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As long anticipated, Barcelona has completed the transfer of Bojan Krkić to Roma. The transaction itself has been in the works for weeks and has been widely treated as essentially completed and pending only Barça concluding the Alexis Sanchez deal. As such the move was hardly unexpected. What is surprising about the deal, however, is it’s significant complexity.
Few transfers have been organized in the way Bojan’s has. The deal could have been structured in a much simpler fashion and achieved many of the same purposes for each team. So why the complex series of transactions to execute what is functionally a two year loan with an option for Roma to buy?
While we can’t have first hand knowledge of what went on in the negotiations, it stands to reason that the complexity of the deal was very intentional and set up to meet certain business and sporting needs. Trying to understand the reasons for why the deal may have been arranged the way it was will hopefully provide some insight into how the club may be approaching it’s strategic needs. In this post I’d like to explore this subject. (Please note – while much can be debated over whether or not it was the right thing to transfer Bojan, that is outside the scope of this post. I’m only trying to analyze the structure of the agreement and why it was so complex and doing so largely from Barcelona’s perspective.)
The Terms of the Transfer:
At the current time, no money is changing hands with Bojan’s transfer. Roma are getting the player but are not paying any money for him. In turn they are absorbing Bojan’s full wages (which are very large for a player with Bojan’s past level of production – he will be making 3.2M for Roma and was making a comparable sum for Barça in 10/11. In comparison, Alexis Sanchez will make 3.5M for Barça in 11/12).
One year from now in the summer of 2012 Barcelona has an option to buy Bojan back for 17M. This is relatively straight forward.
However, two years from now in the summer of 2013 the contract mandates a series of convoluted transactions and payments.
First, Roma is obligated to purchase Bojan for 12M. Barça, however, is then obligated to buy Bojan back from Roma for 13M (assuming Barça have not already repurchased Bojan in the summer of 2012 for 17M).
Second, Roma then has an option to buy Bojan outright for an additional 28M payment. In effect Roma has the option to buy Bojan in the summer of 2013 for a net amount of 27M (28M + 12M – 13M).
Finally, the transfer also specifies Bojan’s wages for the 4 years of the deal at Roma. He will make 3.2M for the next two years and 6.3M for the last two years and will also receive wage variables based on performance.
Why This Complex Structure?
The structure of this deal is extremely puzzling at face value. First, it seems unlikely that Roma will purchase Bojan outright for a net 27M and then on top of that pay him 6.3M + variables. For Roma to even consider this with their likely cash flow and team wage structure Bojan would literally have to transform himself into one of the single best players in Serie A, if not the world.
Further complicating Roma’s likelihood of exercising their option to acquire the player outright in 2013 is the length of the contract Bojan just signed. It’s only for 4 years. As such, were Roma to pay a large sum of money for Bojan in 2013 they would have paid dearly for a player with only two years left on his existing contract. That’s a huge amount of risk for Roma – they would be at risk for losing Bojan on a free shortly after paying a large sum for him. Bojan could return to Barcelona on a free only two years later, for example.
As such, the deal is set up for Bojan to most likely not stay with Roma in two years time under the contractual terms just negotiated. The total required for Roma to keep Bojan makes it less likely that he will fulfill all four years of this contract.
Nonetheless, even if Roma did want to purchase Bojan for a net 27M why structure this as a series of multiple transactions where Roma buys Bojan in two installments – 12M + 28M with a Barça repurchase in between for 13M?
Why obligate Roma to purchase Bojan and to only then also obligate Barça to buy Bojan in response? Why make this so complicated when the net amount required for Roma to keep the player outright is so prohibitive that it is unlikely for them to do so?
The likely reason for Roma being required to purchase Bojan for 12M only to have Barcelona purchase him back for 13M is that these two transactions help establish Bojan’s price in the open market for the summer of 2013. This is the advantage to Barcelona of doing the deal through a purchase-repurchase structure rather than a simple net 1M payment from Barça to Roma. They start building Bojan’s market value and facilitate the club being able to sell him for a definitive price after watching his development at Roma.
A primary purpose for the way the deal is structured is to look forward to 2013 when Barca will have a more definitive sense of whether or not Bojan fits into the team’s future. Structuring the deal through these complex transactions is a way for the club to balance risk. It provides Barcelona a foundation for selling Bojan in the open market during the summer of 2013 should they decide he is not in their long term plans.
Establishing a Foundation for Bojan’s Value in the Market:
This transfer could have been set up very simply – Bojan is loaned to Roma for two years and Barça pays Roma 1M. Barcelona have an option to repurchase Bojan in 2012. Roma in turn gets an option to buy Bojan for 27M in 2013 should Barça not take their option in 2012.
