Excellent explainer on the current situation at Barcalona from the Athletic
Explained: Why Barcelona cannot register their new signings and what it means for Lionel Messi
Dermot Corrigan Jul 7, 2021 185
Although Ernest Hemingway was more a fan of bullfighting than football, the famous exchange from the American author’s 1923 book The Sun Also Rises can help understand the current situation at Barcelona.
“How did you go bankrupt?†Bill asked.
“Two ways,†Mike said. “Gradually and then suddenly.â€
Barca’s financial woes have been much discussed in recent years, including in these pages, as they gradually and inexorably accumulated deeper and deeper debts during Josep Maria Bartomeu’s ill-fated spell as president.
But now, current blaugrana chief Joan Laporta and his board suddenly find themselves faced with the consequences of all the years of squandering the family fortune and avoiding facing up to the responsibility for their own actions.
To put it bluntly, Barca are in a situation where the authorities have stepped in and taken away their wallet. As things stand, La Liga will not allow them to register the four players they have signed this summer — unless they first make savings of over €200 million elsewhere.
The Spanish league’s strict economic controls (or financial fair play rules) also mean that, unless they make drastic cuts elsewhere, Barca will not be able re-register Lionel Messi, no matter how big a pay-cut the blaugrana talisman might accept.
Here’s an explanation of the current situation, and what Barca might be forced to do to get out of it…
What’s this? Barca cannot register any new players?
Once last season ended, Barca president Joan Laporta moved quickly to announce the signing of four new players — Sergio Aguero, Eric Garcia, Emerson Royal and most recently Memphis Depay. Barca would also have signed Gini Wijnaldum, but the Netherlands player chose a better offer from Paris Saint-Germain instead.
All the new arrivals have been either free transfers, or already agreed deals, so the club have not spent any new transfer fee. A lot has also been made of how Aguero and Depay have agreed to lower wages than they earned before or might get elsewhere.
But whether they represent good value or not is irrelevant, as Barca are not currently allowed to add even one cent to the club’s wage bill, per La Liga’s economic controls.
So what are La Liga’s economic controls?
La Liga set up an economic control department in 2013, staffed by analysts who review the finances of each Primera and Segunda club and establish its strict squad cost limit for each season.
This squad cost limit is the total amount that clubs can spend on their first-team players, first-team coach, assistant coach and head physio, as well as their reserve teams, academy and any non-registered squad players. Clubs may choose how the money is split between transfers or wages, provided the overall limit is not exceeded.
The squad cost limit is based on financial data which the clubs must submit to La Liga in the months before each summer transfer window opens. Factors which are considered include expected revenues for the coming season, but also profits and losses from previous years, overhead costs, non-player contracts, current savings, any existing debt repayments, investments and sources of external financing.
For accounting purposes, transfer fees are usually split or “amortised†over the term of a player’s contract, so a part of the amount still due for players signed in previous seasons is counted within this squad cost limit each year.
Whenever a club looks to register a new player, using La Liga’s proprietary “LaLiga Manager†software system, the transfer is automatically checked by its economic control team. Only when they are satisfied that the club has sufficient space in their budget to cover the transfer fee and salary can any new player be registered to play (in any competition).
So this is a bit like UEFA’s Financial Fair Play?
The overall effect is quite like UEFA’s Financial Fair Play rules, in that it aims to ensure that clubs live within their means. La Liga’s rules also do not allow super-rich owners to pump in money, which can lead to unsustainable situations should those super-rich owners withdraw their support at any moment.
A big difference is that UEFA’s FFP looks back at spending in past seasons, while La Liga’s rules are applied in advance, with cost limits set before any unsustainable spending takes place.
Although in this case they did not stop Barca’s past directors making many bad decisions which have brought the Catalan club to this situation.
So what about Barca?
Given Barca have admitted to liabilities of around €1.3 billion, before the current board got permission to borrow a further €525 million at last month’s AGM, it is clear that their room for manoeuvre this summer was going to be seriously restricted.
The starkness of Barca’s situation can be seen from how dramatically their permitted squad limit cost has fallen. Back in 2019-20, they had the largest salary cap in La Liga at €671m. Last year it was €347m. The total for the new season has not yet been confirmed, but Catalan radio reported on Monday night that it will be in the region of €160m.
That means that the club would only be able to spend about 25 per cent of the total they had available just two seasons ago on salaries and transfer fees during 2021-22.
