Barcelona’s Debt And Salary Caps in Europe

It’s one thing when Portsmouth can’t pay their players’ wages.  It’s another when Barcelona, winner of every trophy this side of Alpha Centauri last year, are unable to do, as was the case in June. To recap:

BARCELONA’S new chief has admitted the club have had to take on a £125million loan to ease debts and cash-flow problems.

Nou Camp president Sandro Rosell, who replaced Joan Laporta last week, revealed the extent of the financial woes and admitted players’ wages for last month have not been paid.

He also told how they were forced to sell Dmitro Chygrynskiy to former side Shakhtar Donetsk for £12.5million.

Rosell said: “We found a club in debt, with liquidity problems. At this point we have to take a loan to pay the wages of the players.

“The squad were supposed to be paid at the end of last month and still haven’t been.

“We’ll fix a loan of 150m euros (£125m). The banks know we have a business plan that will allow them to recover the money. The club is not bankrupt because it generates income.”

It may get worse for Barcelona; they’re heavily reliant on a massive $1.5 billion television contract with Spanish company MediaPro, currently seeking bankruptcy protection.

The point is this: if a club as massively successful as Barcelona are scraping for loose change just to pay their players, it’s just one more reminder of the dubious long-term economic set-up in place in European leagues.

What this does, though, is validate the concern of UEFA about the debt level taken on by European clubs, with their new regulations aimed to restrict such debt to come into place in the coming seasons.

One other possibility to restrict overspending would be a salary cap solution. The Irish league recently became reported to be the first top-tier European league to introduce a salary cap, with a 60% limit on spending per club on salaries as a proportion of turnover — yet it also seems Ireland tried this before in 2008 with a 65% limit in place, a system that broke down to be replaced by the new cap.

This kind of “soft” salary cap is of course much more palatable to clubs that want to spend more than others (especially big clubs that generate large revenues, of course) than a “hard” salary cap, like that in MLS, restricting each club to spending the same set amount of money on salaries league-wide. This is probably why then-Barcelona President Joan Laporta made the following comment last summer: “Maybe we have to establish some parameters for revenues and players’ salaries but maybe not as strict as in MLS.”

The 60% number adopted by the Irish League is the same as that adopted by Leagues One and Two in England, and so seems to have some general acceptance as a “reasonable” limit to place on wage-spending.

If we look at the spending from this fairly recent table in the biggest leagues, each of the big five leagues except for Germany has exceeded that 60% figure on average this past decade (which means some clubs would have been way over that number, and Italy hitting an absurd 99% level in ’01-’02):

Wages

Interestingly, Barcelona would not have been impacted by a 60% spending limit on wages; according to this outstanding analysis of Barcelona’s economics a couple of months ago by Swiss Rambler, their wages accounted for a reasonable 55% of their turnover last year. However, Barcelona’s success has in part led to their current predicament, as they offered their players massive bonuses that were suddenly all realised at once when they won everything under the sun last year. Their costs rose hugely last year due to higher wages and bonuses, from €166m to €211m. All the same, though, it seems a soft salary cap would have done nothing to prevent their present problems paying wages, as their revenue has continued to grow too.

Moreover, the obstacles to implementing a salary cap are obviously considerable philosophically and logistically for European clubs; at the very least, such a system in the top European leagues would (like UEFA’s debt regulations have secured) need the support of the European Club Association, representing a 100-odd of Europe’s elite clubs continent-wide. At the very least, you would think, the biggest four or five leagues might be needed to collectively agree to implementing a salary cap before any one of them does, for fear of losing competitiveness for their clubs in the Champions League (unless a league-wide economic implosion appears imminent anyway).

And to go back to Ireland again, their new salary cap set at 60% of revenue replaces the previous “Salary Cost Protocol”, that was supposed to restrict spending to 65% of a club’s income in any given year. But the failure of that system suggests a soft cap without tough enforcement and examination of clubs’ books is pointless, as the Irish Independent pointed out in February 2009, after the end of the first year the Salary Cost Protocol was supposed to be enforced:

When clubs were frequently failing to pay players, slashing budgets in haphazard fashion and investing in new additions when logic dictated otherwise, the defence from Abbotstown was that the necessary checks and balances were in place to punish the offenders. We had licensing deadlines, and the 65pc Salary Cost Protocol, which would serve as judge and jury come January.

