We’ve seen the joyous news in the English footy press, that we have about a zillion dollars in debt, and will probably have to turn to the Camp Nou travestis for some sort of revenue sharing plan, anything to make the bills, because Barca is busted! Yay!
Um, not so fast.
They won’t be needing to hold tag days for us any time soon, which must frost some people’s bacon.
To recap, for those who have been sleeping through all of this. When Joan Laporta and his administration left office, they said we had an 11m profit. When Sandro Rosell and his administration took office, they said “Not so fast, that’s actually a 400m+ deficit.”
Now, I’m not big on man crushes, but as a journalist, numbers terrify me. It’s why I chose to make my living at words. So it must now be revealed that I have a full-on man crush on the blogger who is Swiss Ramble, for the most excellent financial analysis that lays bare any and most of the high-and-mightiness that big-time footy sides bring to the table.
The latest post, titled “What’s Happening With Barcelona’s Finances,” is here. Clink the link for the full glory. It’s a delightful read, and says what we pretty much all knew: Laporta was trying to make himself look good as he scuttled down the rat lines, and Rosell was trying to make Laporta look bad, to derail the ambitions of the would-be King of Catalunya.
And the truth is somewhere in the middle. I’ll just clip some interesting tidbits then natter about them, but you should visit the Swiss Ramble site, for the full monty. Give ’em some clicks. Anybody who does work that excellent deserves them.
even in an age where we have International Financial Reporting Standards (IFRS), accounting is not quite as black-and-white as people might imagine. There is a considerable degree of judgment applied over which revenue and costs should be recognised in the accounts. Even Faus admitted that the old accounts were not “fixed”, but the new board had simply taken a far more conservative approach, “We opted for caution.”
Translation: Sure, we jiggered the numbers to make Laporta look like a bigger git than he is. So?
This is certainly their right, as to the victor goeth the spoils, right?
One of the fundamental accounting conventions is prudence and it does look like Laporta had a tendency to count his chickens before they hatched. On the other hand, you can be too careful. As an analogy, if you believe that it’s going to rain, you might take an umbrella with you when you go out, but you probably wouldn’t refuse to leave the house just in case you get wet.
Translation: The truth is somewhere in the middle.
you have to ask whether Barcelona set a completely unrealistic budget for 2009/10.
On the face of it, looking at the projected growth from the 2008/09 results, you would have to say no. Revenue was only budgeted to increase by €20 million from €385 million to €405 million and almost all of that growth was due to €40 million profit on sales of assets (players €25 million, land €15 million). All other revenue streams were largely unchanged with marketing revenue actually forecast to decline, as they did not anticipate a repeat of the previous season’s spectacular trophy wins.
They also forecast €13 million cost growth from €362 million to €375 million, but this looks less reasonable. Player amortisation was budgeted to increase by almost 30% (€16 million), reflecting the impact of new players, but salaries were hardly increased at all. This never made sense to me and, as we shall see, this proved to be hopelessly optimistic.
Translation: Hang on there, Joan. Talent costs money, and a lot of it.
So how did the actual 2009/10 results compare to this budget?
Using the figures after the audit adjustments, we can see that the revenue was pretty much in line. In fact, it was actually €4 million better than budget, as the negative variance due to the non-booked profit from the land sale was more than compensated by the core revenue. Marketing revenue was €7m above budget, thanks to more royalties from Nike and higher merchandise sales, while television revenue, the source of so much concern, ended up €16 million better than budget (11% higher than last year), mainly due to more money from the Champions League, following the 30% increase in the total pool. Although match day income was slightly lower than budget, it rose by 3%, helped by a 7% increase in the number of members.
However, the stand-out variances against budget were in the costs, which were an awful €103 million worse, coming in at a grand total of nearly half a billion Euros. The audit provisions are the reason for the €66 million adverse variance in other expenses, but the real damage is done in salaries. Adding together all staff (sports and administration) produces a jaw-dropping figure of €263 million, which is €36 million worse than budget. Put another way, the budget was out by 16%, which is a hell of a lot in just 12 months. It’s not as if they’re trying to forecast the lottery numbers, for heaven’s sake.
