FC Barcelona - A Curious Case of Creative Fundraising
The last two years has been a highly turbulent period for FC Barcelona’s financial status, but despite a purported lack of economic capability to spend big on playing staff, the club continues to flummox football fans worldwide. The ambitious spending has attracted criticism, with many finding it difficult to reconcile with how Barça has made it happen.
This article will discuss Barça’s economic position, its contentious transfer dealings and how it has managed to progress with its imposing plans.
What’s the Fuss?
In recent months, FC Barcelona has truly flexed its muscles in the transfer market, igniting somewhat of a furore amongst those in the football world.
The Club’s Financial Difficulties
Photo Credit: Sky Sports
Just under a year ago, the club was unable to maintain the services of arguably the most revered footballer of all-time, Lionel Messi, and denounced La Liga’s ‘financial and structural obstacles’ , arguing these barriers restricted it from extending his contract. The Argentine was prepared to take a 50% pay-cut to stay, but La Liga would not permit this due to Barça’s lack of compliance with financial fair play regulations.
“Despite FC Barcelona and Lionel Messi having reached an agreement and the clear intention of both parties to sign a new contract today, this cannot happen because of Spanish LaLiga regulations on player registration.
As a result of this situation, Messi shall not be staying on at FC Barcelona. Both parties deeply regret that the wishes of the player and the club will ultimately not be fulfilled.
FC Barcelona wholeheartedly expresses its gratitude to the player for his contribution to the aggrandisement of the club and wishes him all the very best for the future in his personal and professional life.”
The economic benefits Messi provided to La Blaugrana were undisputed. According to various economists, such as Ciria, although he cost Barça $450 million over the last three years of his contract, he generated an immense $730 million in revenue for the club.
Barça’s financial difficulties are evidenced by its debts amounting to over €1.3 billion, and large sums are owed to the playing staff due to deferred Covid-19 wages. During the former President Josep Maria Bartomeu’s tenure, in October 2020, four Barça players agreed to defer their wages, which saved the club approximately €172 million. Clement Lenglet, Gerard Pique, Marc-Andre ter Stegen and Frenkie de Jong agreed to these pay-cuts in return for future remuneration and 3% interest on the deferral amount. However, there are now reports that this strategy may cost Barça £262 million in additional wages.
The below graphic by Tifo IRL demonstrates the incremental rise in Barça’s debt, and shows the ongoing concern the club has year-by-year.
Credit: Tifo IRL (https://www.youtube.com/watch?v=pRpDaIKzrz0)
The global pandemic substantially affected Barça’s financial position, as its main revenue source in 2020/21 was media activities, generating €282 million. However, revenue from the Camp Nou fell from €212 million in 2018/19 to only €25 million in 2020/21, which provides some rationale behind the spiralling debt. A major concern was the club’s short-term liabilities but Joan Laporta, in one of his first acts as Barça’s new President, restructured the loans to enable these liabilities to become long-term liabilities. He acquired a loan of €600 million from Goldman Sachs to allow the club to repay the loan (with interest) over 10 years.
This summer has mystified many who are unable to comprehend how Barça, a club ostensibly in financial difficulties, can afford to recruit an assortment of high-quality talent. In the past half-decade, Barça has been seen to take big hits on monumental outlays on world stars. In January 2018, it signed Phillipe Coutinho for £121.5 million, and has since sold the Brazilian to Aston Villa for only £18 million. Furthermore, in July 2019, it signed Antoine Griezmann for £117 million from Atletico Madrid before agreeing a two-year loan deal to return him to Atleti the following summer.
Photo Credit: Goal.com
Photo Credit: The Telegraph
The long-term debt ramifications of the above failed transfers has made it increasingly difficult for Barça to sign new players, particularly because it is struggling to fulfil Spain’s financial fair play regulations. In Spain, the financial fair play regulations outline a ‘Squad Cost Limit’, which looks at applying FFP in advance, as opposed to retrospectively as with UEFA’s FFP rules. It is calculated in the following way:
REVENUE - (EXPENSES + DEBT PAYMENT)
Barça’s squad cost limit, which encompasses transfer fees, amortisations and wages, was €-144m, making it the only La Liga club holding a negative squad cost limit. Prior to this, according to Swiss Ramble, in the 2019/20 season, the club was in an envious position, with the figure then €671 million.