Or so we thought. January 31 has been and gone, the accounts submitted and the individual cases have been judged. And, aside from the sorry plight of Cobh Ramblers, who effectively exited the League of Ireland proper yesterday, the news from the FAI is that everyone else has received the report card they were looking for. Nothing to see here, folks.

Sure, a few parties have been given the provisional OK subject to fulfilling a few more terms and conditions — after all, where would we be in Irish football without more deadlines — but the sum total is that after a calamitous campaign, where numerous clubs practised their business flagrantly, the sanction is a rap on the knuckles and a sterner warning not to do it again.

No wonder those few clubs who have lived within their means and within the letter of the law are exasperated. “It’s like a year’s grace has been granted,” said one official, who didn’t wish to be named yesterday. The frustration is understandable.

All that said, the benefits for global soccer from salary caps being introduced in Europe’s top leagues would be enormous. But a soft cap might not make as big a difference as it might seem at first glance, and getting agreement and implementation in the messy set-ups of European leagues quite a challenge compared to the single-entity of MLS, for example.

21 thoughts on “Barcelona’s Debt And Salary Caps in Europe

  1. phil

    What exactly are the benefits of a salary cap again? I mean, other than to lower player compensation?

  2. timmyg

    I don’t foresee a salary cap, be it hard or soft, ever working considering how player transactions and contracts take place in Europe.

    In the USA, salary caps work because players are either signed from free agency (and waivers) or traded — they aren’t purchased. So the only liability for a player’s acquisition is their yearly contract (or wages, in Britspeak).

    If there were to be hard or soft salary caps in Europe, owners and clubs could still go bankrupt by paying exorbitant transfer fees. (I could be wrong, but haven’t Pompey yet to pay off several transfer fees from the 2008-09 season?)

    So perhaps a luxury tax a la MLB on both transfer fees AND wages would be one way of levelling the playing field and preventing club football’s death-via-cannibalization.

  3. Kxevin

    Excellent analysis. Nice to read something that doesn’t say “Barca is in debt, neener, neener!” The MediaPro deal is a significant concern. I do, however, wish that Sandro Rosell would stop trying to prove at every instance what a poor president Joan Laporta was, and tell people the real story. Because not being able to meet player/staff wages, and having 89m to spend on player transfers this summer are two facts that don’t jibe.

  4. Bobby

    Forgetting the World Cup for a second, the most significant football story this summer has been the Cesc Fabregas drama between Arsenal and Barcelona. The story surrounding Barcelona’s finances shows a stark contrast between the two clubs doesn’t it?

    Arsenal has debt, but most of — if not all of it — is tied to the construction of the Emirates Stadium and the redevelopment of Arsenal Stadium into Highbury Square. Both ventures the club stands to make a handsome profit from in the future. Arsenal is, as far as I know, the only (non-German) “big club” with no debt related to football. In fact, Arsenal makes a profit from football operations through the transfer market.

    Barcelona on the other hand now has to take out a loan to play the players wages, yet they’re still being hawkish towards Arsenal regarding Fabregas.

    Something doesn’t add up there.

    It makes you think though, how come Arsenal — who have to split TV revenue with the likes of Blackburn Rovers — can be so sound financially but clubs like Barcelona and Real Madrid, that control all their TV revenue, can’t? Arsenal do it without being told to. Hell, West Brom manage a tidy house without being told to.

  5. Marc

    Do you know the meaning of the words CASH FLOW when talking about economy? That doesn’t mean you’re broke. Fact is, the club’s renevue for last season was 445m. This is a world record in sports. Barcelona’s finance is actually healthy. They make more money than they spend. So what is the problem here?

    Every football club have debts, loans.

  6. Kxevin

    Perhaps if Arsenal had more success, they would have more football-related debt. Making money from football is only part of the point of this game, right? Winning silver is a bigger part of it, and I’d take some short-term cash flow problems and 4 Ligas/2 Champions League, etc.

    It should be noted that the above isn’t meant in a taunting way. I would wager (though I admit to not knowing the financials) that the undefeated Arsenal, with the likes of Henry, Vieira, Bergkamp and Campbell weren’t as cheap to run as this current group. Winning these days costs money, which is true in almost every sport (except for Toyota in Formula One).

    People cite Portsmouth and West Brom, which would be fine if those clubs had won anything, even a fresh ticket through the local lottery. But that just isn’t the case. Even Arsenal’s finances, compared to Barca, aren’t a viable comparison, unless we know what incentive bonuses would be due, had the club won silver.

