For almost two years, Barcelona’s financial ruin has been highlighted in their inability to make big money moves, having to invent creative formulas to register new signings in La Liga.
The perfect example of Barcelona’s extremely delicate situation was when Lionel Messi of all players was informed by the club that they would not be able to renew his contract with the league-imposed financial fair play regulations, despite having an agreement to continue at the Camp Nou for a few more seasons.
Before the 2021/2022 season, Barça signed Memphis Depay and Eric García on free transfers. As the season was starting, the club also struggled to register their salaries.
However, it was made possible when Gerard Piqué, Sergio Busquets and Jordi Alba accepted salary reductions and deferments. A similar operation had to be done in January when Samuel Umtiti’s salary deferment allowed the registration of winter signing Ferran Torres.
Barcelona, struggling to compete for titles in recent seasons, are planning a squad overhaul this summer. As per reports, up to 11 players could leave before next season.
One of them seems to be Frenkie de Jong going to Manchester United in order to fund other transfers and bring revenue for the depleted club patrimony.
Despite being linked with top players like Robert Lewandowski and Leeds United’s Raphinha, the massive FFP issue still looms at the Camp Nou offices.
Conventional media have done little to explain how exactly the regulations work, affect Barcelona, and how the club plans to remedy it.
What is Financial Fair Play in La Liga?
La Liga’s financial fair play rules are exclusive to the Spanish top division and are not the same as the ones put in place by UEFA and other organizations.
After the pandemic, most European leagues halted their regulations for a few years, knowing that it would be difficult to comply for the clubs in crisis. However, this was not the case in La Liga, which has made it extremely difficult for clubs to sign players like before.
Joan Laporta: "The financial fair play rules in Spain are a hindrance, a limitation. We must overcome this struggle. We have no support from La Liga, as the rules here are very tough compared to other countries." pic.twitter.com/UbTPDHCIBQ— Barça Universal (@BarcaUniversal) May 25, 2022
FFP rules in La Liga can best be explained as a virtual salary space that mandates clubs to register players’ and coaches’ salaries.
Depending on the club’s reported budget, they are assigned a certain limit to register the gross salaries and the possible amortization quota of the entire squad in the course of a season.
The figure is obtained by subtracting the costs and debt from the club’s income. The regulations can be publicly accessed in this document, provided by La Liga.
In case a club goes over the limit, or simply does not follow the rule, the league led by Javier Tebas has the right to impose multiple economic fees, or in the worst-case scenario, relegate the team to a lower division.
When over the limit, clubs are restricted with their possibilities of signing new players to the squad. To make it possible, they have to find new sources of ‘extraordinary income’ through sponsorships, investment funds, or offloading players that take up space in the salary bill.
In any case, if the amount presented by the club has an impact of over 5% on the club’s balance, they are allowed to use 1/3rd of that money to register new signings to the wage bill. Otherwise, only 1/4th of the funds can be used.
The constraints make it even more complicated to sign players on paid transfers. The transfer fee has to be amortized into the number of seasons stipulated in the player’s contract.
For example, if a club signs a player for a transfer fee of €20m on a four-year contract, €5m of amortization quotas will be accounted for in the wage bill for each season, added to the player’s gross salary.
Assuming the player earns €8m gross per season, then the total ‘fair play space’ needed to register the player would be around €13m.
It’s no secret that current Barcelona president Joan Laporta took over in the club’s most disastrous financial situation in its history. The previous board, led by Josep Maria Bartomeu, became infamous for their reckless spending of club funds.
It was a disastrous presidential term, which, aside from this spending, involved questionable transfers, a social media slander campaign against Barça’s own players, neglect of La Masia, disappointing managerial hires, and much more.
However, the issues with the most lasting impact, the ones that have Laporta struggling to this day, are the economic consequences of the previous board’s transfer policy.
Laporta: "You don't know the exact economic numbers until you take over the club. We knew it was bad, but not this bad. Salaries were deferred back then. And we're not talking about normal ones. We're talking about extremely high salaries that we cannot pay anymore." pic.twitter.com/BC7QRuhJbL— Barça Universal (@BarcaUniversal) May 25, 2022
In short, Barça spent a lot of money on players that they didn’t need, that did not fit or were never given the tools to succeed at the Camp Nou. Not only through their ruinous transfer fees, but also long-term contracts with disproportionate salaries.
