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.

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