FC Barcelona played Real Sociedad this week in the liga, and it was just another amazing show of football and magic. The happiest person on earth was no doubt Barca's president Sandro Rosell, as its this team and those players are the reason why the majority of members are too lazy (and excited) to ask serious questions or voice complains. Ironically, we are talking about a squad structured by the same people the current president revolted to sack, when he was the Vice of the previous President Juan Laporta.
Still, it is not easy to hide an elephant having a "Musth" inside the room. Sponsorship agreement with Qatar foundation is not a walk in the park. This is a milestone in the club's history where there will be a BA (before agreement) and AA (after agreement) calender to record the the club's records.
Defending Rosell, Guardiola, and Qatar
Lets start by defending Sandro Rosell. The rants that doubt his loyalty to the club are nonsense. He is not an evil undercover madridista whose mission is damaging Barcelona, as some angry Barcelona fans stated in the past few days. Sandro Rosell is as loyal to Barcelona as anyone can be, and more. He -and his board- are doing what they believe it is the best for the club. Thats where we may disagree with him (them). Yet, there are no doubts about the intentions.
In the other hand, this agreement has nothing to do with Pep Guardiola. He supported Qatar bid for the world cup for many reasons (Money is one of the reasons, as a professional figure). But that has nothing to do with Barcelona's agreement with Qatar foundation. Pep was an automatic choice for Qatar to promote them in the world cup bid even before the new board inherited Barcelona's management. In fact, Sandro Rosell has more contacts and cross roads with Qatar than Pep, so neither he needs Pep nor the Qatari needs the coach to cook or suggest this sponsorship agreement.
I will not re-defend Qatar and the Qatari toward those who consider it a shame to sign an agreement with such a Bla bla bla country, as I already stated my opinion about this in a previous post. It won't make any difference for me if this deal was with a foundation in Qatar or the Vatican. Thats not the point. At all.
Dealing with the deal
First thing first, lets make one thing clear: This is a commercial deal. A Business, only a business and nothing but a business. Lets put the "Charity" smoke bombs aside so we don't feel guilty whipping the hell out of the agreement. Selling a car to red cross will not make you Mother Tereza. Thats S.E.L.L.I.N.G, and you count your money before you hand the car. In fact, it was better to make a deal with a commercial company than taking hundreds of millions supposed to be invested in good cases. Unless if by Charity we mean that Qatar foundation paid 170 M as a charity to Barcelona, there is no other way to make the statement more valid.
If we agree that this is just "business is business baby!" , we have to see it from a business perspective. I am aware of all the emotional factors involved. All the pride. And there were lot of eloquent posts on different blogs who wrote about this side better than I can ever do. But here is a board of directors telling you "Romance feed no hunger, softy! Grow up!" . So...Was this business deal an Edsel or an IPod?
The first factor to consider is the need. The validity of any deal depends on the alternatives available and the urgency driving one party to make a deal with the other. Was it an unavoidable need for Barcelona to seal the deal?
It is impossible to know the real figures concerning Barcelona's financial situation. Some may like to believe the previous board budget, others consider this board's budget the reliable one and the majority are probably on the fence and can barely take any budget seriously (count me in). Accounting is not the science of stating the facts but the method of perfecting the books to meet specific objectives and already decided numbers. Deloitte or no-Deloitte, it is the client who dictate the results of any budget and the accounting auditing role is to skew the accounting process to meet the client's numbers. Dont tell my taxes vampire I said that.
It is even more confusing to get anything out of the current board's statements. The previous board of directors lied. No doubt about that regardless how far they went in that direction. But they were good lairs and were able to create a good story. One story. The current board failed to meet the basic requirement of creating a story, and that is being consistent. One day Barcelona sells Chegrinskiy because there is a need to pay salaries - the board states. The other day we discover that Barcelona's transfer budget is 50 M plus the transfer returns of Yaya and Chegrnskiy -The board states. Then afterward the board end up sorting out the transfer budget to 50 M. Just that. Its a kind of "Dissociative identity disorder" management with lot of acrobatic accounting and Executive functioning.
