Barcelona finances, explained: Can the club really sign players while chasing more stars this summer?
Barcelona president Joan Laporta was back eating at his favourite restaurant on Thursday night, joined by Chelsea‘s new co-owner, Behdad Eghbali (the co-chairman of Clearlake Capital is part of the consortium that bought the Blues from Roman Abramovich, alongside Todd Boehly.) When Laporta came out and was bundled into the back of a van to avoid the media, all Egbhali would say was that the meal at Via Veneto had been very good. Barca’s CEO, meanwhile, described the visit as “institutional,” whatever that’s supposed to mean. It wasn’t very convincing and reporters didn’t buy it; one asked if Eghbali was there to confirm Cesar Azpilicueta‘s move to Camp Nou, and the Chelsea captain wondered so too.
It was not just him left to wonder; there’s also left-back Marcos Alonso. Centre-back Andreas Christensen had already turned up in Spain, clutching a piece of paper that proved that coming to Catalonia had always been his dream, now fulfilled after his Chelsea contract ran out. Written when he was little and in neat handwriting, it declared his intention to be a fodboldspiller who would play for FC Barcelona. He said he had told Alonso and Azpilicueta of his move, and hoped that they would soon join him. The day before, midfielder Franck Kessie had arrived after his contract expired at AC Milan, looking sharp in a blue suit.
News came a couple of days later of another, increased bid for Leeds United attacker Raphinha, with optimism that he might actually join Barcelona despite competition from other clubs who had placed bids above €60 million. And news on Robert Lewandowski, the transfer fee reportedly edging closer to €40m for the Bayern Munich forward. Laporta had openly talked about Man City’s Bernardo Silva, too; Sevilla defender Jules Kounde was another one. And still the Ousmane Dembele story was going on, six months after they told him to leave the club and a week after he had officially become a free agent, his future no longer clear and no longer formally linked to FC Barcelona, either.
Then there was Frenkie de Jong. Barca had been negotiating his €85m transfer to Manchester United, trying to get him to go even when he didn’t really want to, but now the president was saying he didn’t intend to let the midfielder leave. It was heavily caveated, and not exactly a vow, but he here he was saying that he would like the 25-year-old to stay.
All of which poses a question: How?
How could Barcelona, a club reportedly €1.3 billion in debt, do this? How could they, with a salary limited set by LaLiga of €-144m, chase so many players and at such a cost? And why would the league let them? How can a club described by their own vice president as “clinically dead” when they took over from the regime that led them almost to ruin, with aspirations only to get out of the ward — never mind the hospital — sign all these players?
The short answer is that they can’t. Kessie and Christensen were presented this week, but they can’t be registered because Barcelona don’t meet the league’s financial fair play criteria. They are not within the salary limits LaLiga sets, in other words, and those budget deficits prevent their new players from formally joining the squad.
For now, anyway. They will eventually, or at least that’s the aspiration and the expectation. Which is why “they can’t” isn’t really the answer, even if it’s strictly speaking about the present. And even that may need a little explaining.
Indeed, judging by many reactions, it does need an explainer, even if a necessarily simplified one — otherwise it gets very complex, very boring and we will be here forever. Nobody wants that.
So, beyond the obvious answer that no team ever signs all the players they pursue, still less all the players they are linked to, here are a few pointers as to how a club that appear unable to sign any players will end up signing players. Maybe even quite a lot of them, and maybe for quite a lot of money too.
First of all, there are different yet interrelated processes running in parallel here:
- One is the general financial state of the club, something that always has to be balanced with the competitive state of the club in the short-, mid- and long-term.
- Another is the ability of the club to hit budgetary targets, which is why there was a rush to bring in the first of the now-famous “economic levers” — more of these in a minute — before July 1.
- The third is the ability of the club to fulfil the league’s criteria to sign. And that’s the one which, right now, is the most significant.
The limite salarial, LaLiga’s equivalent of financial fair play, is the amount — defined by the league after analysing the club’s audited accounts — that they are allowed to spend on the first team, basically made up of transfer fees, amortisations and wages. It is an over-simplification, but it is essentially a calculation of what the club can afford based on the income against outgoing. There are recommendations that salaries should not represent much more than 60% of a club’s income, but the correlation is not as direct as that.
It is also — and this is important — applied prior to signings. This isn’t like other financial controls, where a club that breaks the rules gets punished later on. If a club does not meet the criteria, they will simply not be able to sign a player. Registrations are done digitally with an app that will actually not allow you to click “Accept.” And so a player you try to add just will not be added, and his registration will not be completed. The computer will say no. There are ways to move money around, defer payments and spread costs, of course — remember the Arthur/Miralem Pjanic swap deal with Juventus, for example — but that can’t go on forever, and it only takes you so far.
Salary limits shift all the time, depending on the amount of money coming in and going out. Barcelona’s €-144m, the only negative figure in the league, was prompted by costs being greater than anticipated and some losses being loaded into last year. That figure is the last published limit, rather than the actual figure right now. The next figure will be defined later this summer; as it is in the negative today, it means that Barcelona have to make good on €144m before they get to 0. Which would still mean, well, quite literally, that they have nothing to spend on players.
But that does not mean Barcelona do not spend any money on their squad — the actual salary mass they are spending annually was at around €560m — it means that they cannot. Or rather, they cannot spend anew: Because they do not hit the targets, they cannot add to that, except under certain and limited criteria (more of which in a minute.)
So what does it all mean? Well Barcelona need to cut costs and make money — and fast. The obvious thing is to offload players for a lot of money or to let their biggest wage-earners find new clubs. They’ve tried both, and are still trying, but neither are easy; players tend not to be that keen to take pay cuts or leave clubs where they’re happy and earning a lot. And there’s only one thing worse than being on the market when you have very little money: being on the market when everyone else knows that you have very little money.