The deal isn’t structured as a simple 1M payment from Barça to Roma, however. I believe the reason why is so that precedents can be set for Bojan’s value in the market.
In the summer of 2013 Bojan will have been sold – not once – but twice for an amount of roughly 12-13M.
This gives Barça a price to point to in two years. Even though the only money changing hands is 1M net from Barça to Roma, Bojan will technically be part of two different sales – sales that will be booked for much larger amounts. The accounting for his sales will not be 1M. It will be 12M and 13M. That helps to establish a baseline value for him. Roma will have valued and agree to purchase Bojan for 12M. Barça will have agreed to value and buy Bojan for 13M. This helps Barça point to a 12-13M valuation two years from now.
Now it doesn’t guarantee that 12-13M price nor does it even mean that Barça will decide to sell Bojan if he returns. But it helps establish a foundation for his market worth should Barca decide that after watching Bojan for another two years at Roma he is not in their long term plans. It develops an explicit valuation and will facilitate a sale in the open market should Barça chose to go that route two years from now. If Bojan has a relatively good period with Roma but not good enough to be in the club’s long term plans, Barça can point to the sales of 12M/ 13M and use that as a foundation to try to get, say, 15M-20M.
Why would Roma agree to all of this? Because they are getting a young, talented player that their new coach is interested in working with and doing so without paying out any upfront transfer fees. Two years from now they could always return Bojan to Barça, net 1M in the transaction, and then renegotiate to purchase Bojan back.
It’s possible that Bojan will go to Roma and unequivocally develop into a world class player that Barça will be able to insert into their team rotation. At the other extreme, it’s possible that Bojan will flop and prove to be completely inadequate for a major team. What’s most likely however is a grey result. Bojan will do well at Roma but with certain areas of limitation in his performance. And it is this middle outcome that Barça is preparing for through this complex transaction structure of Bojan being purchased twice prior to his return.
By the summer of 2013, Barça may very well want to bring Bojan back and feel that they need to give him more time in the system to see what he has become after two years away. They may need more time to evaluate him given that he will only be 22. They may not be ready to make a final determination until the summer of 2014. Conversely, they may feel that in two years they have enough information to know that he will not fit. In either case, Bojan may need to be sold two to three years from now. The structure of this current deal with Roma establishes a track record of value for Bojan should he need to be placed on the market in the summer of 2013 or 2014 or even later.
The root cause of all of this complexity stems from the fact that Bojan is an extremely difficult player to valuate and assign risk to as an asset. He was one of the most productive youth players in the history of what is arguably the best youth development system in the world. He has clear talent that is very evident and had a number of standout moments with the first team at very young ages. He is also one of the most popular players in Barcelona. However, he also had the misfortune of trying to break into one of the great teams of all time and doing so after being rushed through the youth system. He has enormous potential and talent but limited, perhaps even disappointing, production for a team that is suited to win now and needs depth. As an asset he is very difficult to put a true worth on.
If a team were to offer Barça 20M for Bojan this summer they would perhaps take it. But few, if any, teams were going to absorb that much risk now given his first team production. At the same time, given his youth team performance and talent, Barça would be absorbing significant risk selling him for the amount he would likely go for on the market right now (say 8-10M). They may come to regret it later.
The Roma deal, with it’s complex structure, sets a middle path. It allows Barça to minimize it’s downside risk of losing Bojan for an inadequate sum should he develop his talents. At the same time, through the transactions obligated, the deal looks forward to a future in which Bojan may not fit into Barça’s plans on a permanent basis. Barça is hedging their longer term sporting and financial risk through this complex structure.
Now that said, at the same time, nothing is free. Barça is clearly paying for the opportunity to hedge it’s risks with Bojan. They are giving a player away now and getting no money in return for him during a period in which the club itself is saying that they need cash.
Barça’s decision to mitigate certain kinds of upside risk while also keeping their options open comes at a real immediate cost. Barça are giving Roma an asset and getting no cash back for him now. This could in theory cost them the opportunity to acquire another defender or even long sought after Cesc Fabregas. And should Bojan get seriously injured and/or fail miserably in a very physical, tough Serie A, Barça will likely have squandered all of the player’s monetary value and get very little in return for an asset they have spent years developing.
Barcelona is currently on a trajectory to produce more young players through La Masia than it will likely be able to utilize in meaningful ways on the first team in the short term. The level of play on the senior side is so high that the majority of young players are unlikely to stay with the team.
As such, one of the central aspects to the team’s future success is evaluating which players they should keep and then maximizing the value of the young players it cannot. Bojan represents a fascinating cross roads for how the team is going to need to steer between those two poles. The complex structure of the deal with Roma is due to the club trying to balance these two potentially divergent pathways within a single player.