Pronostici Champions League 4 novembre 2014

Ecco TUTTI i pronostici di Champions League di martedì 4 novembre 2014, con quote, precedenti e consigli per scommettere. Scopri le probabili formazioni di Champions e le ultime dai campi sui giocatori assenti (infortunati e squalificati nella 4^ giornata del girone), con le schedine di Champions per martedì sera. Leggi il pronostico di Malmo-Atletico Madrid, il pronostico di Real Madrid-Liverpool, il pronostico di Basilea-Ludogorets, il pronostico di Zenit San Pietroburgo-Bayer Leverkusen, il pronostico di Benfica-Monaco, il pronostico di Borussia Dortmund-Galatasaray ed il pronostico di Arsenal-Anderlecht, senza dimenticare il pronostico di Juventus-Olympiacos!

PRONOSTICI CHAMPIONS LEAGUE: martedì 4 novembre 2014 (4^ giornata dei gironi)
LEGGI TUTTO L'ARTICOLO»

Real Madrid And Barcelona - Leaders Of The Pack

A couple of weeks ago Barcelona and Real Madrid produced an enthralling 2-2 draw in El Clásico with two goals apiece from their superstars Lionel Messi and Cristiano Ronaldo. It seemed appropriate that the latest match in a series of titanic struggles finished level, as there has been little to separate the two Spanish giants recently.

Their dominance in La Liga has become unquestioned, as they have shared the last eight league titles between them, Barcelona winning five times, while Madrid have been victorious on three occasions, including last season. In Europe, Barcelona have led the way, winning the Champions League twice in the last four years. Although Madrid have not been quite so prominent recently, they have reached the semi-finals of the last two tournaments, and they have won the trophy more than any other club (nine times).

"Xavi - little triggers"

Despite an uncharacteristically nervous start to the season by these two powerhouses, few would bet against La Liga once again turning into a two-horse race. Indeed, when questioned about Malaga’s potential, their exciting young star Isco’s downbeat response spoke for many, “Atlético Madrid and ourselves have begun well, but there are two teams superior to the rest and there are no others that can fight them for the title.”

They also appear to be doing fantastically well off the pitch, both reporting revenues of around half a billion Euros for the 2011/12 season. More importantly, both clubs registered hefty profits: Barcelona’s €49 million was their all-time record, while Madrid’s €32 million was also a notable achievement. Equally significantly, they have also been reducing their sizeable debts to a more manageable level.

In fact, Madrid claim that their turnover of €514 million is the highest of any sporting club in the world after 7% (€34 million) growth from the previous year’s €480 million. However, expenses shot up €48 million with wages rising 8% (€18 million) from €216 million to €234 million and other expenses surging 26% (€30 million) to €146 million, partly due to a tax law change and higher provisions.

This meant that Madrid’s cash profits, defined as EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) declined from €148 million to €134 million. This is still hugely impressive, being €20 million more than Manchester United and €90 million more than Arsenal, two of England’s most financially astute clubs.

After a €5 million increase in player amortisation and depreciation, operating profit fell €19 million to €24 million, though this was boosted by €20 million profit on player sales (and other asset disposals), which was €17 million higher than the previous season. Net interest payable rose €12 million, almost entirely due to a once-off financial gain the prior year not being repeated in 2011/12.

"Casillas - number one"

This produced a profit before tax for Madrid of €32 million, which was €15 million lower than the €47 million achieved in 2010/11. This was still more than respectable, as club president Florentino Pérez affirmed, “These results are spectacular, especially given the economic circumstances we are living in.”

Barcelona’s revenue also rose 7% from €452 million to €485 million (excluding €10 million revenue from player sales), though they also managed to cut the wage bill by 3% from €276 million to €268 million. This helped increase their EBITDA by a stunning 39% from €89 million to €123 million, just €11 million behind Madrid. In fact, their lower player amortisation, arising from their policy of developing players from the La Masia academy, means that Barcelona’s operating profit of €51 million was more than twice as much as Madrid.

However, Barcelona only made a negligible €3 million profit on player sales, as the €11 million gain made from selling the likes of Jeffrén and Maxwell was almost wiped out by the €8 million loss from removing Alex Hleb, Gabriele Milito and Henrique from the books. That still represented an improvement from the previous season, when the club made an overall loss of €22 million on player sales, as the profitable sale of Yaya Touré to Manchester City was not enough to compensate for the large losses made on selling Zlatan Ibrahimovic to Milan, Dmytro Chygrynskiy to Shakhtar Donetsk, Martin Cáceres to Sevilla and Thierry Henry to New York Red Bulls.