For a more in-depth look into Barça’s financial situation in the Summer of 2021, please read Swiss Ramble’s excellent thread, which can be found here: https://twitter.com/swissramble/status/1419540806608867329?lang=en-GB
Barca’s New Culés
Despite the club’s unimaginative recruitment prior to the turn of the year being a large reason behind its on-pitch demise, it has certainly not blemished its pulling power when it comes to attracting world-class talent. In spite of its economic troubles, the club has made a number of acquisitions. Various players linked with Chelsea FC have opted for Catalonia, which could largely be due to the weather, culture and historic clout of Barcelona, but also partly due to the favourable tax regime, some coin the ‘Beckham Law.’ Foreign players are permitted to pay a flat fee of 24% on up to €600,000 in place of the progressive tax rates that apply to Spanish residents.
Photo Credit: FC Barcelona
The transfer attracting the most denunciation was the signing of Bayern Munich’s marksman, Robert Lewandowski. The Bavarians’ maverick young manager, Julian Nagelsmann was equally as perplexed as the layman, remarking the following in response to the £40.5 million transfer:
“It is the only club in the world that have no money, but then buy all the players they want. I don’t know how they do it. It’s a bit strange, a bit crazy.”
Other prominent figures in the game have also voiced their frustration over Barça’s ability to spend mouthwatering amounts of money on transfers. Most recently, Jurgen Klopp discussed his bewilderment over Barça’s spending:
“I’m watching this like a football fan, I don’t understand... One reason is that I’m not a financial expert. The second: If you tell me I don’t have any money, then I don’t spend anything anymore. My credit card has also been cut up twice, luckily that was a few years ago.”
Prior to splashing the cash, Barça was encountering troubles abiding by La Liga President Javier Tebas’ financial regulations, where it was demanded to make meaningful savings before signing any new talent. As well as the acquisition of Lewandowski, the club has also recruited other prodigious talents for substantial fees in 2022, alongside making some shrewd free transfers. This includes the following:
Evidently, football fans worldwide are confused, but Barça has been able to act in this way as a result of some noteworthy financial measures. I will delve into how it has rebuffed criticisms and has circumvented legal challenges that could have arisen over its actions.
So…How Can They Afford These Players?
The Economic Levers
Barça has managed to make these promising signings and sidestep the concerns over its ‘squad cost limit’ as a result of what the Spanish language describes as ‘Palancas’. These are, in essence, economic levers to allow the club to register its new signings and balance the books. Barça have been forced to raise ‘extraordinary income’ as a means of improving its playing staff. This comprises of sponsorship deals, player sales and agreements with investment funds. The club can then utilise one third of this money to pay for new players.
The club has raised money in a number of ways, which will be discussed below.
The First Palanca
Barça’s first action, in June, was to sell 49.9% of its company, Barca Licensing and Merchandising (BLM), which reportedly drew in €300 million.
The Second Palanca
The second way in which Barça’s significant spending has been made possible, is due to the sale of 10% of its La Liga TV rights for the next quarter-century to the US investment group, Sixth Street, for a whopping €207.5 million.
After receiving permission from Goldman Sachs, Barça has since utilised a second economic lever, whereby an additional 15% of TV revenue for the following 25 years has been purchased for a further €315 million.
As explained by Forbes, it is not possible for Barça to raise funds by selling a stake of the club to investors, but instead, it must develop revenue streams via the sale of assets. Alongside the two Madrid powerhouses, FC Barcelona, with its rich and iconic history in the beautiful game, benefits from a significant proportion of the TV revenue.