The amortisation of players signed by the previous board alone adds up to €144m already accounted for in the books for the coming season — including €20m for Philippe Coutinho, €27m for Antoine Griezmann and €24m for Ousmane Dembele.
So Barca’s board have to fill the gaping holes in their finances by either selling players who can bring in significant money and/or allowing multiple players to leave so they no longer have to pay their wages.
Barca have already been moving out players to make space, haven’t they?
It is true that recent weeks have seen Barca organise deals to sell squad players and youngsters like Junior Firpo to Leeds, Jean-Clair Todibo to Nice and Konrad de la Fuente to Marseille. They have also loaned Francisco Trincao to Wolves for next season.
This has brought in a total of €26.5 million, and will also have taken a couple more million off the annual wage bill. So it is a start, but maybe about 10 per cent of the adjustment which is really required.
Even if they manage to offload others around the fringes of the team like back-up goalkeeper Neto, Riqui Puig, Clement Lenglet or Martin Braithwaite — it would make little significant difference to the seriousness of their situation.
Last week, The Athletic ran a slightly speculative piece on the complete XI who Barca might have to sell during the summer transfer window. Some of these players the club and Koeman would be glad to get rid of, but others they are loath to lose. The problem is that selling the players they are happy to say goodbye to will not raise nearly enough money. And those that other clubs might actually be prepared to pay significant fees for are the ones they want to keep.
Did I hear Barca were tearing up the contracts of Samuel Umtiti and Miralem Pjanic?
The Athletic can confirm that Barca communicated to both Umtiti and Pjanic last week that they could leave on free transfers. It is not so simple though — as the Frenchman has two years left on his deal, and the Bosnian still has three years remaining on his. They are both on very good wages which would be difficult to match elsewhere.
So a negotiated exit will likely be required, either with Barca paying off a part of their contracts, or subsidising some of their wages elsewhere. Pjanic was aware that some kind of solution was going to be necessary, given he did not expect to play much under coach Ronald Koeman next season. Even were he to leave on a free transfer, €45 million of his transfer fee is still to be amortised (further evidence of how crazy the swap deal with Arthur Melo was, approved by Bartomeu and Co in summer 2020).
Barca’s not-very-subtle leaks to local media have also complicated the situation. Umtiti has been upset by the idea that pressure is being applied to forgo money he is legally owed, and feels he is being made to look bad.
A third player in a similar situation is Brazilian youngster Matheus Fernandes, who has already cost the club more than €10 million, and only played 17 minutes in 18 months at the club. He was told by email that his contract was being ended, and is reportedly taking legal action against the club for unfair dismissal.
What about the other high earners at the club?
Two of the main candidates to be sold and raise money this summer, Coutinho and Dembele, are both currently injured, so presumably off the market. Which is further awful luck for Barca.
The situations of the “Catalan core†of the squad — Sergio Busquets, Gerard Pique, Jordi Alba and Sergi Roberto — are being looked at. Pique has already agreed a “voluntary†deferral of some of his salary for next season until later in his contract. Laporta would like to strike similar deals with Busquets and Alba, although the club would be open to the latter especially taking any offer from elsewhere. Sergi Roberto is surplus to requirements, and may be allowed to leave for free, with only one year left on his current contract.
Griezmann is, alongside Coutinho, currently the highest earner at the club on around €20 million a year (before tax). He is also still associated with Bartomeu, and politically might be easier to move out. But Griezmann has been very clear that he has no intention of leaving Barca, as have those around the France international. The 30-year-old said during the Euros he intends to see out his current contract, until 2024, then try a new adventure in the US.
…and Messi?
Messi’s situation has not changed much since last week’s Q&A when his contract officially expired, bringing to an end over two decades of association with the club.
What has become clearer is how closely his situation is linked to Barca’s issue with meeting La Liga’s financial fair play rules. Laporta this week appeared to suggest that an agreement had been agreed with Messi to stay, but that the strict financial controls were stopping the deal from being announced.
“We want him to stay, and Leo wants to stay, it is all well on the way, but the ‘fair play’ issue is still left,†he said. “I’d like to tell you he’s staying but at this moment I cannot as we are looking for the best solution for both sides.â€
Did Pep Guardiola just get involved?
Guardiola said in an interview with Catalan media on Monday that, “Senor Tebas thinks he knows better than everyone, but he should learn from the Premier League and allow team owners to invest more money in their clubs.â€
Tebas quickly hit back via Twitter, and began an exchange of financial information and graphics, which also drew in renowned Catalan economist and friend of the Guardiolas Xavier Sala-i-Martin.