    But it does give people the chance to crow about Barca’s finances, I suppose.

  7. Tom Dunmore Post author

    Marc — Few clubs need to pull in a $200m loan to pay their players. Especially when they raise the kind of revenue Barcelona do. But wider than Barcelona, La Liga’s debt problem is even worse than the Premier League’s by some accounts, amazingly enough (as we’re talking billions of dollars of debt). If that isn’t a concern for European leagues, when the two most successful leagues revenue-wise are also drowning in debt, I don’t know what is.

    Timmyg — you raise an excellent point: the worry with a salary cap might indeed be that cash saved would merely inflate transfer fees and signing-on fees, without an NFL-style system in place. Maybe then system even needs to be annual “Player Costs” rather than simply “Salary Costs”? I haven’t thought that through, mind you.

  8. Kxevin

    “Player costs” makes a lot more sense. I still don’t know how that system would account for “Potential player costs,” however, as in what if we win every freakin’ thing under the sun and have to pay out bonuses, sweeten contracts and do other kinds of stuff? Salary rarely takes into account incentives.

  9. Bobby

    “I would wager (though I admit to not knowing the financials) that the undefeated Arsenal, with the likes of Henry, Vieira, Bergkamp and Campbell weren’t as cheap to run as this current group.”

    Arsenal’s unbeaten season, made possible by:

    FC Barcelona – 30m
    Real Madrid CF – 25m
    Everton FC – 3m
    and by viewers like you.

  10. Ramzi

    Barcelona’s current lack of cash is a mix of different factors. The club could (and should) be better financially. But its still far from being in the Crisis Sandro Rosell and co try to show. The election’s factor forced Laporta to make a fast shopping tour getting Villa from Valencia with a hope that this will help his continuity candidate. He said that if Barca waited till after world cup they would have paid 20 M more, giving himself an excuse on advance. In fact he was right, but its possible that this transaction left a temporary impact on the cash flow level (especially that Valencia needed the money to be installed immediately).

    The club requested the 150 bank loan during Laporta’s era (Noting that Barca has one of the lowest-if not THE lowest- bank loans=€29m). One of the means to pay back the loan in Laporta’s proposal was increasing membership fees. Sandro does not want to increase that fee so he had to come back with another proposal to the bank. That was another reason to delay the cash injection.

    Add the fact that Sandro is trying to get advantage of the whole situation to damage Laporta’s image, which is not a surprise at all.

    I am not sure yet how the Salary caps can work, but I dont think it will be a problem for Barcelona. Txiki reconstructed the players contracts making it more Bonus-oriented. The Salaries are not a problem -as mentioned in this article. But the past few years achievements cost lot of money to be paid for the players as win bonuses. Some may see it an expense after all. In fact it is an investment because it enhanced the commercial image for the club as all numbers indicates. This will lead to a financial growth on the long term.

    As for the problems of leagues Debts, I have a radical opinion about it. I dont think it has any other reason that’s more significant than bad management. Deportivo is an example. Levante managerial mess is an example. Valencia is another more recent example, a team having a great squad that needed one player or two to seriously compete on the title in the past few years. Instead they decided to build a huge stadium even before securing the sales of the old one. Then an economic crises added more mess to the mess. It goes the same for the rest. I dont think the finantial settings of the EPL helped a lot. right? So its basically a matter of management and vision. And no matter what kind of regulations you put “FIFA Fair play”, “Salary Caps” etc… there will always be balanced clubs and other clubs who make long term contracts with two players that eat their transfer budget and most of their salary budget then fail to survive where they expected. Relegate and live financial crises. Will they all compete for titles with good management? No. But that “competitive equity” is an illusion, it never happens and must not. Not healthy for the league-any league- regardless of the hype. But thats another story.

  11. zanetoast

    Is anyone else becoming more and more sickened every time they read football articles.
    How much is enough?
    How can we continue to watch whilst the beautiful games’ great institutions are drawn into more and more debt. Getting closer and closer to the black hole of insolvency. The boom is over and I am waiting for the bust. Pompey, Leeds and so on have gone to the wall (this is sad enough) and it has been blamed and explained away. Is it going to take a Man U, Liverpool, Barca or another of the ‘big clubs’ before something is done? Or will the rest of football just rejoice and say it won’t happen to us?