The difficulty for Spanish sides is they are finding it increasingly difficult to compete with the Premier League in regard to TV revenue. The attraction of El Clásico has abated since the sales of Neymar Jr, Lionel Messi and Cristiano Ronaldo to clubs abroad, and the domino effect of this on other clubs’ financial standing in the league is unassailable. This feeling is exemplified by author, Jimmy Burns’ comments in his book, Barca, A People’s Passion, where he stated, ‘Brits come to Barcelona to see the Sagrada Familia and to see Messi.’ Furthermore, La Liga President, Javier Tebas, was quoted as saying Messi’s departure was ‘slightly traumatic’ whilst Getafe President, Angel Torres, stated 'La Liga can’t afford to lose Messi… we would be making a mistake that we would all regret.’
It is imperative for the prominent clubs in Spain to continue attracting talent, in order to benefit from the cash influxes TV revenues provide. The recent European success of Real Madrid in the Champions League, alongside Barcelona’s recent acquisitions will go some way to offset the disappointment of the league not securing young stars such as Erling Haaland and Kylian Mbappe.
Photo Credit: FCBN
The Third Palanca
Barça then sold a 24.5% stake in its in-house production company, Barça Studios, to the blockchain firm, Socios, for €100 million.
It announced that as part of this deal it would ‘accelerate the growth of The Club’s digital, NFT and Web3 strategy,’ creating new revenue streams. It is looking to utilise Chillz Chain 2.0, which is formulated to act as the first blockchain designed uniquely for the sports industry.
The Fourth Palanca
On 12th August 2022, Barça made a further sale and as a result, activated a third economic lever. A further 24.5% stake of Barça Studios, was sold to Orpheus Media, a production company spearheaded by Jaume Roures, which has raised an additional €100 million.
As a result, Barça Studios is being valued at circa €400 million.
Barça’s Spotify Sponsorship
Photo Credit: Sky Sports
On 15th March 2022, Barça officially announced it had agreed a deal with streaming giant Spotify worth a reported €236 million over four years, to make it one of the most lucrative commercial partnership deals in sporting history. The deal ensures Spotify is the club’s primary sponsor and has taken over the naming rights for the Camp Nou. The stadium will also be available for Spotify-related music events and weddings. Further plans include implementing the ‘Espai Project’, which could amount to a reported €1.5 billion. Barça’s Vice-President, Elena Fort, has described this as ‘the most important project for the present and the future of the club’, as it will bring this footballing cathedral to the 21st Century. The ambitious plans for the stadium redevelopment can be read in further detail here.
What Next?
The main challenge that Barça are trying to overcome at present is registering its new players, and La Liga reserves the right to veto signings unless a club balances their books, in regard to its ‘squad cost limit’. In Barça’s case, Raphinha, Lewandowski, Kessié and Christensen are all registered, but they are still awaiting the registration of Koundé.
Despite the financial difficulties that are being presented to Barça, it seems determined to launch a title charge this season after slipping away from its lofty standards in recent years.
“Exits are still being worked on. There is still time for some incorporations into the team”
According to multiple media outlets, the club is chasing deals for Chelsea’s Marcos Alonso as well as Manchester City midfielder, Bernardo Silva, which would likely stump up a combined fee of around £100 million. The club are looking to move on Memphis Depay, possibly to Juventus, and Pierre Emerick Aubameyang to Chelsea. However, although these protracted deals could offset its wage bill, the completion of any incomings, hinges on the future of player sales. The lack of economic wiggle room largely derives from Barça’s hefty wage bill, which amounted to €617 million in 2020/21, whereas Romeu desires for this figure to be around €400 million. In order to do this, a number of players, who are comfortable living in such an iconic city, earning high wages, need to be sold, to balance out the wage bill. Barça has successfully sold Phillipe Coutinho, Riqui Puig and Neto, amongst others, but still intends to offload Samuel Umtiti, Martin Braithwaite, Memphis Depay and Miralem Pjanic. Its central focus on outgoings involves Frenkie de Jong, a saga plagued in controversy, and this will be discussed in more detail.