Although the sporting staff led by former Valencia CEO Mateu Alemany have been trying to offload discarded players for the better part of a year, it has been an extremely difficult task.
Two big steps to lower the salary bill were taken when the club managed to sell Philippe Coutinho for €20m, and loan out Antoine Griezmann with a mandatory option to buy for €40m.
This duo were the two highest-earning members of the squad after Messi left, and were not performing to the level required at a club like Barcelona.
The problems go deeper when failed signings like Martin Braithwaite, Samuel Umtiti, Miralem Pjanic, Neto and others, all have long-term contracts with high salaries that turn off any team that would be interested in their services.
Even with the departure of players with important salaries, Barça’s financial fair play salary limit was set at a measly €98m at the start of the season. Compared to Real Madrid’s €739m limit, it represents how abysmally Barcelona’s accounts have fallen in the last four or five years.
Because of the team’s poor league position in January, with Champions League qualification in danger, the club had to acquire 4 winter signings to ensure the team’s competitiveness. Sportingly, the plan was a success.
Xavi’s team improved and were able to finish in second place. However, despite being able to register them under the previously mentioned 1/4 rule, the club’s balance fell even further.
That is when La Liga reported that Barcelona were the only Spanish club with a negative salary limit. Ahead of next season, €144m will have to be deducted from the newly-assigned limit, which will depend on the club’s accounting in this economic exercise.
In the 2019/2020 season, the first one affected by the COVID-19 pandemic, Barcelona reported losses of €97m. In the following season, Laporta’s first in charge, that figure went up to a whopping €481m.
With increasing salaries, a full season with covid protocols and closed stadiums, the revenue simply could not match the exorbitant amounts of money Barcelona were shelling out due to the incompetent management of the previous board.
A savvy move by Barcelona’s current executives was to conservatively estimate potential losses in last season’s budget, as it would allow Barcelona to report the unused expenses as profit for this economic exercise.
These include the €84m that were budgeted for litigation cases, but experts predict the club will end up using less than half of that.
The account closure report that was sent to La Liga on the 30th of June 2021 confirmed that Barcelona had also completely depreciated the net book values of Philippe Coutinho, Matheus Fernandes, Umtiti, Pjanic and Neto.
For context, this value would have been the result of the purchase price, minus what the club had already amortized for their signings. The club had given these players a market value of zero, assuming the remaining amortization quotas as losses for the economic term.
This practice, known as ‘cushions’ in accounting, would allow any income obtained for these players after that period to count as direct profit, without having to subtract the remaining amortization periods of their contracts.
Laporta’s economic levers
For the past months, president Laporta has consistently brought up a phrase that has left people anxious to know how exactly Barcelona will rectify the delicate conditions.
Optimistically, Laporta has always referred to Barcelona as being ready to pull ‘economic levers’ that would guarantee short-term income, hence remedying the team’s FFP limitations for next season. These big-money moves would come from cashing in on some of the club’s valuable assets.
The board of directors have been in conversations with multiple companies for a very long time, in hopes of completing partial sales of ‘Barça Studios’, ‘Barça Licensing & Merchandising’ (BLM), and a percentage of the club’s audiovisual rights for the coming years.
The first two subsidiaries are part of the ‘Barça Corporate’ project initially proposed by former president Bartomeu in 2015. Despite a deplorable legacy left by the former president, the project launched in 2020 was a reasonable success.
The opening of the ‘Barça Academy’, the ‘Barça Innovation Hub’, as well as the other two previously mentioned components proved to be a valuable asset in the club’s recent financial audit.
The previous board did consider selling 49% of the entire Barça Corporate setup for around €100m, matching their valuation. However, the current board is looking to complete a much more favourable deal in the next few weeks.
49% of BLM alone, the division that manages the commercialization and licenses for the club’s official products, is set to bring around €320m in total income.
