The Barça crisis and the levers activated to overcome it by the current board of Joan Laporta will be an excellent case study for a business school. Today the uncertainty is whether it will be a lesson on how to get out of a business crisis or how not to do it.
We already know how Barça went practically bankrupt due to the inflated salaries of the players and the ruinous player transfer operations. According to some estimates, the losses for these were 340 million while the club had spent more than 1,000 million on contracts in the 2017-2021 period. Barça had the highest wage bill of European clubs, more than 550 million euros in the 2018-2019 season. The consequence of the crisis was the traumatic departure of Messi, not making contracts and the postponement of the players' salaries. The accumulated debt until the 2020-2021 season exceeds 1,300 million. Although lacovid contributed to the poor financial situation, it is irrefutable that the ratio between sports results and spending on players has been disastrous. Given this situation, a medium-term recovery strategy was first proposed, later discarded in June due to the activation of the famous levers for the sale of assets that generate future income for the club.
These include the sale of 25% of the League's broadcasting rights to the San Francisco Sixth Street investment group for around 500 million. The sale of assets has been made, given the urgent need of Barça and the advance of the necessary money, with a good discount on its expected value. With this income, Barça has gone shopping and has already spent some 150 million on contracts. The idea is to create a virtuous circle in which sporting successes lead to more income in the future so that the club's finances are sustainable. We must also add the renovation of the (Spotify) Camp Nou (with financing from Goldman Sachs) and meanwhile the transfer to the Montjuïc stadium.
The strong point is that Barça is a global brand and that North American investors are willing to put money up, given the growing interest of US fans. These investors have bought clubs like Chelsea and Milan. And the auction of the emission rights for the USA of the Champions League is already on the horizon, which could raise around two billion euros.
Barça's strategy reminds me of some savings and loans, US banks specializing in capturing deposits and offering mortgage and personal loans. They came close to insolvency as the Federal Reserve raised interest rates to curb inflation in 1979 by raising the cost of taking deposits when they had long-term loans at low interest rates. So they reasoned that, lost for lost, they would take a lot of risk in loans and other activities. If the result was good, even if it was unlikely, they were saved. If it was bad, they were pretty much broke anyway. This strategy was called gambling for resurrection: making a very risky bet knowing that the probability of success is small. The result was that almost a third of the entities went bankrupt between 1986 and 1995. None of these entities individually was systemic in the sense of being able to endanger the entire financial system.
Now, Barça has some very important differentiating characteristics, since it is not only a global brand that can be monetized, but it also has a systemic component. The big football clubs rarely go bankrupt because, given their great social impact, the public sector ends up helping them. Alternatively, and taking advantage of its global projection, in case of serious financial problems in the future, there will always be capital that wants to invest, yes, possibly converting the club into a public limited company.
In short, Barça's bet is very risky but it could work out well. In the event that it does not work out, some kind of rescue will be necessary, be it public or private. Success will depend on sporting successes, always with an important random component, and that the world's interest in soccer, and especially in the US, does not wane. We hope that the Latin proverb audacious fortuna iuvat is true, but we must take into account the medieval addition non omnibus horis (that is, not always).