"You've got to fight for your right to party"

Following the debt reduction, Barcelona’s net interest payable dropped €8 million to just €5 million, leading to the record €49 million profit before tax. That’s pretty impressive for a season in which Barcelona did not win the Spanish league title or the Champions League, particularly when they did not sell any players for large amounts of money. No wonder their president Sandro Rosell described this season as “excellent in terms of numbers”, though the fans might have preferred more silverware.

In fact, without the huge losses on clearing out some of the former regime’s expensive mistakes (the loss on Ibrahimovic alone was reported to be an incredible €37 million), Barcelona said they would also have made a pre-tax profit in 2010/11 of €34 million.

Actually, the picture for the football club is even better, as these figures include large losses reported for Barcelona’s other sporting activities. These amounted to €40 million in 2011/12 (basketball €22.9 million, handball €7.7 million, 5-a-side football €5.9 million, hockey €2.4 million and other sports €1.4 million), so the pre-tax profit for the football club alone would be a mighty €89 million.

It’s a similar story for Real Madrid, though unfortunately their annual report no longer analyses the profit and loss account by activity. The last report to do so (in 2008/09) listed the basketball loss as €23 million. If this were the same level today, Madrid’s profit before tax for the football club would be €55 million.

In spite of their massive expenditure, Madrid have been consistently profitable, amassing €230 million of pre-tax profits over the last six years, including €44 million in 2007, €51 million in 2008, €25 million in 2009 and €31 million in 2010. According to their annual report, the last time they reported negative EBITDA was way back in 2001/02. The club is again budgeting for a €32 million profit in 2012/13.

Barcelona’s figures have been less impressive, though they have reported profits in four out of the last six years, albeit generally much lower. The annus horribilisof 2010 with its €83 million loss was largely due to the new board taking what Javier Faus, the vice-president of economic affairs, described as a more conservative approach and booking €89 million of audit adjustments, including provisions for TV rights disputes, player transfers and land sales/valuations.

At that point, Faus admitted that Barcelona could not “allow itself to continue losing money”, leading to a more austere approach, since when substantial progress has been made on the club’s finances, resulting in this year’s mega-profits and a budgeted pre-tax profit for 2012/13 of €36 million. Nevertheless, there is no room for complacency, as Faus acknowledged, “We’re taking this with caution. We’re not euphoric. We want to wait two to three years to see if we can stabilise the trend.”

In stark contrast to the big two, very few other Spanish clubs are doing well financially. According to a study by the University of Barcelona for the 2010/11 season, only eight of the 20 clubs in La Liga were profitable – and Real Madrid were the only one of these to report a profit higher than €5 million. While the two Spanish giants gorge themselves, the other teams are starving. As Professor Gay said, “Everyone is concentrated on Madrid and Barca, who are the kings of the banquet, while the rest live an uncertain future.”

The picture is not too different on the broader European stage, as the only leading club making similar profits are Arsenal, who reported €44 million of pre-tax profits in 2011/12, though it should be noted that they would have made a €38 million loss without the benefit of €82 million of player (and property) sales, ironically including Cesc Fàbregas to Barcelona.

Bayern Munich also reported a solid profit of €9 million, the nineteenth year in succession that they have been in the black, but Manchester United slipped to a €6 million loss (before tax), dragged down by €60 million of interest charges, though in fairness they did make a €36 million profit the previous year.

At the other extreme, those clubs operating with a benefactor/sugar daddy model reported enormous losses. Manchester City’s €237 million loss in 2010/11 was the largest ever recorded in England, while Juventus, Inter, Chelsea and Milan all registered losses at around the €80 million mark.

The source of Madrid and Barcelona’s financial supremacy is their astonishing ability to generate revenue. Domestically, they are so far ahead of the other clubs that it is questionable whether they are even competing in the same race. In the 2010/11 season, their respective revenue of €479 million and €451 million (very slightly adjusted to be in line with the Deloitte Money League) was around four times as much as the nearest challengers: Valencia €117 million, Atlético Madrid €100 million and Sevilla €83 million. The rest were absolutely nowhere with two of the clubs in Spain’s top division reporting annual revenue less than €10 million.

