FC Barcelona finished the 20-21 season in deep financial distress.
They had to take several million euros worth of impairment losses, and with a squad impacted
by years of poor recruitment were forced into releasing Lionel Messi to meet La Liga’s
FFP mandate.
A change in leadership ensued and multiple financial levers were deployed to address
the bleeding, most notably the sale of a 25% stake in their La Liga TV rights for the next
25 years.
A couple of seasons have since passed, but have things really changed financially?
Are FC Barcelona still in financial distress?
Barcelona’s financial predicament a couple of seasons ago was best summarized by Joan
Laporta, who described predecessor Josep Bartomeu’s spending as “too much and at the speed of
light” leaving them in a “dramatic financial crisis”
He called it a “dreadful inheritance” at the time, but reassured fans that he was
“not scared”.
He said, “the situation is dramatic, but we have good news: the strategic plan based
on our credibility and experience, on the assets that Barca have, makes this situation
temporary.”
But was it temporary?
Let’s investigate.
It’s important to start by understanding exactly what Laporta and his team did to try
and rectify the situation.
Most notably, three things – first, they sold 25% of their domestic TV rights to US
investment firm Sixth Street for the next 25 years in a deal totalling over 500 million
euros.
This is basically giving up a sizeable chunk of TV revenues for the next quarter of a century
(which would well add up to a lot more than 500 million euros) to book higher revenues
today.
This was necessary to comply with La Liga’s FFP rules and enabled them to raise the allowed
spending limit so they could spend 150 million pounds last summer to sign the likes of Robert
Lewandowski, Raphinha and Jules Kounde, and complete and register free transfers for Andreas
Christensen, Franck Kessie, Hector Bellerin and Marcos Alonso.
Second, they sold a 49% stake in their media company Barca Studios over two separate transactions
totalling around 200 million euros.
And thirdly, they signed a huge long-term shirt and stadium sponsorship deal with Spotify
worth 280 million euros.
In addition to this, they managed to negotiate down player contracts – asking players to
defer wages and / or take dramatic pay cuts to stay at the club.
Gerard Pique being the most noteworthy example.
Most ambitiously, they closed renegotiations recently on a 1.45-billion-euro financing
deal to renovate their iconic Camp Nou stadium.
The deal is around 30 years long, with Barca making the final repayment in 2052.
This will doubtless impact cash flow and the interest payments (Barca’s annual interest
payments are already the highest in Europe at 30 million euros) will affect profits for
the better part of the next three decades.
We’ll see the full impact of this when this season’s (22-23) financials are released
later this year, but it is likely to be a sizeable drain on the club’s resources.
The club does estimate however that the new stadium will generate roughly 200 million
euros worth of additional revenue each year through sponsorship and naming rights, ticketing,
catering, VIP boxes, hospitality, meetings and events.
That’s a lot of steps taken, then – so what’s been the impact and how are FC Barcelona
positioned now?
In the 21-22 season financials released in September last year, the impact of some of
these levers showed and the high one-time costs of 2021 (especially massive player impairment
costs and one-time provisions because of tax cases and law suits) also disappeared.
FC Barcelona finished with a negative 7-million-euro EBITDA (or earnings before interest, taxes,
depreciation and amortization) in 21-22, which was still significantly better than the negative
63-million-euro EBITDA that Barcelona had in the previous season.
The first tranche of the TV rights sale impact (totalling 267 million euros) kicked in, with
an additional 400 million euros expected to flow through into the 22-23 financials.
The 200 million euros’ worth of Barca Studios’ stake sale will also flow through in 22-23.
FCB have not ruled out the deployment of more such ‘levers’, including a rumoured 49%
stake sale in Barca Licensing & Merchandising, which would be worth 300 million euros.
Player sales are another lever that the club might yet exploit, especially for potentially
high value assets such as Frenkie De Jong.
Years of poor recruitment though have impacted revenue from player sales, and Barcelona’s
performance in this regard has been poor in the last five years.
FCB’s profit after tax in 21-22 was 98 million pounds, which was comfortably the highest
in La Liga.
The club estimated 274 million pounds of profit after tax in 22-23, with the assumption they’d
reach the Quarter Finals of the Champions League.
Crashing out in the group stage, and then losing to Manchester United in the Europa
League was not foreseen.
In the present day, then, we’d argue that while Barca are seeing short-term relief with
these ‘levers’ kicking in, the longer-term financial health of the club is still not
good.
Snowed under by debt (the club’s gross debt stood at 841 million euros in the latest financials,
which will increase with the new financing deal on the stadium), the club also have an
enormous wage bill (402 million euros in 21-22) and are reportedly around 200 million euros
over the La Liga FFP cap.
They are thus unable currently to register new contracts signed months ago with defender
Ronald Araujo and midfielder Gavi, both key players for their future.
In more positive news, high earners Sergio Busquets and Jordi Alba will be leaving the
club this summer, and Gerard Pique has already retired.
Nevertheless, they also cannot keep finding one-time / innovative financial levers and
will eventually need to fix the operating engine.
FCB had the second lowest operating profit (or profit generated through the football
club’s day-to-day operations excluding one-time exceptional items) in La Liga at negative
146 million euros, which is a typical sign of poor financial health.
So while Barcelona fans (and indeed the hierarchy) are rightly celebrating the La Liga win, it
helped paper over cracks that continue to exist and in some cases grow wider.
There’s plenty of work still to do.