How is FC Barcelona fighting its financial crisis after rejecting the Impulso investment?
Despite speculations about FC Barcelona eventually accepting the CVC deal proposed by La Liga, the club decided to choose an alternative path to fight its financial struggles with the use of broadcasting rights. Joan Laporta has spent most of his presidency on promoting and implementing the idea of ‘economic levers’ as a tool to help Barça restore its financial stability, but what does this rather ambiguous plan actually mean for the club?
FC Barcelona financial struggles
The story of Barça’s economic downfall started years ago during the presidency of Josep Bartomeu, when the club was signing multimillion contracts with numerous players, including unusually high commissions to their agents, and made questionable decisions regarding transfers such as spending huge (for the time being) amount of money received for Neymar on just two players - Philippe Coutinho and Ousmane Dembele, who turned out to have a hard time assimilating and keeping their best condition. In the times of Bartomeu first team players were receiving constantly increasing high salaries to the point when FC Barcelona was paying its players more than any other sports club. (according to Global Sports Salaries Survey)
The economic problems caused by the poor administration escalated when the pandemic starved sports organisations of a significant part of their local revenue due to disruption in leagues’ schedules and restrictions on the number of fans allowed to enter the stadiums. In result, the club’s revenue for the 2020-21 season was 26% smaller than in the previous year. When Bartomeu finally resigned in 2020, Joan Laporta took a lead in a club where spending on players was greater than the total income and the debt reached 1.35 billion euros. According to the current president, if the increase in payroll was not stopped FC Barcelona would have reached a point of spending 110% of its revenue on players. Significant issues with salary caps lead to further complications with La Liga since the league normally allows teams to spend around 70% (depending on revenues, costs and debts) of a club’s revenue on players spending. In a long term, the growing debt could even prevent the club from signing any new talents beyond loan deals or free agents.
Final decision on CVC deal and the alternative plan
One of the solutions available for FC Barcelona in this difficult situation was to engage in the Impulso investment promoted by La Liga. However, Barça joined Real Madrid and Athletic Bilbao in opposition to the idea of giving up on 8.5% of the league’s media rights over the next 50 years in exchange for 2 billion euros from the private equity company CVC. Javier Tebas (La Liga’s president) was surprised by the club’s attitude and pointed out that agreeing on the CVC deal would significantly help Barça to keep its players and be competitive on the transfers market. The president of La Liga even suggested that the rejection of the proposed investment decided on the inevitable departure of Barça captain and biggest star - Lionel Messi.
Following the failure in legal proceedings against La Liga and despite speculations from March 2022 about the club entering a new phase of negotiations with the league, FC Barcelona decided to ultimately close the possibility of joining the other 37 Spanish clubs and find its own way to utilise broadcasting rights in order to increase the revenue. Laporta’s five-year project of restoring the club’s financial stability started in the spring of 2022 with a loan of more than 500 million euros from Goldman Sachs (an American investment bank). According to the president, this move was essential to “give the club breathing space and not to take anything from the members’ pockets”. It was not the first interaction between the two companies as the investment bank was already involved in the financing of the club’s stadium renovation under the agreement introduced by Bartomeu’s administration. The loan was then supposed to be followed by multiple ‘economic levers’ constituting the next step of Laporta’s plan.
How do 'economic levers’ work?
The term ‘economic levers’ is used by Barça officials as a name for the operation of selling a part of the club’s assets to increase the revenue, which allows to buy and register new players as well as helps to comply with salary caps. Therefore in this case, activating a lever equals selling a part of the assets. Regarding the club’s structure, such a sale required the approval of Blaugrana socios gathered in a General Assembly. Such requirement follows the club’s statue which constitutes that:
(Article 19 Nature of General Assembly) The General Assembly is FC Barcelona’s supreme governing body, and its agreements are binding for all Club members and the Board of Directors.
(Article 20 Competences of the General Assembly) The competences of the General Assembly are:
20.8 To ratify the Board of Directors’ agreement to sign contracts with third parties to transfer the exploitation of Club rights to its own image, name, symbols, advertising or media broadcasting when the duration of these is in excess of five years or seasons
20.14 To approve any proposals that the Board of Directors agrees to submit to the General Assembly.
Following the procedure, on 16th June 2022, during the virtual Extraordinary General Assembly delegate members voted in favour of giving the Board of Directors’ (the collegiate governing body) permission to sell 49.9% of the Barca Licensing and Merchandising (BLM) and TV rights. In both cases the proposal passed by a significant majority - BLM with 88% and TV rights with 87% in favour. In result, Joan Laporta started the second part of his five-years programme under the name of ‘economic levers’.
The fist lever, announced on 30th June 2022, was activated by selling 10% of the club’s TV rights for the next 25 years to Sixth Street (global investment firm). In this way FC Barcelona gained around €267m. The income however could not be spend on players as it was directed towards other expenses such as increasing the salary limits (15%), infrastructure (70%) and repaying the debt (15%). The first lever allowed the club to achieve its budgetary goal of finishing 2021-22 financial year with positive balance which constituted first substantial economic success for Laporta and his team.
