FC Barcelona’s Financial Crisis

One of the greatest football clubs in history, FC Barcelona is going through a tough financial crisis. It’s no secret.

A brand that took pride in developing the best footballing talent in the world looks to be in shambles. There is no hiding FC Barcelona’s economic troubles. Their financial issues have amplified to such an extent, that they had to sell parts of their great club to activate financial “levers”.

A club well built on the ideology of the famous tiki-taka style of football, that same FC Barcelona is now a club reportedly one billion euros in debt! How did this happen?

To understand the situation, I have analyzed articles from Khehnow, The Athletic, BarcaUniversal, and a few other credible sources to lay out a timeline of everything that led to the crisis the club is in today.

2017/18 – Building a ‘dream’ squad 

Barcelona began its so-called “revolution” back in 2017.  The club sold their star player Neymar to Paris Saint-Germain for a stunning £199.8 million. With Neymar gone, Barcelona was keen on transforming their squad.

So they splashed an outrageous amount of money on transfer fees and brought in Dembele and Philippe Coutinho from Borussia Dortmund and Liverpool respectively. Dembele cost the club upwards of £112.5 million whereas Coutinho came in for £121.5 million.

The club also handed out hefty wages to some of these new players and also to their star players; most notably Lionel Messi, Jordi Alba, and Sergio Busquets damaging their financial sustainability.

However, the club’s net spend for the season wasn’t that huge in a modern football context, mainly due to the sale of Neymar. But this happened to be a ‘calm before the storm’ scenario.

2018/19 – Bad recruitment and mismanagement

Coutinho and Dembele faced difficulty in finding their feet in their first season at the club despite being two of the main reasons for the club’s financial condition.

The Catalan giants sold players worth £131.45 million during the 2018/19 season. Club legend Andres Iniesta also left FC Barcelona and joined Vissel Kobe on a free transfer The club then brought in Malcom, Clement Lenglet, Arthur Melo, Arturo Vidal, Emerson Royal, and a few others who subsequently played a very limited role in the team.

This was already suggesting that the club has a poor recruitment and transfer strategy in place.

2019/20 – Beginning of the financial doom

Barcelona won back-to-back La Liga titles in 2017-18 and 2018-19 before coming up with yet another big transfer window in the 2019-20 season.

The record signing Philippe Coutinho was loaned out to Bayern Munich and during the loan spell, Bayern would cover the wages for the player.

However, another financial disaster saw the Catalan giants sign Antoine Griezmann from Atletico Madrid for a crazy £108 million. Club also swooped for Frenkie de Jong from Ajax for an eye-watering £77.4 million.  Both Griezman and Frenkie de Jong were said to pocket huge wages and bonuses like free lotteries.

It seemed as though the club management never learned from the mistakes of the 2017/18 mega signings which were already proving very costly.

2020/21 – Revenues stopped due to COVID-19

On the pitch, Barcelona has failed to win the league title in their second campaign which has left the club short of trophy earnings.

A number of expensive signings who were being paid hefty wages haven’t made a significant impact on the pitch. Well, here is the situation that the club never expected to come. COVID-19 pandemic meant most of the club activities were stopped, and so were the sources of revenue.

LaLiga allows a salary cap for each club based on annual revenue, and FC Barcelona with their deteriorating revenue hence was exceeding this limit. This meant that Barcelona can no longer register any players unless they bring down their wage books.

Barcelona was forced to cut down their salaries by 122 million euros to be within the limits, but these reduced salaries would be later paid to the respective players as deferral wages. Barcelona also offloaded Nelson Semedo, Rafinha and Ivan Rakitic along with Luis Suarez, who was with heavy wages on books.

But, the most controversial deal involved the swap deal with Juventus for Arthur Melo and Miralem Pjanic. Barcelona signed Pjanic from Juventus for £54m and sold Arthur
to Juventus for £68.4m. It looks like a player exchange but the inside details of this deal are mind-boggling. The sole reason why this deal happened is to hide both clubs’ financial problems for one more year.

Note: A separate article will be posted on how both clubs used ‘creative accounting’ to record the transfer of these two players on books.