    The holy grail of the Champions League is driving football insane.

    Salary caps maybe introduced but seriously it will just create a black market. Hidden payments etc, because we all know that football boardrooms are havens of scoundrels.

    The thing that I have never seen mentioned is this,
    How is it ok for players to get payed anything up to 3 or 4 times my yearly (and lets face it probably yours too) wage a week???? This is sickening.
    How as a football watching public we think this is ok?
    How does anybody think this is justifiable? or sustainable?

    I support a club year in year out and at the end of the day players come and go and no one is that important that they must be paid enough to jeopardise the future of my club. But this is what is happening.

    Why do football fans sit and pray for a oil billionaire or any type of billionaire to buy their club? And believe that this is a good thing.

    Back to the wages, I have heard the argument that players careers only last until they are 30-35. But a football career does not mean they are unable to work afterwards. It is not like joining the Army and they may come home in a body bag or after their testamonial the become disabled, does it? Why should their clubs support the fortune of any one player, any player at all. After all how many years does any one player stay at a club anyway? They may break into the first team at 18-20 and retire at 30-35. 10-15 years to not just set yourself up for life, but often transform you to an elite class. I love the stories of footballers using the money for there futures like crashing super cars or buying race horses.

    In a recent Guardian article John Barnes connected football and socialism (right now I am think this idea might not go down well on a American football website) he meant it in terms of the idea of the collective. A group of people working together in equality on the pitch. But I think he is on too something in that football should be a life of service with an equal wage for every player, with years of service level system. Wages scaled evenly based on age. It would remove those ‘career’ footballers that don’t give a crap about there club or even the game. And who does not want that?

    Whilst I think of this something else comes to mind. Why is it that democracy in the political system in every major footballing country in the world yet FIFA and the associations of the countries and even the clubs are not democratic. So straight away people are going to point out that Barca has elections and they are going to the wall. But surely any prolonged (or short term for that matter) damaged to the club means the president will go and another brought in with the mandate to clear the debt. With all its home grown talent one would have to say that players sales as has already been shown will save Barca’s bacon.

    The only answer I can think of is to watch the Bundesliga because although not perfect its model is the only silver lining on a very cloudy sky. Send the message to your club, your association, this is not on.

  12. ursus arctos

    Full disclosure: I’m a Barca socio.

    Unsurprisingly, this is one of the most intelligent discussions of the subject I’ve seen (if you think the English ones are bad, you should try the Spanish ones).

    The issue is essentially one of cash flow, and a great deal of the reporting (especially in the English media) has been sensational, but it is a troubling situation for a club like ours to be in. If Mediapro goes bust, the whole in budget will be large (but not life-threatening), and there are good reasons to believe that any implosion won’t be of the scale of Kirch or ITV Digital.

    The Rosell factor noted by a number of commentors is also very important. I tend to think that he will ultimately be a good president, but his “avant moi, le deluge” start to his tenure has been extremely disappointing.

  13. Tim Vickerman

    @zanetoast

    I agree with most of what you said. Football in Europe long ago lost touch with reality. But the realities are that it is a free market system and operates by the same rules so there is very little that can be done to regulate it. It does seem that the big clubs not only get a massive advantage from the income they can generate, but they can build up as much debt as they like with no fear of any recriminations as they are too powerful to be allowed to disappear, much like the banks. This has a multiplying effect on the disparity between the big clubs and the rest allowing them to hoover up any half decent player to add to their bloated squads while weakening their rivals. The sad sight of the Spanish league table this season and the Premier League every season is a reflection of this.

  14. Max

    When talk turns to salary caps, I am reminded of the ‘Larry Bird exemption’, is this a way of football club directors saying ‘help us not kill ourselves’?

    Personally, let them rack up all that debt and go bust!!!

  15. ursus arctos

    [url=http://swissramble.blogspot.com/2010/08/whats-happening-with-barcelonas.html]The best analysis of the situation yet written.[/url]

  16. Martin

    If one wants a fine example of a well managed club – Bayern Munich sets the standard for the rest to follow. Latest financials: 350M Euro turnover, 0% debt. That will make them the 3rd, or 4th largest club in terms of revenue. Only Man U, Real M, and Barca can compete on a turnover level – but they are all drowning in debt – shareholder driven or otherwise. I believe that Bayern Munich will become, if not already, the wealthiest club (not being propped up by a Billionaire that is).