In fact, after all the audit adjustments, the total shortfall against budget is a round €100 million. Ouch. The solid revenue growth of 6% has been obliterated by terrifying cost growth of 32%. Granted, a considerable chunk of this is the result of once-off provisions, but much of it is down to player expenses – amortisation and salaries.
The wages were already very high, but €263 million is a scary figure. To place that in context, big-spending Real Madrid “only” paid out €187 million in staff costs last year (though it may have increased since then). The club identifies three reasons for the increase: new signings, contract improvements and variable compensation. The bonus payments were worth around €40 million, so Barcelona are, to some extent, victims of their own success.
Translation: Talent costs money, and boy have we been generous with the incentives and contract sweetenings.
Some have speculated that Laporta only left Rosell enough funds to either make the payroll or buy new players, but not both, thus forcing the new president to not make any marquee signings in his first summer. Others have attributed the shortfall to the purchase of David Villa, when Barcelona for once had to pay the entire transfer fee upfront, due to Valencia’s own financial travails. On the other hand, some have claimed that the liquidity crisis was caused by Rosell’s decision to cancel the scheduled price rise in season tickets, as the previous board’s (unpublicised) request for a bank loan had assumed this additional revenue as part of their business plan. This meant that Rosell had to re-submit a modified loan request.
It has surely become obvious by now that there is more than a hint of politics in this whole mess with FC Barcelona caught in the middle of a deeply personal battle between the incoming and outgoing presidents. Although Laporta and Rosell were colleagues on the board between 2003 and 2005, they have famously fallen out and now only communicate through lawyers. Rosell was elected on a platform of sorting out the financials, so he is hardly going to say that everything is “hunky dory” once he’s put his feet under the desk. Having said that, it is equally clear that Laporta would like to go out with a bang: financial stability as well as sporting success.
Translation: I told you so.
n fact, there have been so many contradictory statements coming out of Barcelona, that it’s almost impossible to distinguish the wheat from the chaff. How can a club need a €150 million loan to pay its wages, but the next minute also have a transfer budget of €50 million (sorry, €89 million after player sales)? That’s some transfer pot for a club with cash flow problems. Until we can examine the comprehensive financial statements, it’s difficult to get to the bottom of this, but something doesn’t add up.
What is clear is that Barcelona need to somehow improve their financials. The most immediate action should be to cut costs and they have plenty of scope to do this with a couple of obvious targets. They have already started the process of reducing the enormous wage bill by offloading Thierry Henry and Rafael Marquez to the New York Red Bulls and selling Chygrynskiy to Shakhtar and Yaya Toure to Manchester City. The latter two sales also provided the double whammy of bringing in €39 million of sale proceeds. There may be more to come here with Alex Hleb and Martin Caceres likely to go on loan, though it now seems unlikely that the high-earning Ibra will leave this summer.
Translation: Yes, we have debt and we need to do something about it. The easiest short-term thing is offloading some stuff. Hey, looka that.
I could go on and on with a not-so-detailed analysis of the excellent analysis over at Swiss Ramble. But do yourselves a favor, and go read it. Then come back here and discuss. And I’ve even reached out to the post’s author with an invite, sort of a “Hey, we’re over here” in case they’d like to pay us a visit, and clear up any questions that haven’t been answered by a tip-top effort.
My bottom line is that we’ve all suspected that the truth is somewhere in the middle. Rosell isn’t entirely evil, Laporta isn’t entirely good. Both are self-aggrandizing, ruthless businessmen. This is good. The latter has lorded over a staggering period of sporting success, from hoops to football. What will the former do? Only time will tell, but it looks as though they are taking the right steps to address the club’s balance sheet (never mind the skullduggery), and not just because of the looming FIFA financial strictures governing European competition.
As a soci, it worries me that at the end of our deal with UNICEF (2011), that will be well within Rosell’s tenure and he might look at selling the shirt as a way to raise quick cash. As we see, however, that isn’t the only way, so it is my sincerest hope that should such a thing arise, common sense will prevail.
And that’s what I (sort of) know. What say ye?
P.S. The “translations,” such as they are, are mine. Word.