Barcelona provides up Messi’s star energy to attempt fixing its funds

Widely considered the best of his generation, Lionel Messi failed to turn FC Barcelona’s record into a winner. Here’s a look at the finances of one of Europe’s most famous football teams.

Barcelona’s biggest problem remains the debt burden. The club’s net financial debt at the end of March when new management took over was € 673 million. Adjusted provisional debt is now over $ 1 billion, including paying players’ salaries deferred during the pandemic. The club is doing an audit and the final number could be higher.

To address the problem, Barcelona hired Goldman Sachs to sell € 525million in private placements that partially refinance debt but also provide more liquidity.

Barcelona teamed up with other big clubs – including Real Madrid, Chelsea and Italy’s Juventus Turin – in the spring to establish a European Super League. The plan, which failed within a few days, would have given the participating clubs more attractive income than they currently have.

The club posted a loss of nearly € 100 million in the 2019-20 season as the disruption caused by the coronavirus pandemic reduced its revenue on all fronts. A loss of 487 million euros is expected for the past season.

What went wrong at Barcelona?

According to its annual report, the pandemic had an impact of 130 million euros on Barcelona’s business. However, the new management team said the figure was closer to 42 million euros and the previous board had used the pandemic and empty stadiums as an excuse for mismanagement.

In a report, Fitch Ratings noted “volatile and unsustainable financial management of the club under the previous management team, including an investigation by the Spanish authorities”.

As a result, cutting Messi away may not be a panacea. The rating company sees “a significant execution risk with regard to the strategy of the new management team to reduce player salaries in order to ensure financial stability”. Fitch still rated Barcelona’s banknotes BBB- at the end of July, one notch above junk.

Why is Messi leaving?

Barcelona announced in a brief statement on Thursday that Messi’s contract would not be renewed after 17 seasons with the only professional club he played for.

Club president Joan Laporta said Barcelona could not sign the Argentine superstar due to “financial and structural obstacles” within the Spanish league, despite the fact that the club and Messi want to sign a new deal.

Messi, 34, made his first appearance at the age of 13 for Barcelona’s youth squad and made his first-team debut in 2004/05. He was well on his way to making around € 70m a year under the new Barcelona contract that never came into effect. Forbes estimates his 2021 income, including salary and endorsements, at € 110 million, ranking second among all athletes behind Conor McGregor, the star of the Ultimate Fighting Championship.

According to La Liga rules, clubs have a salary cap for players and coaches based on the difference between income and costs. In the case of Barcelona, ​​where Messi was on board despite a proposed pay cut, the wage bill was an unsustainable 110% of his earnings.

“The club is above everything – even the best player in the world,” Laporta said at a press conference this week.

Due to lower revenue, the club’s talent threshold is 47% lower than last season. At rival Real Madrid, the cut was 26%, as the players there agreed to a wage cut of 10%, among other things.

Laporta stated that Barcelona could have met La Liga if they had backed a proposal by CVC Capital Partners to acquire a 10% stake in the Spanish league’s business.

The British private equity firm offered to invest 2.7 billion euros in the league. Barcelona refused to support the move, which would have tied part of the club’s broadcast rights for 50 years. Real Madrid were also against the deal.

Could it get any worse?

Possibly. The Goldman Sachs-managed funding operation should give the club some breathing space and if Messi falls out of the equation, Barcelona’s wage pressures will be eased. Payroll will still represent an inconvenient 95% of revenue, however, and merchandising income could take a hit if the sale of the signature “No. 10 “Messi jerseys – up to 2 million a year – are vaporising.

A sponsorship deal with Japanese e-commerce company Rakuten Group ends in June, while a contract with sporting goods giant Nike expires in 2023.

Ticket revenue will also depend on the number of fans allowed to enter Barcelona’s stadium, the largest in Europe with a capacity of nearly 100,000, while the pandemic continues.

In the meantime, La Liga is changing the tender for the domestic broadcast rights auction to attract new entrants such as Amazon. The auction is expected in September and, as Spain’s top domestic football rights buyer, Telefonica is demanding lower prices.

Bloomberg

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