That’s bad enough, but the problem is that it’s getting worse, as only the big two have managed meaningful revenue growth over the last few years, while the others have been stagnating. In the three years between 2008 and 2011, Barcelona and Madrid increased their revenue by €142 million and €113 million respectively, while the closest to that was €21 million by Atlético Madrid and €16 million by Valencia. Athletic Bilbao’s revenue has been flat, and it has actually declined at Sevilla and Villarreal.

In 2012 it’s more of the same with the two giants both adding a further €34 million to their revenue. In short, the gap between the elite and the “working class” is already immense – and it’s getting wider every year. As Sevilla’s outspoken president José Maria del Nido said, “Revenues are making the big get bigger and others smaller.” The chances of Sevilla (or indeed anyone else) mounting a sustained challenge in Spain are virtually zero, unless one of the big two somehow implodes.

In fairness to the Spanish clubs, the theme is essentially the same in Europe with Madrid and Barcelona earning around €100 million more than the third placed club, Manchester United, and €150 million more than Bayern Munich. Their revenue is an incredible €200 million more than Arsenal, Chelsea and Milan. Moreover, they earn the highest television money and only one club betters them on commercial revenue (Bayern Munich) and one splits them on match day income (Manchester United).

Furthermore, the distance to the chasing pack is also growing year after year. Since 2005, the first year that Madrid topped the Money League, their revenue growth has been considerably higher than the other leading clubs. In that period, Madrid’s revenue rose by €204 million, while Barcelona’s growth of €243 million was even more impressive. The next highest increases were barely half that: Bayern Munich €131 million and Manchester United €121 million.

The distance to their peers has been steadily increasing from €39 million in 2009 to a staggering €130 million in 2012. In other words, everyone else has massively lost ground in relative terms. Given this significant competitive advantage, Real Madrid and Barcelona should at the very least reach the Champions League semi-finals every season (and this is indeed one of their budget assumptions).

It’s more of the same in 2012, as the Spanish leaders continued their growth story, while the only other clubs to publish their results for last season either only grew slightly (Arsenal) or even fell back (Manchester United – due to earlier elimination in the Champions League).

Part of the widening disparity reported in 2011 was down to currency movements, as the exchange rate that Deloitte used for their last publication was 1.11 Euros to the Pound. Since then, the Euro has weakened, but even if we apply the current exchange rate of 1.25, the picture is basically unchanged. Since 2009, the growth rate at Barcelona (€119 million) and Real Madrid (€113 million) has been at least twice as fast as their nearest rival (Manchester United €52 million). Of course, Bayern and Chelsea have yet to publish their 2012 figures, but that is unlikely to significantly distort the picture.

We should note that both clubs have provided moderate revenue projections for the 2012/13 season: flat for Madrid, as lower revenue from the summer tour (because of Euro 2012) is compensated by growth in other areas; and a 5% decrease for Barcelona, partly due to no European Super Cup or Club World Cup, with Faus admitting, “Each year it’s harder to find new revenue streams.” However, it should also be acknowledged that they have often managed to beat their revenue budget in previous years.

One other positive aspect of their revenue is how evenly balanced it is between the three revenue streams. The split is almost identical: broadcasting – Madrid 38%, Barcelona 40%; commercial – Madrid 36%, Barcelona 35%; match day – Madrid 26%, Barcelona 25%. As Madrid’s annual report puts it, this diversified structure provides economic stability, cushioning the impact of potential revenue fluctuations arising from sporting factors or the prevailing economic conditions.

Even though they have been remarkably successful in producing a balanced revenue model, broadcasting revenue still provides them with a key competitive advantage over their foreign counterparts, thanks to their lucrative domestic deal. Unlike all the other major European leagues which employ a form of collective selling, Spanish clubs uniquely market their broadcast rights on an individual basis, so Madrid and Barcelona each received €140 million in 2011/12, which was three times as much as the nearest competitors, Valencia €48 million and Atletico Madrid €46 million, followed by Sevilla €31 million and Betis €29 million.

In other words, Madrid and Barcelona on their own received around 43% of the total TV money in La Liga or 11 times as much as the €13 million given to the last club on the list (Racing Santander). This unbalanced deal produces the most uneven playing field in Europe and compares unfavourably to the 1.6 multiple in the Premier League between first and last clubs. Such a revenue disadvantage is bad enough for one season, but it makes a gigantic difference over time. As Sevilla president del Nido complained, “The two giants have earned €1,500 million more than the next club in the last ten years.”