Surely La Liga would make an exception for Messi?
Pep’s intervention can be seen as more of the pressure coming from around Barcelona for Tebas to show some sympathy for Barca’s situation. Laporta has already called for “common sense†to prevail, and the hope is that an exception can be made given the unique circumstances, and, well, Messi being Messi.
That seems unlikely. Tebas has repeated regularly through the years how proud he is of La Liga’s financial controls, which he credits with lifting the league into greater economic health after years of financial mismanagement and clubs piling up debts. The rules exist to stop clubs spending beyond their means — so making allowances now would undermine the whole project.
“Barca are currently exceeding their salary cap,†Tebas said recently. “I hope they can include Messi’s wages, but to do so, they will have to cut somewhere else. We cannot make one rule for Messi, another for Haaland…â€
He also pointed out that La Liga has survived the losses of Neymar and Cristiano Ronaldo in recent years without hurting its sponsorship or broadcasting deals. A new eight-year deal with ESPN was signed just last May when everyone knew that Messi, 34, may or may not be staying.
La Liga’s authorities have in the past not allowed clubs to register players which would take them over the limit allowed. Most famously, in 2014 Getafe midfielder Pedro Leon was left in limbo when he refused to accept a pay cut to be registered. Leon took a legal case against La Liga, was allowed to play after some months on the sidelines, but the Spanish legal system eventually ruled in La Liga’s favour.
Are there no allowances made for the pandemic?
Over the last 18 months, La Liga have made certain allowances for how the COVID-19 pandemic has affected club finances due to losses of ticketing and match-day commercial sales.
This includes temporarily removing penalties for the amount of money that clubs exceeded their squad cost limits by in 2020-21 due to the impact of COVID-19. This meant Barca were able to keep their squad together last season despite their finances being so bad without being sanctioned for the effects of the pandemic.
Teams are currently allowed to use 25 per cent of the profits from transfers to be put towards new costs, to help them deal with the pandemic, and to stop the Spanish transfer market freezing up completely. However, the remaining 75 per cent of any profit must be used to pay off money the club owes.
So what happens next?
Good question. Assuming Tebas and La Liga do not budge from their position, Barca will have to keep cutting costs and selling players until they get within the financial controls permitted.
Laporta and fellow blaugrana transfer decision-makers Rafael Yuste, Mateu Alemany, Ramon Planes and Jordi Cruyff will presumably have to keep working down their list — trying to raise as much money as possible from the players they are happy to see leave.
Then they will have to consider which other squad members must be sacrificed. Goalkeeper Marc-Andre ter Stegen and midfielder Frenkie de Jong are the two established players who would not lack suitors at Europe’s richest clubs. Most difficult for the blaugrana family to countenance would be losing their young emerging stars Pedri, Ansu Fati and Ilaix Moriba. Other clubs around Europe are well aware of Barca’s woes and unlikely to be too sympathetic.
Whoever stays or leaves, Messi will likely also have to take a huge pay cut — maybe even something like 80 or 90 per cent — to stay at Barca. The club are looking at ways of making this up to him — such as deferring payment into the future, or guaranteeing him a well-paid ambassador role after his playing career is over. There are however serious tax implications for all these potential solutions, and Messi and his family have learned from experience not to cut corners with the Spanish tax man.
There are no easy solutions — the financial mess left by Bartomeu and his fellow directors really is that historically bad.
Things did not end well for Mike Campbell, the ruined bankrupt in Hemingway’s book. He never did return to his former glories, his friends all deserted him, as did his fiancee. But his creditors kept coming back for their money.
After years of gradually losing control of their finances, Barca have suddenly realised they can run from reality no longer.
A few things of note La Liga have nailed their colours to the mast it would seem unlikely that they will back down. Guardiola's intervention was probably not very helpful in this regard because by very publicly castigating La Liga he has forced them into a corner.
Most football people seem to inhabit a financial la la land where there is a an unlimited supply of other people's money to spend. Guardiola has been a long term resident and never stops to ask the question what happens when wealthy owners tire of subsidising clubs and pull the plug? Maybe not an issue for City but for pretty much everyone else it is.
The way out was the Super League and I understand Senor Guardiola didn't much like that either. Much as I admire his work as a coach I wouldn't put him charge of a whelk store from a business perspective.
