Losing Lionel Messi needn’t be a catastrophe for F.C. Barcelona. It may be an opportunity.
The Catalan soccer team is — by revenue — the richest sports club in the world, wealthier even than the NFL’s Dallas Cowboys. But Messi’s reported annual salary of 71 million euros ($84 million) has a distorting effect on Barca’s cost structure, allowing other (worse) players to seek comparable pay, and dragging overall costs up. The club last year reported net profit representing just 0.5% of its 837 million euros in sales. The exit of Messi, who submitted a transfer request this week, should let it reset salary expectations and allocate its capital more efficiently.
The measly profit is partly because the club is owned by its 142,000 members, which means that it reinvests all proceeds into the playing squad. As the club’s income has increased, so have player salaries. The 44% revenue jump in revenue between 2017 and 2019 was matched by a commensurate increase in player wages.
The single biggest sales boost came from a new sponsorship agreement with Nike Inc., which started in 2018. It was reported to be worth at least 155 million euros a season, although it has ended up being quite a bit less after Barca reclaimed some marketing rights. That deal gave Messi the chance to snag a pay rise of his own. Bumper contracts followed for other players such as striker Luis Suarez, midfielder Frenkie de Jong and French star Antoine Griezmann.
Barca’s total salary bill now exceeds 485 million euros a year, the highest of any soccer team in the world. But performance on the pitch hasn’t kept up. The team has failed to win the Champions League, Europe’s top club football competition, since 2015. When Liverpool won the tournament in 2019, its wage bill was just 276 million euros — and it had five more players in the squad.
Because Barcelona’s largess hasn’t been rewarded with silverware and prize money, the club has inched toward being unprofitable. Were it not for some transfers, it might have been.
For example, last year it exchanged second-choice goalkeeper Jasper Cillessen for Valencia’s Neto in a straight swap. But because of the way player values are amortized over the duration of their contract, that might have allowed Barca to record an increase in the value of its intangible assets (its players), without actually paying out any extra money. This can translate into an accounting profit at the operating level, even though there’s no cash income involved.
The Catalan giant’s ownership structure makes cash flow more important than it might be for teams with equity holders. The more it spends on players, the less it has in reserve for lean times. Being owned by the fans means that Barca can’t sell a stake in itself if it ever encounters financial difficulties. Or, at least, it can’t do so without the approval of the members, making it all but impossible.
That fan-based model also means it can borrow much less than its big rivals. Manchester United Plc has net debt that’s 2.7 times trailing Ebitda, an earnings measure, but Barcelona’s statutes limit its debt to twice Ebitda. Even with those limits, it will always need a steady flow of cash to service its borrowing costs, and to provide a financial cushion.
Messi’s expected departure won’t be painless for Barca’s accountants. While he has a reported 700 million-euro buyout clause in his contract, he’s trying to invoke a provision which would let him leave for free. It seems unlikely that Barcelona will let that happen, but the net present value of a departure may make even a cut-price deal worthwhile. The savings on his contract would be worth a lot in today’s money.
Not only would a sale reduce the expense on Messi himself, it would also curb the inflationary effect on other salaries. That could be essential as we head into the first full season where pandemic-emptied stadiums will reduce clubs’ sales.
The Argentine megastar has been the talisman for a team that was deemed — at one stage — the greatest club side ever, and he helped transform Barca into a money-spinning behemoth. In recent years, his pay package has stretched costs for less reward. Fans may ask how do you replace the irreplaceable, but decline comes to everyone eventually. Now is a good time to hit the reset button.-Bloomberg
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