The Frenkie de Jong Saga
Photo Credit: Manchester Evening News
The ongoing saga between de Jong and Barça has reared its ugly head and is showing no signs of arresting. When he joined from Ajax in 2019, de Jong was considered by many as a perfect fit for Barça, such was his grasp of the ‘Total Football’ philosophy and his elegance on the pitch. However, although he showed, at times, some glimpses of the form which helped Ajax progress to the Champions League Semi-Final in 2019, he has arguably not lived up to expectations.
The start of the impasse can be traced back to October 2020. The Dutch multifunctional midfielder agreed to a contract renewal and the deferral of around €17 million in wages in order to financially assist his dream club in response to the global pandemic. According to the Independent, he signed a two-year extension to his deal until 2026, reducing his base €14 million-per-year salary to €3 million during 2020/21 and €9m for 2021/22. This remaining €16 million is to be deferred and distributed over the remaining four years of his deal, as well as an additional €1m to be paid in the final year of his contract. Barça would also still be required to pay four years of his basic salary and €15.6 million in loyalty bonuses, meaning an overall package of €88.6 million before appearance and performance-related add-ons are even considered.
Barça are attempting to offload de Jong in order to balance their books, and although an €85m agreement was made with Manchester United for his transfer, personal terms have not been agreed, neither has a settlement for the €17 million in deferred wages. The stumbling block is de Jong does not appear to be interested in signing for the Red Devils, which is frustrating Barça. As a response, according to The Athletic’s David Ornstein, Barça is threatening legal action against de Jong. Ornstein reports that the Spanish club wrote to de Jong on July 15 asserting that it found evidence of criminality from the previous board in October 2020. As a result, they wish for de Jong to annul the 2020 contract and revert back to his original 2019 contract.
Employment-related disputes in relation to deferred and unpaid wages are exponentially rising, with FIFA’s dispute resolution chamber receiving a record number of claims (1187). This is likely as a result of the pandemic and the changing contractual measures clubs have used to ameliorate their precarious financial positions. The difficulty in this saga is that Barça is trying to skirt its responsibility of paying de Jong’s wages, as if he leaves, it is arguing the wages were not yet due, and no level of compromise is seen to be likely to be met. There is a growing sense that Barça is ‘bullying’ de Jong, by forcing him out of the club against his will, whilst financially sidelining him. It has caused outcry amongst football pundits, with many speaking out. Former Tottenham and Real Madrid midfielder Rafael Van de Vaart has described Barça as a ‘mafia’ that ‘have to be punished'. Gary Neville has also disparaged Barcelona for its actions:
A way in which de Jong could respond to Barça’s actions is liaising with the appropriate player unions, who may then represent him. In his case, this would include FIFPRO, La Asociación de Futbolistas Españoles and the Dutch players’ union, Vereniging van Contractspelers (VVCS). The Chairman of the VVCS, Evgeniy Levchenko, has also called upon FIFPRO for their assistance, arguing de Jong is ‘cornered by a club and being chased away’ and that its actions are arguably representing ‘some kind of extortion.’
Concluding Thoughts
The jealousy and indignation amongst football fans towards Barça is understandable, but the way in which Barça has managed to find legitimate methods, raising funds through their Palancas, to purchase players has ensured it has had an impressive transfer window. It is clear that the club’s intentions are to compete with the big boys again, both domestically and on the European stage. The repertoire of talent Xavi now has at his disposal will certainly go a long way to do this if he can develop a way of finding some kind of synergy between his new acquisitons.
The club is utilising the virtuous circle approach, where it is gambling in the short-term with the hope that it will drive further performance-based revenues, to enable long-term success financially, and on the pitch. It is a truly unique case, and it will be fascinating to see not only how the de Jong case unravels, but also whether Barça’s economic gamble pays off. The Spanish giants’ curious story will no doubt continue and only time will tell whether it can return back to its ferocious best.