Club President Bartomeu resigns!

By October 2020, there were reports that Barcelona faced the ultimate crisis of bankruptcy, meaning nothing but divine intervention can save them.Once Bartomeu realized that players won’t agree to similar wage-reduction deals to their overflowing wage budget and financial fair play, he resigned from his position.

In March 2021, Joan Laporta was elected as Barcelona’s president by beating Victor Fontes in the club elections. Just a month into his new role, Laporta was one of three club presidents/owners who wrote out the infamous European Super League plan in April 2021 and saw the ESL as the only way to save themselves from their financial instability. However, ESL ended up as a total media nightmare for all the founder clubs including Barcelona, tarnishing their reputation in world football forever.

2021-22 – Lionel Messi’s Departure

Barcelona almost unofficially confirmed that Messi will sign a new deal after his contract expired at the end of the 2020-21 season.

Well, they lied when they couldn’t hide the financial disaster they were becoming. In August 2021, Barcelona announced that it wasn’t possible for them to offer a new contract to the Argentine. Messi left and joined PSG as a free agent.

Despite Messi’s departure, Barcelona was still a financial disaster, which was so bad that Gerard Pique had to take a pay cut in order for the club to add Memphis Depay and Eric Garcia to their squad while Sergio Aguero was still on the waiting list.

In August of 2021, Laporta openly confessed that Barcelona is in 1.35 billion euros in debt and has a net worth of negative 451 million euros, a major financial disaster.

2022-Present – Surprise transfer window

Barcelona managed quite an incredible transfer window. In terms of arrivals, Pierre Emerick Aubameyang, Memphis Depay, Sergio Aguero and Eric Garcia, all joined them on a free transfer.

Amid the financial disaster they are going through, the whole world is surprised by the fact that a club with 1.35 billion euros in debt, was able to sign all the above-mentioned players.

Long story short, they actually can’t!

What do LaLiga rules say?

LaLiga’s financial fair play rules state the amount a club can spend on transfers. This
amount is inclusive of transfer fees, amortization, and wages. If a club does
not meet these rules, it will not be able to sign or play.

Registration of new players are done through an app available to clubs. This app will automatically not allow a club to sign a player beyond the financial controls set by the
league. FC Barcelona’s financial disaster means they currently exceed this salary cap, hence would be unable to register new players unless achieving breakeven first.

So how did they buy all these players?

As things stand, the club is still spending beyond its means.

Ferran Torres, Franck Kessie, Andreas Christensen, Raphinha, Ousmane Dembele, Robert Lewandowski, Jules Kounde are some of the new signings.

Most of these new signings were barely registered, while the club also was struggling with deferred wages of players. For a club facing such financial peril, FC Barcelona’s summer transfer window splurge has left many bewildered about where this money is coming from.

Is there a method to inject cash? The short answer is — yes. However, whether or not this strategy is a good one will depend on several variables.

So where is this money coming from?

How is Barcelona spending so much on transfers for a club over a billion euros in debt? This is the biggest question on the tip of everyone’s tongue.

Well, In a 2021 general member assembly, Barcelona announced that they had managed to restructure about 700 million euros of the short-term debt which is owed to banks and convert it to long-term debt.

This was achieved with a loan of close to 600 million euros from Goldman Sachs, which includes a grace period of five years.

Goldman Sachs will also finance the club’s stadium renovations under a 35-year plan.

Spotify became the club’s main sponsor which will see the club earn 240 million euros over four seasons

Over the long term, President Laporta expects player sales, and potential money earned from the success on the field will go a long way towards bringing stability.

At the same time, Laporta’s administration introduced a new way of injecting cash,  ‘Economic levers’ which brings an immediate solution to their problems.

‘Economic Levers’ – New Strategy to Raise Finance

The economic lever, in very simple terms, is the club selling its assets to get money.

The first of these levers is the sale of 49.9% of BLM, their firm that takes care of licensing and merchandising, which will bring in around 300 million euros. Barcelona maintains the majority share and a repurchase option.