Then a Sponsor deal with Qatar foundation take place. To start with numbers, Barcelona shirt sponsorship is: 5 years at €30m, commercial rights fee €15m, performance bonuses €5m. But there is one additional condition that went unnoticed in the chaos of the agreement. Barcelona will play a friendly every year in Qatar or anywhere in Europe (Qatar foundation decides). Thats also a significant part of the deal and will have an impact on the numbers, and the nature of the agreement.
During preseason, clubs have limited number of opportunities to play friendlies. Friendly matches earn Barcelona couple of millions . Friendly matches are also important to promote clubs, get them closer to their fans across the globe and increase merchandise return. In brief: Friendly=money. For the following five years, one of Barcelona friendlies will be handed to Qatar foundation. In brief: Thats a loss of money.
In the other hand, friendlies are important to expand clubs' awareness and commertial presence in promising markets from the business perspective. Looking forward to the following five years with the global economic forecasting map on the table, anyone really think Europe will be the best market for Barcelona to focus on in the following years? So while Real Madrid, Inter, and Manchester United for example are working on expanding their commercial presence between USA, Japan, China, and Saudi Arabia in the following five years, Barcelona will spend five years bouncing between Europe and Qatar. How far will friendlies in Europe increase merchandise selling (compared to existing growth rate) for the following five years? What about other markets including USA or East Asia to name some destinations? Of course Barcelona can go to USA beside playing friendlies in Qatar during preseason. I am sure Pep quardiola will be so exited to spend the preseason jumping from one plane to another. Will a friendly in a bad timing cancel a preseason tour? Isn't that also another financial loss?
Talking about Pep Guardiola, if Qatar Foundation will decide where to send Barcelona for the friendlies, isn't it safe to say they at least have the upper hand in deciding the friendly date? How does it sound that Pep will have to customize his preparations for the following seasons based on Qatar foundation agenda? Is it even appropriate that in the following five years Qatar foundation will send Barcelona to play in the country (club) that pay the highest price?
How far all this complexity affect the club preparations and moral in the following seasons? Between the money lost from playing a friendly for free, and the impact of this five seasons plan on merchandise and commercial strategies, It is too conservative to estimate the loss in the range of two millions per year. Thats why instead of 30 M per year from the sponsorship agreement, Barcelona will barely get 28 Million (while the other two are considered as compensation for the friendlies).
Now lets not forget that this is the first main Sponsorship deal in 111 years of Barcelona's history. That's a leverage to tempt the best sponsorship deal ever. Is it true that 28 M is a huge opportunity that is too good to waste? I am aware there are variables in the agreement, but compare it to Liverpool's new sponsorship deal where they will earn 24 Millions annually for the following four years. I do respect Liverpool and once they had three times the commercial value of Barcelona. Now? Thats not the case. I can safely say that if Liverpool can sign an agreement for 24 Millions, then Barcelona must not even consider an agreement that goes under 35 Millions per year plus variables, and without friendlies. And I am not even considering such an offer as too tempting to reject.
But then again, what if Barcelona really RRRReally need the cash Qatar foundation offered? What if there were no other options? Thats reasonable. Yet, Rosell and Co management antiques cause you a mental breakdown if you try to track. I was probably alone demanding that Barcelona must sign Mascherano. Though, not for any cost. In a perfect world, Mascherano is a great signing for Barcelona. In a crisis situation, his transfer was no doubt avoidable. If Xavi can play a zillion match per season though having an injured foot, Busquets -a younger player- can do so as well. If a back up needed, keep Marquez. Sign Senna. Or even use Pique as a holding midfielder when Busquets is not available. None of them will fail to serve the matches Mascherano played so far.
Then Barcelona signed Maxwell's identical. Again, in a perfect world, Adriano is a good utility player. But for a team in crisis he is simply a waste of unavailable money. Puyol can play as a right back if needed. Maxwell can. Pique can, and a bunch of youth are also waiting their turn. If this is a club owned by the fans, Rosell should have asked the members if they prefer a sponsorship agreement plus the transfers of Mascherano and Adriano or no sponsorship and no players. I am sure you will not find such a poll on Sports website anytime soon.
Mascherano and Adriano transfers will cost the club between 70 and 80 Millions in the following five years. We are still not talking about Afellay's transfer, considering that it is a good bargain. And dont let me start predicting how much Cesc would have cost the club in the following five years if Arsenal accepted selling him-even for the 40 Millions Barcelona offered- something in the orbit of 75 millions?
