thus the club would receive around €155 million every year from this collective TV rights deal, which would likely kick in from the year 2014-15. Adding the television revenue from the Champions League to this, around €20 million a season, we could expect the TV revenue to be around €175 million in the future.
Of course there is always further scope for improvement, as the League gets more and more globally established the income from the overseas rights will improve which further leads to an increased TV pool set aside for the Spanish clubs through the UEFA Champions League.
On 26/07/11, FC Barcelona have released a statement on their official site stating that the club closed the books for the 2010/11 season with a revenue of €473.4 million, almost €60 million more than the previous season. Expenses still exceeded the overall revenue, resulting in a pre-tax loss of €9.3 million. It should be noted though that €44.2 million of those expenses were due to the losses incurred from the Ibra, Chygrynskiy and Caceres operations. If not for those deals, the club would’ve closed the books with a net profit of €33.5m, so you can expect next year’s accounts to be a lot more positive. Meanwhile, the net debt has been reduced from €430.6m to €363.7m.
The increased revenue was due to a combined effect of increased income from UEFA, international sponsorship, matchday revenue and player sales. With Real Madrid’s accounts for this season yet to be released, Barca’s €473.4m is the highest ever annual revenue in the history of any sporting institution.
Considering the amount available for new signings, the gross debt reduced, along with the interest payments, we can estimate the EBITDA for the 2010/11 season to be around €105-110 million euros, very much in line with the numbers we have discussed above.
In conclusion, we’d like to say that the club is very much safe with regards to its financial situation, in fact far from what Rosell and his blokes try to portray it to be. Yes, we incurred losses during the past two seasons but most of it was a result of exceptional one-time payments or adjustments, which do not affect the club on a regular basis. The club is more than eligible to make it through the Financial Fairplay regulations by UEFA, even with the current numbers.
Basically, there’s nothing wrong with FCB’s finances!