More than a club: How FCB’s finances go beyond the pitch

Interview #29 with Pancho Schroder, FC Barcelona’s CFO

About Pancho Schröder: Pancho is an economist by training and holds an MBA from IESE. He began his career in finance at General Motors where he spent seven years in a variety of positions from acquisitions and reporting, to manufacturing, control and budgeting, and as Commercial Controller, culminating in a stint as the CFO of GM Delphi Automotive. He subsequently held the same role at Derbi, Dogi International, Grupo Electro Stocks and Agora Invest. Two years ago, he was named the new Corporate Director of FC Barcelona where, besides performing CFO duties, he plays an active role in the business internationalisation strategy.

Arturo: Do you feel comfortable handling tasks that go beyond the back office?

Pancho: At the previous companies where I occupied the position of CFO, such as Dogi and General Motors, my focus was more on serving as the ‘co-pilot’ to the CEO rather than carrying out traditional financial control tasks. Fortunately, over the years I’ve had exposure to diverse areas of finance, from controlling and investment to commercial operations and pricing.

Moreover, all the projects I’ve worked on have related to strategic growth and development processes, which have fuelled my view of the finance function as being akin to a business partner. I believe that, besides performing the typical duties of a ‘financier’, it’s important to get closely involved with the ‘business side’ on the ground, so you can both offer solutions and anticipate problems.

How and why did you end up becoming the CFO of FC Barcelona?

When I joined Barça, it was to embark on a project very similar to the ones I’d overseen at other organisations: a five-year development plan targeting substantial growth with a critical ‘internationalisation’ angle, which required a figure who would make a hands-on contribution to the implementation of the strategy.

I applied after a friend told me about the post and I had an interview with the club President, Josep Maria Bartomeu, and the board member Susana Monje (then the Vice-President of the club’s economic team), which gave me a better insight into the project. I had my misgivings initially, given the peculiarities of football clubs, but they eventually persuaded me.

What are those peculiarities? What sets a football club apart from any other company?

My doubts stemmed from the nature of the industry. It’s true that the finance function plays a similar role irrespective of the sector concerned (namely, being responsible for finding resources to fund strategic objectives, establishing KPIs to monitor performance, and understanding the dynamics at work in the industry and their impact on P&L, among other things). Nevertheless, since the football industry is all about sporting success and catering to the passion of club members and fans, I wasn’t sure whether finance would be relegated to a secondary or tertiary consideration.

On top of that, you’ve got to bear in mind that while other industries have growth patterns based on products with a predictable life cycle, the football world is much more volatile. That means that your scenarios can change in a matter of weeks. As you can imagine, that has direct implications for the finance function. For example, from one week to the next, the team can be knocked out of a tournament, which can prompt a sudden and unexpected need to spend money on signings.

However, after analysing the project carefully, I became convinced that there was a very well-defined medium to long-term plan in place behind the scenes. That said, there was also a need for someone to take a strategic approach, determine which of the multiple ongoing projects at the club were bankable and then establish priorities among them. That is a scenario in which I feel comfortable, as I’m adept at identifying growth levers and risks, as well as foreseeing possible problems or difficulties.

In addition to the unique features of the football sector, FC Barcelona has a very distinct ownership structure compared to other European clubs. To what extent does this structure shape the work of their Finance Department?

Broadly speaking, I think that a hyper-democratic governance structure like ours — whereby elections are called every six years, in which the (more than 140,000) members vote for a board and a development programme for the club — is a strength.

Yet it’s also true that in some respects, and especially when it comes to access to finance, this structure entails a series of limitations. Indeed, unlike other types of clubs — including those that are listed companies and others that are bankrolled by sheikhs, magnates or even states — our finances are largely contingent on our earnings because our debt capacity is highly limited by our statutes.

That’s why, even though we have some external finance streams such as credit facilities and the odd loan, it is crucial for us to be able to anticipate all our investments and outflows. That requires cross-cutting work whereby every department of the club — the Membership, Asset Management, Sporting and Commercial areas, etc. — shares the respective challenges facing us and accepts that at certain times we have to prioritise some projects at the expense of others.

Could you explain what these priorities are?