If the club needed this sponsorship deal after the mentioned signings, then we can conclude that -avoiding the unnecessary transfers- the club lack less than a hundred million for the following five years to recover. That's if we assume the sponsorship deal worth 170 M, which is not accurate, first because of the friendlies compensation and secondly because not all the variable amounts will be certainly achieved. One hundred millions in five years mean 20 millions per year. Now it is time to have a look at the club's accounting books for 2009/2010.
Based on the new board 's Auditing, the club generated a revenue of 408.9 millions last year. Mind you, we are talking about the revenue generated by the worst board in the club's history as the current board repeatedly remind us. If the current -better- board succeed to increase the revenue 5 % next year, thats 20.5 Millions, and increasing. But lets not get too ambitious as it is probably hard to increase revenues by 5 % next year. If Barcelona increase their revenues 2% annually, they will generate 126 millions extra cash in the following 5 years.
Regardless of the current board plans for the future, and regardless of the complexities of business and accounting, this percentage (2%) is just an indication that this sponsorship agreement is not a radical u-turn in any way as it is too small compared to the business operation value in the club that will exceed (back and forth) billions of cash in the following five years.
In the current board -Audited- accounting, where they tried to put all the mess possible on the previous board, the books recorded a loss of 80 Millions (Previous board budget for the same year recorded a profit of 9 millions). It is important to look at the Expenses section and draw a circle around players amortization (71 M). That amortization includes 8 millions related to Henry's transfer from Arsenal to Barcelona. Regardless how valid it is to add this to the budget (after Henry's move to USA), what is certain is that this amount of money will not exist in the current year. It also includes 13 Million amortization related to Ibra's transfer, something the current board could have reduced from the current year budget if they sold Ibra directly to Milan instead of one year loan (even if they received the first payment next year as the current agreement dictates). Add an estimated 5 millions amortization for Chegrnskiy. It also includes amortizations related to the signings of Caceres, Henrique, and Keirrison.
This means that with some more quality management (especially Ibra's transfer conditions), next budget will have 26 M less amortizations to record as expenses (Henry,Ibra,and Chegrnskiy). Then the selling of Caceres, Henrique, and Keirrison will clear their amortization expenses and add to the revenue (transfer return) neutralizing the amortization account completely. That alone will decrease the books deficit from 80 Millions to 9 millions in no time, even if the revenues didnt increase a bit. Sell Milito and you break even. Simple as that. We must not forget the club will start receiving payments from Ibra's transfer next year. So instead of him adding expenses through amortization and salary, he will add to revenue.
Take note, I am still taking in consediration that Mascherano's and Adriano's transfers were avoidable (Keeping Marquez or signing Senna). It is true that some contract renewals will increase some players salaries, but we must not forget that the club already knocked Henry, Ibra, Chegrnskiy and Marquez (if he leave) out of the payroll. All in all a decline in salaries expenses. That means: Even if we go by the current board's accounting numbers, and even if the club failed to increase revenues (The club increased the revenues almost every year since 2003), still the 80 millions loss we saw in the current books will not exist in the following fiscal year anyway. That lead us to believe what the previous board said: Next year Barcelona will generate profit. How many league champions and Champions league contenders in Europe can match such a balanced financial situation? Again we need to be aware that the current board auditing is not a certainty, as they definitely have an interest in showing the financial situation worse than it actually is. All that bring me to the debt issue...
Quoting Swiss Rambler:
"We’ve not been given the full details yet, but the adjusted figure released by the club was gross debt of €552 million (net debt €442 million). However, we do know that this represents total liabilities and is thus misleadingly high, as it includes trade creditors, accruals and even provisions. In fact, Rosell and his cohorts should be ashamed of this needless scaremongering, which is not consistent with standard accounting practice – or, indeed, UEFA’s definition, which explicitly states, “net debt does not include trade or other payables.”
As an example of how absurd the total liabilities definition is, just look at how high other clubs’ gross debt would be using this measure: Real Madrid €683 million, Liverpool €578 million and Manchester United €1.1 billion. Even Arsenal, which is regarded as the template for financial sustainability, would have “debt” of €767 million (though it’s come down a lot since the last annual accounts). This places Barcelona’s €552 million firmly into context. To use an old adage, you have to compare apples with apples."