The second lever pertains to the sale of 25% of Barcelona’s La Liga TV revenue for 25 years. This has brought in 267 million euros through an initial 10% sale, and the sale of the remaining 15% will bring in approximately 400 million euros.

On 1^st August 2022, Barcelona activated its third lever through the sale of a stake in Barça Studios to Socios for 100 million euros.

The activation of these levers would ultimately allow Barcelona to make signings and register them, as well as them help the club to wipe out a negative balance of 550 million of their debts.

As difficult as all of this is, Barcelona’s sporting director Mateu Alemany had worked wonders to have played a massive role in not only attracting all these players but also finding new sponsors and alternative streams of revenue to stay afloat.

Salary Pay-cuts and Sale of Big Players

The sales of Philippe Coutinho and Antoine Griezmann were absolutely vital who were earning close to 20 million euros per season.  Removing the pair from the wage books was significant relief.

Gerard Pique, Sergio Busquets, Jordi Alba, Sergi Roberto and Samuel Umtiti have all taken pay cuts.

Ousmane Dembele also renewed his contract with a pay cut of 40%.

Risk versus reward

The levers have helped to keep the club afloat and wipe out a big chunk of the debt.  However, that is not to say it is an entirely smart decision. It is clearly a massive gamble and will only pay off if Barcelona achieve a certain degree of success on the pitch this season.

In an ideal world, the club should solely implement a debt-focused recruitment model to acquire young talent on lower wages with resale value. This way, although the wait for titles would have increased, the risk of further economic distress would have gone down. With this strategy, they would not have to essentially mortgage future revenue for a cash injection now like they are doing with these levers.

However, signing bigger names like Lewandowski and Torres means they have to rely on an instant impact from these guys to seriously challenge for silverware.

Conclusion

FC Barcelona didn’t have a reliable transfer strategy and salary structure which eventually led them to obtain short-term loans to pay for the transfer fees and wages.  The club hoped that revenue streams would continue as usual offsetting their spending spree and high wage costs. However, the situation turned sideways with COVID-19 pandemic and the revenues stopped flowing.

A financial audit took place to assess the Catalan’s finances, and the audit report showed a debt of 1 billion euros, of which a big chunk was to be settled in the short term. There also were concerns over whether the club would be able to both pay their players and bring in new recruitment as the club was in serious breach of La Liga’s salary cap.

The club was forced to sell its assets in the name of ‘economic levers’ to give some breathing air and stability to the club at least for the short term. These levers have temporarily helped them complete new signings and register them in accordance
with La Liga.  Management expects that many revenue streams would reopen soon as the world slowly returns to normality, which can be another bonus.

But these economic levers are one-off solutions. For instance, the TV rights, once sold, will be gone for at least 25 years, and these measures cannot be used repeatedly if
things go wrong again. If the club does not have at least the league title or a couple of cup trophies to show for it, there is bound to be another huge debt in the books. Else it will be one step forward and three steps back.

The club board needs to modernize the long-term approach to generate income through various sources. Transfer strategy needs to be re-looked to buy young talents at low cost with a high market potential for sale in the future. The club should also focus more on the La Masia Academy to recruit and develop top talents who can replace the outgoing veterans and potentially sell for good prices in the future. The salary structure needs to be harmonized to ensure the players are paid realistic rates in line with the market.

Despite the financial woes, FC Barcelona remains one of the biggest clubs in the world. This is evident from the fact that the club continues to attract the biggest names in
football.

However, it is clear that the club is still grieving on and off the pitch. The biggest consequence of them all must be — the departure of Lionel Andres Messi, the heart of the Catalans and arguably the Greatest Player of All Time.

References:

https://khelnow.com/football/how-fc-barcelona-got-into-current-financial-mess-timeline

https://sqaf.club/why-are-barcelona-in-so-much-debt/

https://barcauniversal.com/explaining-the-methods-risks-and-rewards-behind-barcelonas-miracle-transfer-window/

https://www.foottheball.com/explainer/explained-how-barcelona-financial-economic-levers-help-signings-summer-window/

https://theathletic.com/3685330/2022/10/26/barcelona-transfers-levels-finances/