FC Barcelona: How Did We Get Here?
At the end of the 2018/2019 season, Lionel Messi gave a speech in which he said “I think we should value the league title we have won. The eighth league title in 11 years. An achievement that would be enormous for any club in the world and for us too. We’ve achieved something very important here. We might not be able to appreciate its value right now, but in a few years, we’ll realize how difficult it was to win what we won”, and indeed time proved him right. Fast forward 2 years, and now Barcelona is facing one of the worst crises in its history. Sunk in debt, with unsustainable costs and declining sporting results; a club that was on top of the world 5 years ago, today is facing bankruptcy. This is a perfect example of the terrible consequences bad management can have on an organization. In this article, we look at FC Barcelona’s current situation, the factors that led them to this crisis, and the plan that the new management has in place to get out of it.
Current Situation
In March of 2021, Joan Laporta succeeded Josep Bartomeu as the new president of FC Barcelona. This would become Laporta’s second tenure at the club, having previously been president from 2003 to 2010. At his first press conferences as newly elected president, he gave a detailed statement of the current state of the club and said that the situation was “very worrying”. He accused the previous administration of doing a terrible job at managing the club and leading them to financial ruin.
According to the club’s official statements, the club has a total debt of €1.35 billion, which is made up mainly of “the initial €617m debt you have to add €389m on players, €90m in litigation, €79m in advance television rights and €56m from the [new stadium] project” as Laporta explains. The club also posted a loss of €481m, which is amongst the highest in Europe. Revenues declined from €708.3m to €575.4m, representing an 18.8% decline from the previous period. Although some of it is attributable to the Covid-19 pandemic, the actual decline caused by the pandemic is not as high as the previous administration claims to be. According to the new management, the previous board had used the pandemic as an excuse for their mismanagement. Also, the total wages and salaries of sports personnel were €439.7m, an extremely high number, especially when compared to its revenues. Their wage bill proved to be unsustainable to the degree that they had to part ways with their star player, Messi, even after agreeing to a 50% pay cut with the player.
Factors That Lead to The Crisis
Many factors have led Barcelona to this dire situation, the ones we are going to focus on are their high debt, their player transfers, and their wage and amortization costs.
Debt
As mentioned before, the club has a total debt of €1.36b; out of that amount, €731million is short-term debt, meaning it must be paid back within 12 months. Much of this debt can be refinanced with other loans, but in turn, it would lead to an even higher total debt. Barcelona has decided to take out a €525million loan from Goldman Sachs in order to meet the club’s financial needs. The loan is meant to be repaid in 15 years with a 3% interest rate. The problem with having such a high debt amount is the interest expense that it generates over time. Also, the dependency on generating enough revenue to meet the yearly payments, otherwise you have to refinance it (sometimes at a higher rate), and consequently, accumulate more debt. This can turn into a vicious cycle, and if revenues were to dry up as it happened to Barcelona during Covid-19, you soon find yourself in a terrible financial situation.
Transfers
In August of 2017, Barcelona completed the sale of Neymar to PSG for a record high transfer fee of €222m. A transfer that would go on to have a catastrophic effect on the team. The departure of Neymar left an enormous void to fill. Even though they still had Messi and Suarez, their offense was missing that one key component that had made them unstoppable a couple of seasons back. In attempts to fill that void and build a Champions League winning side, massive amounts were spent on player transfers. The astronomical fee paid for Neymar blew the market out of proportion, and player prices rose considerably. In that same transfer market, Barcelona would go on to spend around €270m on just two players, Dembele and Coutinho. In the following seasons, many more players were acquired with the hopes to improve the team. The club opted to look for players that could have an immediate impact on the team, and thus they had to go to the market for options. This strategy generated massive costs, as we can see in the table below, and the results were nowhere near what was expected.