Looked at another way, they received about twice as much from their domestic deal as Premier League champions Manchester City, though the gap should be halved from the 2013/14 season when the new English contract kicks in. In fact, their TV revenue is more than the total revenue of all but eight other clubs.

Both clubs have TV agreements in place until 2014/15, which highlights one potential problem, as the rights holder Mediapro has experienced severe difficulties leading to the company seeking bankruptcy protection over a dispute with Sogecable. Furthermore, other TV channels have spoken of not bidding for rights for matches in future, due to the high price and depressed advertising market. That probably explains why Faus admitted, “Media income has peaked and we don’t expect increases in the next five years.”

"Every little thing he does is magic"

However, the strongest threat to this revenue stream is the other clubs’ desire to move to a collective structure, as summarised by Atlético Madrid’s president Miguel Ángel Gil Marín, “We want a league that is solvent and competitive. To achieve that, it is fundamental that the gap in budgets and revenues is narrowed and there is a fairer distribution of TV rights.”

To date, this has been staunchly resisted by Madrid and Barcelona, but Spain’s sports minister José Ignacio Wert believes that they are now “receptive” to the idea of a more equitable distribution. Indeed, last year Sandro Rosell said, “The television rights are negotiated individually now, but in three, four, five years’ time, we will have to put them all in one pot and make La Ligaas it is in Italy and the Premier League”, though his price is a reduction in the number of clubs from 20 to 16.

That might sound like yet another slice of “pie in the sky”, but there are reasons to believe that this might happen, not least that collective agreements tend to be worth more than the sum of their parts. La Liga’s TV rights revenue of €655 million is a long way behind the Premier League’s current €1.4 billion (rising to an estimated €2.2 billion in 2014). In fact, they have now been overtaken by the Bundesliga(€0.7 billion) and Serie A, whose return to a collective deal helped grow TV rights to just under €1 billion.

That is a huge prize to go after, especially overseas rights, which is the reason why so many in Spanish football are now actively pushing to make the “product” more attractive to viewers abroad, as articulated by former Real Madrid legend Emilio Butragueño, “We want … a brand like the Premier League. The best players in the world are here in Spain and we have to profit from it.” Of course, that is easier said than done, especially in the current harsh economic environment.

TV money has been boosted by participation in the Champions League with both Madrid and Barcelona receiving around €40 million last season from the central distribution. This again drives a wedge between them and other Spanish clubs, as the less successful Valencia (€19 million plus €3 million for parachuting into the Europa League) and Villarreal (€14 million) earned much less. It was even worse in the Europa League, as Atlético Madrid and Athletic Bilbao only earned around €10 million, even though they both reached the final.

Barcelona have consistently earned more money from Europe’s flagship tournament than Madrid, thanks to their superior results, notably the €51 million garnered when they won the trophy in 2010/11. That said, Madrid’s improved performances under José Mourinho have resulted in revenue rising €12 million to €38-39 million in each of the last two seasons. The Champions League bonanza shows little sign of slowing down, as the prize money for the 2012 to 2015 three-year cycle has increased by 22%.

Both clubs have adopted a strong commercial philosophy. Marcel Planellas of the famous Easde business school compared Barcelona’s strategy to a movie studio, “Just like Disney, you’ve got your stars, your world tours, the box office, the television rights, the t-shirts and all the other merchandising.” That description could equally apply to Real Madrid, who have recently announced plans to build a $1 billion “football island” holiday resort in the United Arab Emirates to strengthen their presence in the Middle East and Asia.

In 2010/11, their commercial revenue (Madrid €172 million, Barcelona €156 million) was only surpassed by Bayer Munich’s barely credible €178 million, but was a fair way ahead of other clubs with Manchester United being the nearest at €114 million. In Spain, it’s less of a gap to the next clubs, more of an abyss with the difference being at least €125 million to Atlético Madrid €29 million and Valencia €23 million. Note that Deloitte appear to have re-classified membership fees to commercial income in their analysis.

Perhaps unsurprisingly, the shirt sponsorship and kit supplier deals are the highest in football. Barcelona’s five year deal with Qatar Foundation, running until 2015/16, is worth €30 million a year (plus €15m for “commercial rights” in 2010/11) and is their first ever paid shirt sponsorship. Rosell argued this was due to the arrival of wealthy owners at other clubs, “If we did not have to fight against competition which has capital, I would never sell anything on the shirt.” Madrid’s agreement with Bwin, reportedly also worth €30 million, runs until 2012/13.

