The accounting mirage that saved Barça and now threatens it

BarcelonaThe summer of 2021 will go down as one of the darkest periods in FC Barcelona's recent financial history. After years of mismanagement, from a fatal inheritance –accompanied by a severe impact of the pandemic on revenues– and the arrival of a new board, which took advantage, as is customary in these changes of government, to depreciate and provide for the maximum possible contingencies, the entity presented a negative equity of more than 481 million euros. The worst balance sheet in its history. And the problem was twofold: the severe economic crisis was combined with the impossibility of competing sportingly due to the devaluation of the sports staff accompanied by the restrictions imposed by the fair play The Spanish League's financial advisor.

Faced with this critical situation, the new board of directors didn't have much leeway: it had to buy time to stabilize the club and build a new economic foundation. This time gain could be achieved in three ways: advancing income, selling assets, and increasing debt. And this is exactly what was done.

This is the context of the transaction with Locksley Invest SL, created jointly with the investment fund Sixth Street to channel the sale of 25% of the League's television rights for 25 years. This transaction has been key to reversing, in the short term, the club's financial and operational stress. But its design and consequences are much more complex than it may seem.

The transaction was structured in two phases. On June 30, 2022, an initial 10% stake was sold for €267.1 million, and 22 days later, an additional 15% stake was sold for €400.4 million. The apparent result: an accounting profit of €667.5 million. But in reality, Barça only received €510 million in cash. The difference, €157.5 million, corresponds to Barça's own capital contribution to the Locksley company. through a participating loan from Sixth Street, An investment that entails no expected future income or financial return over the 25-year contract term.

This is where the accounting "engineering" comes in. Instead of recording only the cash received, the Barcelona club recognized the entire transaction as an accounting profit, including those 157.5 million euros, which, in reality, are an investment in a company that will not generate any cash. Formally, the transaction complies with regulations and can be considered legitimate. But on an economic level, these benefits are not real. And this is a risk.

A transaction made to gain time

Because when an entity recognizes as an asset a value that does not generate future cash flows, this asset becomes, de facto, nonexistent. And sooner or later, this value will have to be impaired in the accounting records. This means that at some point—whether in a single year or gradually—Barça will have to recognize a loss in its accounts of an amount exceeding 150 million euros. And this would again negatively affect the net worth and, consequently, compliance with the fair play, the relationship with creditors and investors, and therefore threatens the club's ownership model, so valued by its members.

That said, there's no need to demonize the operation. It allowed for an immediate improvement in the club's balance sheet, regained sporting competitiveness, and stabilized the treasury. In the context of 2021-2022, it was probably a viable exit without losing control of the club. But we must be honest: it's not an operation that solves Barça's structural problems. It only postponed them. And that postponement, like any credit of trust, has an expiration date.

For all these reasons, we must be wary of who speaks of "economic salvation" lightlyThis transaction, like others, doesn't save anything on its own. It merely buys time, which should be used to build a sustainable economic model that generates recurring revenue and sufficient free cash to repay the debt and ensure the continuity of the ownership model. A club like Barça can dress up its numbers for a while, but if it doesn't transform its revenue and expense structure—which requires transforming an outdated management model—the numbers eventually take their toll. And in Barça's case, if we look at it with a long view, it seriously jeopardizes the ownership model.

Iván Cabeza is an economist and professor in the Department of Economics and Business at the University of Barcelona.