Some of the players that were brought in during this time were:
Out of all of them, the only one that probably met expectations or justified his transfer fee is Frankie de Jong. In Barcelona’s defense, all the other players on the list were performing at really high levels before joining Barca, and because of injuries, pressure, or other reasons, they never seemed to fully adapt to the team. Where I think Barcelona went wrong is by trying to “buy their way to success”. Barcelona is a team that plays a very specific type of football and one that requires a certain type of footballer to be able to carry it out. In the past, the club placed a lot of trust on players from their youth sector (La Masia), which have been playing this type of football for many years. Then, they would complete the team by bringing in some high-quality players that fitted the system. But in the last couple of years, Barcelona has done quite the opposite. They have opted to bring in many big names and assumed that they would instantly fit the system and perform at the levels they had been playing at. Less trust was placed on their youth products, and gradually the team started to lose its “footballing identity”, which ultimately has led to the recent performances we have seen from the team.
High Wages and Amortization Costs
As a consequence of all these transfers, their wage and amortization costs rose exponentially. During the 20/21 season, Barcelona had the highest wage bill in football of €439.7, surpassing by more than €40m second-place Manchester City, according to the Swiss Rumble. Paying a closer look at the wage bill, you can see that Griezmann, Coutinho, and Pjanic were the three highest-paid players after Messi in the 2020/21 season. Out of those three, the only one that played regularly was Griezmann, and all of them were brought in during Bartomeu’s presidency.
A big reason why Barcelona’s finances look so bad is because of their amortization costs. The total amortization of players in 2020/21 was €155m, once again amongst the highest in Europe. This combined with their wage bill, leads to a financial disaster. According to the financial statements, the total cost of sports personnel (including coaching staff and other sports employees) for 2020/21 was €764.66m, a terrifyingly high figure considering the revenues they had for the period and the ongoing pandemic during this time.
These are the main reasons why the club lost its biggest asset, Messi, at the end of last season. When La Liga revealed the salary limits for the following season, Barcelona saw theirs reduced drastically to €97.92m. Just for comparison, Real Madrid’s salary limit stands at €739.12m. These salary limits are intended to prevent clubs in trouble from worsening their problems by continuing to spend what they cannot afford to do, something Barcelona has done frequently during the past seasons. Consequently, when the club finally agreed on a new contract with Messi, they found that their salary expenses were still over the limit. In the end, Messi went to PSG and the club lowered its wage bill by selling some valuable players and agreeing to a pay cut with others.
Plan to get out
However, not everything is bad news for Barca. Laporta has said that the club has a plan to get out of this crisis in five years. The plan has three pillars, the sporting, the economic, and the social. Regarding the sporting pillar, Laporta explains that the aim is for Barca to become one of football’s leading teams again. In order to do so, a model based on “La Masia” and their development center is being put in place. During Laporta’s first tenure as president, he was the one that took the risk and appointed the then “unexperienced” Guardiola as head coach. Now, history seems to be repeating itself, last week it was announced that Barca would depart ways with Koeman and appoint Xavi as the new head coach. Xavi, like Guardiola, has a football philosophy rooted in the ideas of Johan Cruyff, also known as “total football”. This type of football has been synonymous with Barcelona over the last decades, however, in recent years they seem to have lost their way. Laporta hopes that with Xavi, Barcelona will go back to its roots and bring back that “Tiki Taka” that conquered Europe and marveled fans all around the globe.
As per the economic pillar, the first thing that the club aims to do is reduce costs; something they already started working on. They also want to become a reference from an environmentally friendly point of view. For this, the new “Espai Barca” project which includes a new stadium and a new sporting city, plays a key role. Regarding the social pillar, it has to do with getting the fans excited again. In making them feel proud of their team and getting back their full support.
Conclusion
As it can be seen, the situation that Laporta and his team have inherited is far from ideal. The Bartomeu era was filled with scandals, questionable decisions, and tensions within the club. On top of that, once Laporta stepped up, he lifted the lid and we saw the terrible state in which the club’s finances were. Though Covid indeed had a massive impact on the whole football industry, there are other clubs of similar size that have managed it a lot better, and their current situation is completely different from the one Barcelona is facing. Laporta and his board are left with the difficult task of rebuilding the team and healing the club’s financials at the same time. In his favor, he faced a somewhat similar situation back in 2003 and everything seem to work out fine in the end. Hopefully, they can put Barca on the right path sooner rather than later, as it only gets more difficult as time goes on.