It’s not so rosy at other Spanish clubs with almost half of the clubs in La Ligastarting last season without a shirt sponsor, including Valencia, Sevilla and Villarreal. However, the bar is continually being raised at the leading clubs with Manchester United recently announcing a spectacular deal with Chevrolet, which will be worth an astonishing €56 million from 2014/15.

For kit suppliers, Madrid have just extended their deal with Adidas to 2019/20 for €38 million, while Barcelona renewed their Nike deal in 2008 for €33 million to 2012/13 (with an option to extend to 2018). The closest to them are Manchester United (Nike) and Liverpool (Warrior), who both earn around €32 million. An indication of Madrid’s commercial strength came from the five-year secondary sponsor deal that Emirates Airlines signed for €5 million a season, purely for some “prominent” advertising space within the ground.

In terms of shirt sales, a survey by PR Marketing suggested that Madrid and Manchester United lead the way with annual sales of 1.4 million, followed by Barcelona with 1.15 million.

Commercial income has also been helped by uplifts from success like winning the Champions League and other activities, e.g. stadium tours, ticket exchanges, though there are limits with both clubs unwilling to play the Spanish Super Cup in China. Indeed, Faus cautioned, “advertising is not immune to the current economic climate.”

Stop me if you’ve heard this one before, but Madrid and Barcelona are also at the top of the league for match day income: in 2010/11 Madrid were first with €124 million and Barcelona third with €111 million. The next highest in Spain were again miles behind: Atlético Madrid €30 million, Valencia €27 million and Athletic Bilbao €25 million. This figure is impacted by the number of matches played, e.g. progress in Europe, and other events, such as Madrid hosting the Champions League final in 2010.

In recent years, the clubs have avoided raising ticket prices too much. Indeed, Barcelona’s new board promised not to increase them for two years, which they extended an additional year for the 2012/13 season. However, there are hints that this may change with Faus talking about wanting “to have a debate” on prices.

Both clubs also benefit from membership fees with Barcelona reporting revenue of nearly €20 million from their 170,000 members. Madrid do not explicitly break out their income, though they do list the fees paid by their 93,000 members, implying revenue of €10 million.

Attendances are among the highest in Europe with Barcelona overtaking Madrid three years ago, though their crowds fell last season to 76,000, around 1,000 more than  their great rivals, even though Faus said that “ticket sales have been spectacular.” One caveat here is that Spanish attendance figures are notoriously inaccurate, as explained in this interesting article from Estadios de Fútbol en España.

Last month both clubs made announcements regarding possible stadium development. Madrid unveiled four models to “turn the Bernabéu into a world class arena”, which would cost €250 million, according to El Pais, and take three years with the work starting next summer. Just two months after Rosell said that Barcelona would put planned stadium renovations on hold until the club’s debt had been further reduced, he announced a referendum whereby members could decide whether to: leave the Nou Camp unchanged; redevelop it (last year there were plans to add 10,00 seats and install new VIP boxes); or build a new stadium. Faus indicated that redevelopment would cost €300 million, while a full stadium move would be €600 million.

It is clear that both clubs have made efforts towards cost containment. In particular, Barcelona cut their wage bill from €241 million to €233 million in 2012. This gave some support to Rosell’s claim that “austerity will be a pillar of our day-to-day management”, though sporting salaries still rose by €17 million to €155 million, following the arrival of Fàbregas and Alexis Sánchez. This was off-set by a €24 million reduction in bonus payments to €44 million, as the club failed to retain La Liga and the Champions League.

In fairness, the wages to turnover ratio has improved from 59% in 2010 to a very creditable 48% in 2012, though Faus conceded that “it’s difficult to reduce the (wages) figure further and still maintain stability.”

As a technical aside, I have used the wages from Barcelona’s detailed accounts here to be consistent with the University of Barcelona analysis. The business review section of Barcelona’s annual report lists salary costs as €268 million (sports €237 million, other €31 million), as this also includes other costs, mainly image rights of €24 million.