There are other ways of generating money — the Spotify sponsorship deal, for example. Increased revenue in match day, marketing and more. And then, faced by a crisis, Barcelona came up with what they called palancas, or “economic levers.”
There were two ways they hoped to do this. One was a deal to sell up to 25% of their LaLiga TV money for up to 25 years. The other was to sell up to 49.9% of BLM, the company they set up to manage their marketing and licencing. Is this a good idea? It’s a reasonable question, but it may not be the question, at least not now. The answer may well be “no, not really” — you are, after all, selling an asset or a share of future earnings — but they had to seek some solution. Privatising assets was always likely to be a way out.
The first of these palancas was confirmed recently and after two years of losses, it allowed Barcelona to hit budgetary targets, turning a profit for the financial year, which closed July 1, and also having an impact on that limite salarial.
Barcelona sold 10% of the money they are due to make from their LaLiga TV rights (not their Champions League rights) over the next 25 years for €207.5m. The TV deal is currently worth €166m to them. So if that deal does not change (which it should of course) they would be handing over €16m a year, starting this year, for 25 years: A total of €400m over that period in return for €207.5m now, when they need it most. Essentially, a loan secured against future earnings.
Barcelona now hope that, having relieved the pressure with that deal and bought themselves some time, they can sell a further 15% for closer to €400m. Hitting that target is far from easy, but if they do it would mean — again simplifying more complex calculations for the ease of understanding — raising a little under €600m (€607m minus the €16m they lose this year.) Then there was the potential BLM deal, which Barcelona were predicting could be around €300m. (It would be a joint venture and offers of €270m-plus had already been turned down.)
Does that package mean they can sign and register players? Yes, but not on its own. A few weeks ago, Barcelona suggested that even if they made €600m from the palancas, it might not be enough. Not long after, though, LaLiga president Javier Tebas said that €500m should allow them to sign.
To explain why, in simple terms: Taking Barcelona’s salary limit at €-144m and their actual salary mass at €560m (they aim to reduce it to €400m), they would need to hit €704m to generate a positive balance. If they could make €600m, the lower end of the initial predictions, they would fall short. If they made €800m, the upper end of early predictions and unlikely to be the case, they would have around €96m surplus, which could be invested.
If they did fall short, they could still spend by taking advantage of LaLiga criteria put in place because of the COVID-19 pandemic and designed to give clubs some room for manoeuvre within the framework of reducing costs, based on the belief that they could not prevent clubs from having any access to any means at all by which to alter their squad even as they have to be locked into a commitment to balance the books. This is the 1:4 rule by which clubs are allowed to invest €1 for every €4 they saved. Put crudely, offload a player for €10m and you can invest €2.5m. Or if that player alone accounts for 5% of their budget, they can invest 50% of what is saved.
If a club gets to a point where their limite salarial actually does correlate to the existing salary mass, then it can invest at 1:1. In other words: Every euro you demonstrate that you can save, you can invest because you’re keeping that level. And that’s the ratio Barcelona aspire to, rather than a sudden surplus for signings. Laporta has recently said that he hopes to do so even while resisting selling off half of BLM, and that’s because they continue to cut across the board: sales, salary reductions, cuts. This summer will show us just how realistic that is.
Hence Barcelona trying to offload De Jong first and now, as they say they no longer want to him to go, admitting that wage adjustments would have to be made in order to keep him. Hence Kessie and Christensen coming on free transfers. Hence the contract offer to Dembele involving a pay cut, and to Sergi Roberto renewing on reduced wages. Hence Clement Lenglet going out on loan to Tottenham, the renewal of Samuel Umtiti only to renew attempts to offload him, the pressure applied on Gerard Pique. Costs must still be reduced and dramatically. It’s not chance that Laporta talks about hoping not to have to let the Dutchman go; he knows he still might and that De Jong is the squad’s most attractive talent.
Laporta has this week again insisted that while they want to build the squad that manager Xavi Hernandez wants, and while he feels some obligation to follow through on his promise to Lewandowski, even as the transfer fee rises way beyond what they’d hoped, any decisions must balance financial criteria, too. (Hence some of those deals being touted being every bit as implausible as they appear.) There are still too many players earning too much money, exits that need to be found, ways of reducing the costs — not just to improve their limite salarial, although that’s the immediate issue, but because they just have to. Yet they also have to improve their squad — or believe they do. It is not easy. As one neat line put it: It’s not easy to breathe in and breathe out at the same time.
“First we have to secure that second palanca and then we can sign at 1:1,” Laporta said.
If they get to that point, will they be able to find a euro for every euro they want to invest? They will have to, which brings us back to the initial question: How?
This is how, the mechanics by which it is possible. Whether it is the right approach is debatable, whether you believe all you are told is another matter, whether this summer ends the way the optimists think, or the way the pessimists fear remains to be seen, but yes it is possible to sign some players and even some expensive ones — Barcelona have set a target of €200m in outgoings. Yet no, it is not possible to sign all of them. The system won’t allow for it, a fact often seemingly overlooked.
Much has been made of the fact that Barcelona (and other clubs) are even allowed to sign at all; it has often been claimed that they have been permitted to just keep on spending, repeating the errors of the past, loading up further debt. The accusation stands that they have been indulged or escaped punishment for their financial mismanagement, carrying on regardless and never forced to face the consequences. If there may be something in the former, the latter really isn’t true. However quickly people seem to forget, there are two words that underline that.
Lionel and Messi.
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