In a nutshell, when President Bartomeu was re-elected two years ago, he ran on the platform of making the club the ‘most-loved sporting organisation in the world.’ Some development targets were earmarked to this effect. These included breaking €1 billion in turnover; strengthening La Masia [the club’s academy set-up]; expanding the FCB Foundation as a vehicle to improve society through sport; being competitive in every sport (as well as football, the likes of basketball, futsal and roller hockey), both men’s and women’s. Finally, we’re building the new stadium (the Espai Barça); and reinforcing the club’s connection both with local members in Les Corts which is the Barcelona neighbourhood Camp Nou calls home and with the 200 million supporters we have across the world.

Making this happen requires a series of strategic projects to be developed across the different areas — Membership, Asset Management, Commercial, etc. — each with a designated project owner. The biggest challenge facing the Finance division involves quantifying the cost of pushing forward these critical initiatives, which we want to complete by 2021/2022, and setting priorities. The three major investments we’re making at present are on the Espai Barça, sporting matters and the digital development project.

A company can be said to be doing well when it has a positive balance sheet, but a profitable football club can still be ‘in crisis’ if it is knocked out of a tournament. How do you approach that challenge from a financial perspective?

As a sports club, there can be no doubt that the sporting side always takes precedence. But in Barça’s case, our slogan is ‘més que un club’ (more than a club). That is no mere marketing gimmick, but rather reflects the activities in which the club is engaged in an array of fields, which are worthy of attention and whose success, obviously, does not hinge on whether or not the men’s first team wins the Champions League.

You will probably have heard the saying that ‘sporting success generates revenue, which in turn is necessary to achieve sporting success.’ The problem is that, even though we’ve grown accustomed to it, this sporting success can be here one day and gone tomorrow. As a result, our strategic plan involves breaking this cycle by zeroing in on a key element: emotion.

This factor is crucial if you want to continue to perform well even during a barren yearregarding sporting success. At the end of the day, emotion means a sense of pride in belonging. And another way of achieving that is by extending our work to different areas, such as promoting multiple sports, developing women’s sport, putting our weight behind a powerful foundation that runs first-class social projects, and ensuring La Masia reflects the club’s commitment to players’ personal and academic development.

Does internationalising the emotion pose a challenge?

That’s undoubtedly one of our main challenges at the moment. We have several projects currently ongoing looking to expand the reach of that sentiment beyond Les Corts, Barcelona and Spain, which is no mean feat since the biggest emotional connection with a club comes from attending matches and from the environment and community around you.

We’ve opened two overseas offices, one in New York and one in Hong Kong, two footballing growth hotspots. Our goal is to gradually replicate the club’s different dimensions (its supporter community, its corporate social responsibility activities and its youth development methods) in these parts of the world.

This is where it’s up to us to put numbers on the table and find regional partners and sponsors who can provide us with financial support. It all boils down to the strength of the FCB brand and third parties’ desire to associate themselves with it and everything it embodies. These resources further feed into and bolster our brand, whether commercially or through social programmes, for instance, we’re working with FutbolNet to tackle social exclusion and bullying, as well as investment in schools and academies run directly by FC Barcelona.

How do you go about determining the emotional payoff for this investment?

It’s tricky because the ROI is often brand-based rather than monetary (at least in the short term). Now, given we’ve got over 200 million followers on Facebook, the challenge is to get to know them better, particularly regarding generating customised, segmented products and services for each of those fans.

What’s your relationship like with the board and how does that influence the decision-making process regarding which projects go ahead?

Through the Executive Committee, we share a list of projects each of the areas is working on and information on the resources we have available, as well as the funds earmarked for signings and the Espai Barça. Based on that, we look to the board to set the priorities, and we draw up timelines.

Initiatives like the Espai Barça are going to require the club either to become a retail specialist or to outsource these activities. What’s your take on this issue?

Firstly, I want to make it clear that the Espai Barça project is more than a mere makeover of the stadium, but instead intends to transform supporters’ relationship with the ground. At present, many people arrive at the stadium 15 minutes before kick-off and leave 15 minutes after the final whistle, whereas in other countries, including England, matchday is seen as a day out with much more to it. We want to change the current dynamics at the new stadium and for fans to get to the ground hours in advance, have dinner there with friends or even stay behind afterwards to socialise while they watch the highlights.