The activation of a second lever turned out to be slightly more complicated as the remaining 90% of the Barça TV rights were involved in the previous deal with Goldman Sachs as a guarantee of the loan. The club managed however to obtain the bank’s approval for selling further 15% once again to Sixth Street, which was announced on the 22nd of June 2022. The second lever brought additional €315m that allowed the club to make surprising moves on the transfers market as the club has so far bought Robert Lewandowski (from Bayern Munich for €45m), Paphinha (from Leeds United for €58m) and Jules Kundé (from Sevilla for €50).
The most recent lever was announced on the 1st August 2022 and concerns the sale of 24.5% of
Barça Studios to Socios.com (a blockchain app allowing fans to be more connected to their teams) for €100m. The investment is meant to accelerate the club’s technological strategy regarding audiovisual content, blockchain, NFT and Web.3. The official website confirmed that the sale was made in accordance with the decisions of the General Assembly from 23rd October 2022. The club also hopes that this time selling its assets would catalyse the registration of the new signings in compliance with the league’s limite salarial calculated by La Liga every season for both registrable and non-registrable squad (as per Art. 38 of the Budget Preparation Rules). As the situation stands now the club has not announced any further activity regarding the ‘economic levers’.
Additional sources of income
The restoration of financial stability in FC Barcelona does not end with the loan agreement with Goldman Sachs and the ‘economic levers’. The club also reached a sponsorship deal with Spotify (a Swedish audio streaming platform) that for the first time in Barça’s history included the naming rights of Camp Nou. The four-years deal confirmed on 15th March 2022 is worth approximately €240-280m and is supposed to “bring the worlds of music and football together”. In addition to kits branding and stadium rights, Spotify also became the club’s official audio streaming partner which makes this deal unique in the football landscape. Even though it is too soon to assess the long-term effectiveness of this move the agreement of a value equalling to around €62-70 a year is definitely more lucrative than the previous sponsorship deals with Rakuten and Beco worth €55m and €19m respectively.
Besides the ‘big moves’, the club also tries to find smaller sources of income such as renting the Camp Nou stadium for various events such as concerts, special programmes or even weddings. The agreement with Spotify itself includes the use of the stadium as a platform for gigs and artists. FC Barcelona has been also dedicated to developing its technological side and recently gained 693k dollars from selling the club’s firm NFT (non-fungible token) representing Johan Cruyff’s iconic goal against Atlético Madrid scored by the Dutch legend on 22nd December 1973. The audio-visual digital artwork that attracted the interest of more than 30 investors constitutes the first out of 10 works in memory of the club’s iconic moments that will be released over the upcoming months. All the purchasers will not only enjoy the NFT itself but will also become Barça Digital Ambassadors which opens the way to exclusive experiences such as Meet & Greets, visits to La Masia, VIP hospitality, the rights to play at the Barça stadium and a possibility of performing a handover of the ball before a friendly match.
Internally, the club has been working on reducing players’ salaries and selling some of the footballers. So far Laporta succeeded in reducing the contracts of Gerard Pique, Jordi Alba, Sergi Roberto and recently Ousmane Dembele. However, some of the players from a sales list are strongly unwilling to leave the club, especially Dutch midfielder Frenkie de Jong. According to Spanish and international media, the club is also working on the departures of Samuel Umtiti, Riqui Puig, Neto, Memphis Depay and Martin Braithwaite.
What’s the future for Barca?
Even though the current investments let Barça make promising signings during the summer transfer window and the President is convinced about the sustainability and efficiency of his strategy the future might not be that bright and stable for the club since the activation of ‘economic levers’ is profitable yet risky as selling TV rights could equal to a loss of approximately €40 in the next season’s balance. The sales transfers ratio for this year is also far from perfect with only three players leaving the club (Mingueza, Coutinho and Trincão) and many more joining, questioning the reasonableness of the club’s financial moves. Since January 2022 in addition to the previously mentioned purchases of Lewandowski, Kundé and Paphinha, Barça has also bought Ferrnan Torres (from Manchester City for €50m) and signed Eric Garcia (from Manchester City), Pierre-Emerick Aubameyang (from Arsenal), Frank Kessie (from AC Milan) and Andreas Christensen (from Chelsea) as free agents, who even though brought no transfer expenses still significantly add to the salary caps. The football world seems to be a bit suspicious regarding Barça’s financial moves and its rather surprisingly great spending in the current transfer window. Julian Nagelsmann (Bayern Munich) commented on the situation saying that “It is the only club in the world that can buy players without money. It’s kind of weird and crazy”. Disregarding criticism president Laporta seems to be confident in his plans however, the question remains if the club can manage to remain competitive both sports and financial-wise in a long-term perspective without loosing its identity and independence.
Article written by Wiktoria Jazwinska