Covid brings the Blaugrana the blues


Like many other football clubs, even the elite ones, FC Barcelona are also facing financial problems as a result of the COVID-19 pandemic – however, the level and nature or their financial troubles have put a spotlight on the fragility of the club's business model. In the past few years, soaring fixed costs have been counterbalanced by similarly high revenues and financed by large amounts of debt. Now, the club are facing a shortfall in revenues and speedily maturing obligations, putting them in a more vulnerable position in terms of liquidity.

Joan Laporta, the re-elected president of FC Barcelona is probably facing the challenge of his life – he needs to revive the Catalan giants, who are in deep financial crisis. During his first spell as president (from 2003 to 2010), he also started almost as a crisis manager – he managed to gradually cut down the inherited massive financial debt, turn around the fortunes of the club and help them return to form and win titles, after years without trophies since 1999.

The task now looks even bigger. Laporta is obviously confident – summing up his vision, he told BBC1 that „we need to control expenses, restructure the debt and work to generate new sources of income…, to find new ways to underline the strength of Barcelona as a brand, a new method of pursuing sponsorship deals, revamp the club's digital channels and look closer at the world of esports.”

In 2015, the club's management set out on an ambitious journey to become the first sports club around the globe to reach EUR 1bn in total revenues by the 2020/21 season. Multiple domestic titles and consistent sporting success in the years that followed kept the club amongst the top earners around the world, and the exceptional growth allowed them to keep the dream alive. Finally, FC Barcelona became the highest earner on the basis of operating revenues in the 2018/19 season (EUR 839.5m), with total revenues—including player trading, non-recurring and extraordinary income—reaching EUR 990m. This growth was largely thanks to the club having progressed to the semi-finals of the UEFA Champions League, and bringing the retail and commercial businesses in-house.

FC Barcelona were projected to reach their revenue goal, however the COVID-impacted 2019/20 season turned historic for the wrong reasons: the streak of registering a net profit ended abruptly after eight years, with the club, similarly to the majority of European top clubs, recording a net loss (EUR 97m). While revenues have increased rapidly, so did costs: in the four seasons preceding the pandemic, FC Barcelona's operating revenues grew by 36%, while operating costs rose by 47%.

A major factor driving operational costs skyward were staff costs, which increased by 45% in the seasons between 2015/16 and 2018/2019. In addition, the acquisitions of players through record-breaking transfer fees negatively affected not only player wages, but also the amortization of players' registrations, reaching EUR 174m in the 2019/20 season, thus exerting a significant detrimental effect upon the bottom line.

Once the pandemic crept in, income dried up as FC Barcelona's operating revenues decreased 15% year on year to EUR 713.4m, exposing the flaws in the club's financial model. Lower merchandising sales stemming from the closure of retail outlets reduced commercial revenue by EUR 37.7m, a 10% decrease year on year. Further negative consequences arrived with the virus as broadcasting revenue fell EUR 49.6m (-17%) year on year as a result of considerable rebates paid to broadcasting partners and the postponement of the season pushing numerous games beyond the end of the financial year. Finally, matchday revenues were impacted the most in relative terms, decreasing by EUR 38.8m (-22%), as the club were forced to play without fans in one of the world's largest stadiums, Camp Nou.

The club attempted to alleviate the monetary pressure by letting players on high wages leave on free transfers in order to contract the wage bill, as the examples of Luis Suárez and Ivan Rakitić demonstrate. In addition, they struck a deal with the players for a wage cut in autumn, resulting in wage savings of EUR 122m.

Another aspect of the club's finances that requires attention is the large debt they have amassed over the years. In a sample of clubs who have released their financial statements for the 2019/20 season, FC Barcelona (EUR 479.8m) rank 3rd in terms of total financial debt2 as at 30 June 2020. Tottenham Hotspur FC (EUR 933.4m) lead by a large margin following extensive investments towards a state-of-the-art stadium. Trailing behind them are Manchester United FC (EUR 580.9m), who showcase large amounts of debt on their balance sheet as a result of the leveraged takeover by the Glazer family.

FC Barcelona's long-term financial debt (EUR 211.3m) is largely comprised of the four issuances of Senior Notes starting in the summer of 2018. Meanwhile, the Blaugrana’s current financial debts (EUR 268.5m) mainly consist of a EUR 90m loan taken out in 2018 to finance the first phase of the Espai Barça stadium renovation project, a EUR 45m loan without collateral received in July 2019, and EUR 118m drawn down from credit facilities during the 2019/20 financial year.

FC Barcelona have a large amount of debt, but so do many teams around the top leagues in Europe—what then makes these clubs so different?

While other clubs around Europe bear similar amounts of total financial debt, not one of those clubs that released their financial statements for the 2019/20 season has as much current financial debt, namely debt that needs to be repaid in less than one year.

Even though Tottenham Hotspur FC have almost twice of FC Barcelona's total financial debt, FC Barcelona have significantly larger amounts of current debt: 56.0% of total financial debt is current for the Spanish club and only 20.7% for Tottenham Hotspur FC. Similarly, domestic rivals Real Madrid CF and Atlético de Madrid also have much lower financial debt, both total and current. This is troubling for FC Barcelona, as the urgency of situation increases the difficulty of restructuring debt at an acceptable cost.

Another layer of the club's struggle with debt is the amounts still owed related to player trading. FC Barcelona still have an obligation of EUR 323m to other sporting entities for the transfer of players, of which EUR 126m is set to mature in less than one year. Most notably, the club still owe EUR 29m for the transfer of Phillipe Coutinho in the short-term, with another EUR 40m maturing in more than a year. Fortunately, the club also have EUR 109m in long-term and EUR 59m in current receivables from other sporting entities for player disposals, something that mitigates the net balance.

As the two levers through which the costs were counterbalanced have weakened, Joan Laporta will have to make significant efforts in order to stabilise the club's financial model. In addition to that, and with a focus on the pure sporting side, he will also have to tackle Lionel Messi's pending free agency. While staff costs would certainly decrease with Messi's departure, so would eventually the club’s sporting potential should they allow their talisman to leave in the summer. The pandemic also demonstrated that player trading has to be more stringent and costs have to be controlled with increased scrutiny. However, not all is doomed for FC Barcelona. The brand is very strong, as evidenced by having the most social media followers out of all football clubs globally. Furthermore, a boost in revenues is on the horizon thanks to the Espai Barça project, scheduled to begin in the summer and aiming to expand and improve the infrastructure of the stadium and the surrounding area; in particular, the club forecasts additional revenues of EUR 150m per annum upon its completion. These factors, together with a potential refinancing of debt, could prove crucial to having sound financial management in the coming years.

1From the article “Barcelona presidential election: Candidates' blueprints for Nou Camp club” on BBC, by Guillem Balague  

2Total financial debt is defined as the sum of current and long-term interest-bearing loans and borrowings. For FC Barcelona, the term encompasses current and long-term bank borrowings and bonds, and other marketable securities as defined in their financial statements.