Having said all of that, we still haven’t decided whether or not we’re going to manage all that internally. Insourcing the project could represent a significant opportunity, but the creation and integration within the club of a team with expertise in retail is obviously no straightforward task.

Are you considering insourcing other parts of the business?

Yes. A case in point is the merchandising division, which is currently managed by Nike, who gives us a 60% from sales revenues. Insourcing that part of the business would bring new opportunities since it’d allow us to roll out a whole segment of Barça-branded merchandising going beyond the products that Nike can offer. For example, PSG has a strategy whereby they sell licensed products ranging from everything from skates to golf clubs and motorbike jackets.

How important is the Chinese market in your internationalisation process?

We have high hopes for China and started to make big moves there four years ago, but they have a medium to long-term horizon. In fact, it took until last year to find a suitable regional partner with whom to kick off our strategy there.

When I worked at Derbi, I set up their motorbike factory in China, and then while I was at Dogi, I oversaw the textile factories that we bought from competitors there. During that time, I learned that to make inroads into that market, you need to take it very seriously, have a well-defined strategy, adopt a one-step-at-a-time approach, have ample resources and always talk in absolute numbers. The relative figures in China can be dizzying and can cloud your objectives and strategy.

From the sporting point of view, it’s true that basketball is the most popular sport in China right now, but football has vast potential. We’re in the process of setting up a school next to the headquarters of the Chinese Football Association, with whom it’ll share facilities. What’s more, the current President of the country has laid out a blueprint to turn football into a mass-participation sport and have local teams competing in international competitions. The measures associated with this plan include the introduction of football as a school subject and the construction of thousands of pitches over the coming years.

At the Chinese Communist Party Congress in April, there was a session dedicated to football, in which a growth strategy was outlined based on grassroots football, and there was talk about methodology, coaches, technical data, medical data and so on. These are areas in which we are very much in our element, although, in any event, all this will still take time. In contrast, we opened an academy over in New York this past summer and managed to attract lots of kids in a very short span of time, and we’ve achieved significant success in the first few competitions of the season.

And don’t internationalisation projects of this ilk pose problems concerning scalability such as the number of coaches required?

Not necessarily. We obviously need a steady supply of coaches, but our 37 schools operate on a franchise model, whereby we only require there to be one or two Spanish, Barça-trained coaches in place to oversee the technical side of things.

And is the investment in these schools a cost-effective one?

Certainly. Except for New York, Hong Kong and La Masia, our school model is a commercial one. Indeed, it is classified as a revenue-generating venture rather than a sporting one. We provide the franchise, and the franchisee pays us a percentage of the turnover.

Unlike other clubs, we implement strict quality control, because watering down the Barça brand is a risk we refuse to take. However, it’ll be a few years yet before these schools become elite centres that produce professional footballers.

What do you think of the ‘professional satellite club’ model that is epitomised by Manchester City?

I find what City are doing interesting, as they’ve gone a step further in their business vision. They’ve bought LaLiga club Girona and also have teams in Australia, Japan, South America and the USA. Apart from the obvious impact on the internationalisation of the City brand, this strategy offers them a testing ground for their sporting model in different continents and divisions of various standards.

This approach allows them to farm out young talents to other clubs in their network so that they can cut their teeth as professionals in different leagues and provides a seamless way of overcoming the hurdle that youngsters face in breaking into the first team at the world’s top clubs. Having said that, I think it would be tricky to replicate at Barça from the financial point of view because having five or six teams competing in leagues across the planet requires heavy investment, which will only pay dividends in the medium term.

That could be a problem because our rules on financial stability, which are enshrined in our statutes, bar us from having recurrent losses, so I don’t think it would be feasible to implement a similar model here — at least not as things stand. We’re focused on having one [professional] team and covering any development needs we may have through La Masia, our reserve side (Barça B, who currently play in the Spanish second division) and by loaning players out to other major European clubs.

Quick hits

How many employees are there in Barça’s Finance Department? 20

How is the department structured? We have eight controllers — one per area. Additionally, there are administrative and treasury teams made up of six and four people, respectively.

Which ERP system do you use? PeopleSoft. We also have a ticketing system, but the club’s transactions and operations are relatively simple.

How many suppliers do you work with at the moment? More than 3,000, although we plan to reduce that figure gradually.

Originally published at www.kantox.com on November 30, 2017.