In contrast to Barcelona, Madrid’s wage bill rose from €216 million to €234 million (almost identical to their rivals), presumably due to bonus payments for winning the league, though they managed to maintain their superb wages to turnover ratio at 46%. This may come under pressure from the abolition of the so-called “Beckham Law”, which allowed foreigners to benefit from a lower tax rate. As many players, such as the occasionally “sad” Ronaldo, are paid net, the club potentially faces a sizeable increase in its costs from 2015, when the tax rate increases from 24% to 52%.

Again, these wage bills are considerably higher than other Spanish clubs – at least €150 million higher in 2010/11 with Atlético Madrid and Valencia the closest at just €64 million and €61 million respectively. Some of the comparatives are almost laughable, e.g. Levante’s wage bill of €7 million is about 3% of Madrid’s.

As with revenue, it’s getting worse for the rest of Spain with the wages gap ever widening. Between 2008 and 2011 Barcelona’s wage bill rose €72 million, while Madrid’s increase by €49 million. In the same period, the wage bills at Atlético Madrid, Valencia and Sevilla actually fell, while Bilbao’s €14 million growth only took them to €49 million.

Their wages are also the highest in Europe, though Manchester City and Chelsea were quite close with €209 million and €202 million respectively. However, there are a couple of caveats. First, the exchange rate can play a part, so City would have been higher than Madrid in 2010/11 at today’s rates. Second, both Spanish clubs’ wage bills are inflated by other sports. In Barcelona’s case, this amounted to €31 million in 2011/12, while Madrid included around €23 million. Barca have targeted these for future savings.

Despite this factor, Madrid’s wages to turnover ratio of 45% was still better than both the financially prudent clubs (Manchester United 46%, Bayern Munich 49%, Arsenal 55%) and the more profligate ones (Manchester City 114%, Inter 90%, Milan 88%, Chelsea 75%).

The other expense impacted by investment in the squad, player amortisation, rose last year at both clubs: from €92 million to €98 million at Madrid and from €56 million to €61 million at Barcelona. For non-accountants, amortisation is simply the annual cost of writing-down a player’s purchase price, e.g. Karim Benzema was signed for €35 million on a six-year contract with the transfer reflected in the accounts via amortisation, which is booked evenly over the life of his contract, so around €6 million a year.

The only other major football club with similarly high player amortisation to Madrid is Manchester City with around €100 million. The €37 million difference with Barcelona highlights their different approaches: Madrid tend to buy in their stars, while Barcelona look to develop their youngsters in-house. As Faus said, “There’s no need to spend €80 million, as we have La Masia”, which has produced Xavi, Iniesta and Lionel Messi (among many others).

This can be seen by the net transfer spend: in the last seven years, Madrid’s €477 million was almost 80% higher than Barcelona’s €266 million. That said, there has been a sea change at Madrid with a distinct slowing-down in the last three years, with net spend of “only” €128 million compared to €349 million in the previous four years, when they launched the second version of the Galácticosproject, buying Ronaldo, Kaká, Xabi Alonso and Benzema. It’s a similar story at Barcelona where they have spent just €65 million (net) in the past three years, less than a third of their €202 million outlay in the previous four years.

Faus has said that Barcelona’s average annual budget for new signings will be €40 million. He added that any over-spend would be compensated in future years, “Last year we surpassed our transfer budget with the signings of Cesc Fàbregas and Alexis Sánchez. We cannot overspend our budget by 20 or 30 million euros each year, it would put our business plan at risk. It wouldn’t be sustainable.”

Even with this more reasonable approach, the big two continue to outspend the other Spanish clubs. In the last three years, most have actually made money in the transfer market: Valencia €62 million, Athletic Bilbao €27 million, Atlético Madrid €19 million and Sevilla €5 million. The only leading club with a net spend is Malaga and that looks like a temporary blip after their ownership problems.

Transfer spending was down 70% in La Liga this summer to just €116 million with over half coming from Madrid and Barcelona (on Luka Modric, Alex Song and Jordi Alba). Some clubs didn’t spend a single Euro on player recruitment.

Given their financial weaknesses (and inability to compete), the other Spanish clubs are effectively forced to sell their stars, thus creating a vicious circle where the dominance of Madrid and Barcelona becomes more firmly entrenched. As an example, in the past few years, Valencia have lost David Villa, David Silva and Juan Mata, while Atlético Madrid have sold Sergio Aguero, Diego Forlán and David de Gea. They either move abroad or actually join Madrid or Barcelona.