Still, I will consider the 442 Millions as a debt the club need to pay (which is again not the case). It is a cartoon monster that is easy to counter even through playing by numbers Rosell-way. Sandro Rosell announced many times that the club will be able to reserve an average of 50 Million transfer budget annually. Having a look at Barcelona's squad where the most important players can serve (Key players or squad players) 3 to 5 more years like Abidal, Xavi, Villa, Keita and even Puyol (next year could be his last as a starter though), notice I kept Mascherano and Adriano out, added to players who will be in the club for longer period like Valdes, Pique, Busquets, Iniesta, Messi, Pedro, and Bojan supported by extremely promising talents like Fontas, Bartra, Oriol, Dos Santos, Thiago; anyone in his right mind believe that this club need to spend 250 M on transfers in the following five years?
If the club increase the revenues 2% as mentioned above, thats a 126 Millions in 5 years. More than enough to strengthen the squad. The club already took a loan for 155 M where 70 % of it went to pay urgent commitments (as the board mentioned), which means rescheduling commitments in a controllable manner. So it is safe to say that 100 Million of the 442 M rumored debt is already on the right track. Put the 250 Millions already reserved for transfers above it and that's 350 Millions sorted out (250 M paid completely in 5 years).
What about encouraging fans to become members rather than kicking them away, which may generate couple of millions more to the cash account? What about reviewing the salaries expenses from head to toe, especially on the administrative level? There are so many options to increase revenue and decrease expenses. Now I am aware that this is simplifying the issue, but it sound relevant for me to say: The club is not in an irreversible situation that require sponsorship agreement to jump for the rescue. It is safe to say the club now is in a better position than it was in 2003.
What this sponsorship deal did is that it ruined the last defense the club can use if things -really- went bad. Before the agreement, the club could always argue creditors that "we don't even have sponsorship agreement...we don't have sponsors for the stadium...we don't...we don't...and still we are the most competitive club and generate a revenue close to half billion" That hidden sponsorship card would have always had more value than it actually worth. The moment Barcelona signed the sponsorship deal this card was revealed and now it has a price tag. It is no more "priceless".
One of the most important things in business is to have a clear mission, vision and branding strategy and to stick to it as far as possible. There is no branding image that can win all the time. The clubs having the most luxurious sponsorship deals are the most debited ones. So it is not true that sponsorship is the make or break for any club's finance. Barcelona's image almost reached maturity in the past few years and there was a chance to stamp it on steel in the coming years. "More than a club" and for the first time in the club's history earned a market value and generated commercial benefits. It is amusing to keep repeating the 408.9 Millions revenue presented in the last Auditing the current board did. If you cant manage a club that generates this amount of money, you cant manage it even if you double the figures.
Beside, who said that this UNICEF-BARCA partnership reached its peak commercially? All what the club did was stamping the logo on the shirt and selling it. The UNICEF-BARCA partnership had massive potentials that the previous board didn't recognize and the current board killed. You can at least double Merchandise return through developing this partnership. You can sell almost anything with a UNICEF-BARCA Logo stamped on it from plates to printers. Even with a 50/50 profit share between the two parties Barcelona can still enjoy an increase in commercial return.
Agreements could have been made with third party to create pubs brand that generate franchising agreements across the globe. Sportswear. Restaurants. You name it. All based on the same partnership that offer UNICEF a share of the return. Anyone will spend money on items that match the market quality, knowing that a share of that money will go to support good cases, whether Barcelona fan or someone who has know clue about football all together. Thats a way to boost commercial return and club image through being faithful to the club mission and history. And we are still talking pure business.
I just cant stop explaining how unnecessary this agreement is. How damaging. But I am committing myself to shorten my posts a bit (though it is too late for this one already). Finally, whenever Rosell doesn't show up to announce something and send his directors instead, you know there is a problem. Ibra's transfer, Membership regulations and now sponsorship deal. Then they say "we can discuss it later in the Assembly", and it is astonishing how the members hatred toward Laporta make them accept anything thrown their way. Discuss what? "If you -dear members-don't like the agreement we can still pay some millions penalty for breaching the sponsorship contract" says Rosell.
