Barça bought players not knowing whether they could pay for them
The club exposes Bartomeu's mismanagement through Due Diligence report findings
BarcelonaIncreased spending, duplication of services, increased debt, above-average commissions and improvisation in management. These are just some of the anomalies detected by the Due Diligence commissioned by Barça to find out how the club was managed during the last years of Josep Maria Bartomeu's mandate. The extensive report, which took six month to write, was presented this Wednesday by club CEO, Ferran Reverter.
It was not an easy job. The new managers have encountered many obstacles when looking back. For example, accounting was done through four different companies. That is to say, there were four different readings of the numbers. Also, emails were deleted 90 days after any worker left the club. Managers didn't use the club's computers but their personal ones, and most emails were forwarded to their personal account. Therefore, in many cases there is no record of anything. At least at club's offices.
For the time being, no complaints
For the time being, however, it will only be this. Numbers and explanations to understand how Barça's wage bill shot up by 61% in the last five years, or how management costs increased by 56% from 2017 to 2020, or how in this same period financial costs rose sixfold due to the increase in debt and lack of financial planning. The magnitude of the tragedy meant that, had it not been for the refinancing of the debt, from April 2021 the club would have been left without cash to continue operating.
Contrary to what some might have expected, no concrete legal action has been announced. "We know that members are very angry, but right now what the club needs is stability," says Reverter.
In the same way that Bartomeu's board had defended its management model and had attributed all of Barça's economic woes to the effects of the pandemic, the club's new directors believe that "without the coronavirus the club would have made losses, just the same". The calculations are that covid-19 meant losses of €43m during the 2019/20 season; and €65m in the first nine months of the 2020/21 season – the Due Diligence report stops when Joan Laporta's team takes possession, in March.
The problems, according to the current executive's reading, come with the exaggerated increase in salary costs. "Contracts were made so that they did not enter the balance sheet," says Reverter. The new board have discovered inflated salaries – a player, which was not named, was paid €9m the first year, then €19m and finally €29m. This situation that not only involves exponentially increasing sporting costs, but also makes players difficult to sell.
61% increase in the wage bill
This has meant that the wage bill has increased by 61% (regular pay plus bonuses), including concepts such as the loyalty bonus or end-of-contract bonuses that increased long-term expenses. In 2022, the expected wage bill was estimated at €835m – not including Messi – 108% of recurring revenue. This increase went hand in hand with an "unusual increase in brokerage costs". That is, the commissions for intermediaries, which are normally 5-10% for top players, had reached 20% and 33% in some operations, representing a total cost overrun of €48m.
"It gave the feeling that players were signed without looking at whether they could be paid for or not," says Reverter after reviewing the documentation. As an example, the Griezmann case, which cost €120m but, on the same day that the contract was signed, the club had to get the funding to pay for the cost of the transfer. With this plus the transfer fee, the extra cost was €16.6m. "The management was null and void, with an absolute lack of control". This caused, for example, that in the margin of one year the club was committed to pay, in only 4 players, a total of €1.4bn in the following 4 years between transfer cost, total salary, interest and commissions.
The increase in debt
The club paid more money for the players, but this increase was not compensated by a sufficiently large increase in revenue. So how did the numbers work out? The answer is twofold. First, in the change of criteria to define the club's debt, going from using the one that had always been used to the one recommended by La Liga – which, among others, does not include debt with institutions – and that happens to favour clearly Bartomeu's board's interests. Second, in the way of filing accounts, which is based on criteria that can give a positive result today, but that entail a long-term debt. And this same thing has happened to Barça. In 2018/19 the numbers worked out thanks to the Cillessen-Neto swap on the last day of the market. And in 2019/20, the first of the pandemic, they made up the losses with the Arthur-Pjanic swap. Therefore, without these operations – historically considered extraordinary – the results would have been negative.
As a result, the net financial debt has increased by €514m (from €159m in 2018 to €673m in 2021). This debt "has been incurred in without requesting authorisation from the Assembly since it was made for amounts below the statutory limit, which was 10% of the budget," says the CEO. That is, they interpreted that they could make individual operations for a value under 10%, although the total exceeded the club statutes' limit.
The short and long-term future
"We will need five years to reverse this situation and go back to having a positive net worth," said Reverter. This means that the club will have to tighten its financial belt for a good season. But, he explains, it will not prevent the ability to make some signings next summer. It will depend, however, on the level of income that can be obtained during the season and, also, of the possible departures at the end of this season.
What about becoming a sports limited company? The economic situation is delicate, but the club believes that it can be solved, at least following the current ownership model. "For now this option has not been raised," says Reverter. The refinancing of the debt and the exploration of new avenues of income, such as the tokens or the direct sale of content to fans through the digital market, are two of the ways to increase turnover.