‘Fanatics’ and ‘InvestIndustrial’ will reportedly pay a combined €200m for a percentage, while the other €120m is still being negotiated with other large companies in that sector.
This sale, unlike one involving Barça Studios, will have to be approved by the club’s members in the next general assembly coming up in mid-June. The club hopes to close a similar deal for the partial sale of Barça Studios, which was already approved in last October’s assembly.
Achieving the sale of these assets before the 30th of June is an utmost priority for Barcelona. Reporting them as ‘extraordinary income’ would bring a significant amount of FFP space to register signings.
Due to their large upfront sums, they signify more than 5% of the club’s balance, making them subject to the aforementioned 1/3rd rule. The other mammoth operation is the partial sale of audiovisual rights to a foreign investment fund.
Last year, La Liga president Tebas introduced the ‘La Liga Impulse’ project, which would give ‘CVC Capital Partners’ ownership of 10% of each La Liga club’s audiovisual rights for the next 50 years.
For diverse reasons, Barcelona decided not to sign the deal. However, struggling to keep the boat afloat many months later, they have been forced to reconsider.
Laporta recently stated that they have managed to work out slightly better and fairer terms for Barcelona in the CVC deal, but he remained surprised about the lack of overall evenhandedness.
The president still has doubts regarding the deal, mainly because it is not considered as ‘income’ by La Liga. In this case, the 1/3rd or 1/4th rules do not apply. Due to this, only 15% of that money would be computed into the FFP system.
The clubs that did not sign the deal last year presented an alternative league-wide investment by banking behemoths such as Bank of America, JP Morgan and HSBC, also reducing the number of years to 25. However, the CVC deal was already in place, and the idea was quickly rejected by everyone involved.
Recent reports pointed to Goldman Sachs, who has provided Barcelona with extended credit loans since Laporta’s return as president, as one of the other candidates to buy part of the club’s audiovisual rights for a period of time.
The president did confirm that Goldman Sachs, along with CVC, were interested, but they would not give up more than 10% of the rights. It remains to be seen what offer Barcelona decide to go ahead with, or if they decide to sell part of their audiovisual rights at all.
Regardless, this operation can be very important to the short-term financial future of the club, especially if the sale of Barça Corporate’s divisions breaks down.
Barça’s options to sign players
Joan Laporta and the Barcelona board will have the opportunity to sign players in the summer transfer window if the crucial economic operations are completed, pending approval from the socis.
The partial sale of valuable assets, which count as extraordinary income, as well as the possible sale of audiovisual rights to a foreign investment fund, will give the entity much-needed breathing space in the wage bill and allow the registration of multiple transfers.
For example, Robert Lewandowski has reportedly agreed to a €16m gross salary per season in a three-year contract with Barcelona. If Bayern Munich let him leave for a fee of around €40m, the amortization quota would be fixed at around €13.33m.
In that specific scenario, Barcelona would need to build up €30m in fair play for his transfer. The 49% sale of BLM for €320m would guarantee €106m in salary margin, more than enough to register him and the other signings that have already been completed.
A last resort can be the sale of important players. Selling footballers can also give the team a positive balance but to a lesser extent. Frenkie de Jong has been met with much media speculation recently.
Using the reported figures, say Manchester United signed him for €80m, and his current wage sat at €16m gross per season.
By subtracting the pending €40m amortization in his contract from the transfer fee, as well as adding the positive balance gained from offloading his wage, Barça could net €56m from his sale. And as per the 1/3rd rule, around €19m in fair play space could be generated.
No matter what economic levers Barcelona decide to pull this summer, devout fans do not need to worry about the team’s possibilities of signing players. Despite the catastrophic situation, the club’s assets remain extremely valuable.
Naturally, operations like the sale of Frenkie de Jong could be seen as a major sacrifice to the sporting project. Barcelona, unfortunately, do not have the luxury to turn down the money he would bring considering the club’s long-term health.
Whether subsidiaries, audiovisual rights, or important players are sold, the board are working to complete the deals as soon as possible, and allow the sporting staff to bring in the players that will allow them to build a competitive team.