Where the Spanish giants have to be careful is that they are no longer the only game in town. In fact, over the last three years they have been outspent by new money, particularly Chelsea (€272 million), Manchester City (€244 million), Paris Saint-Germain (€242 million) and Zenit Saint Petersburg (€151 million). Money talks, but oil money talks louder.

The most worrying issue for the Spanish giants, widely reported in the media, has been their large debts, though this is open to interpretation (as explained in this earlier blog). The press tend to use the broadest possible definition of debt, namely total liabilities, which includes trade creditors, accruals and even provisions. In 2012 this gives enormous headline figures for Madrid and Barcelona of €590 million and €471 million respectively. To place that into perspective, is the same measure were to be applied to English clubs, Arsenal, universally applauded for their financial prudence, would have “debt” of €585 million, about the same as Madrid and more than Barcelona, while Manchester United are much higher at €890 million.

Under the more standard definition of net debt, Madrid’s balance is only €30 million (bank loans of €143 million less cash €113 million), while Barcelona have €99 million (gross debt €136 million less cash €37 million). Both of these are lower than Arsenal (€124 million) and Manchester United (a hideous €458 million). However, Madrid also have significant net transfer liabilities owed to other football clubs (included in UEFA’s debt definition) of €55 million.

In 2010/11 Madrid (€590 million) and Barcelona (€578 million) had the highest debts in Spain, but this is cushioned by very good debt coverage (revenue/debt) of around 80%. This ratio highlights the bigger debt challenges faced by other clubs such as Atlético Madrid (debt €514 million, cover 19%) and Valencia (debt €382 million, cover 31%), though a promising sign came last month from Miguel Cardenal, Spain’s secretary of sport, who said that football club debts were declining for the first time in decades.

Madrid have succeeded in slashing debt from €327 million in 2009 to €125 million in 2012, largely because of a significant reduction in transfer liabilities. This is under their own definition, which is essentially the same as UEFA’s (bank debt plus net transfer fees payable) plus selected creditors (essentially stadium debt).

Similarly, Barcelona have cut debt by 22% in two years from €430 million to €334 million, again using an in-house definition. This is a fine achievement, considering the issues in 2009, when the club had to seek an emergency €155 million to overcome short-term cash flow problems, including paying the players. Faus has admitted that the debt is “still too high for us to be able to dictate our future” and the club’s strategic plan aims to reduce the balance to €190 million by 2015/16.

Madrid’s balance sheet is quite strong with €275 million of net assets, which is much better than Barcelona’s net liabilities of €20 million (though this has improved €49 million in 2012). However, Barcelona have “hidden” assets, as the players are only included in the accounts at book value of €143 million, while Transfermarktestimates their real market value at a mighty €601 million.

Based on their strong financial performance in 2011/12, UEFA’s Financial Fair Play (FFP) regulations, which force clubs to live within their means if they wish to compete in Europe, should not prove overly problematic for Madrid and Barcelona. The allowable losses are an aggregate €45 million for the first two years (then three years), but this is only €5 million if losses are not covered by the owners, which might be more relevant here, given that the clubs are owned by their members.

In any case, they can exclude certain expenses, including depreciation on tangible fixed assets and expenditure on youth development and community activities, which would be worth at least €20 million. On top of that, they could argue that losses made by other sports should also be ignored, though the FFP guidelines suggest that “other sports teams” might be included.

Perhaps the biggest threat to the financial ascendancy of Madrid and Barcelona is the desperate situation of Spanish football in general. Even though results on the pitch have never been better for the Spanish national team and their clubs in Europe (five of the eight semi-finalists in Europe last season came from La Liga), most clubs are struggling off the pitch with a quarter of the clubs in the top division in bankruptcy protection. As Professor Gay said, “Many clubs are living dangerously.”

"So why so sad?"

The start of last season was delayed by a players’ strike over unpaid wages and there were threats of similar this season, this time over TV rights and schedules. This is exacerbated by the desperate state of the Spanish economy, which is firmly in recession with unemployment running at a record 23%.

With their new found focus on sustainability, Madrid and Barcelona will be fine from a financial perspective, but it is conceivable that fans may lose interest in La Liga, due to the lack of competition. The financial disparity with the rest of the league was always large, but it has become colossal, leading to doubts about some clubs’ ability to survive. Professor Gay warned, “If things go on like this, Spanish football will kill itself.”

At the moment, Madrid and Barcelona give the impression of fiddling while the rest of the country burns, but they would do well to remember the wise words uttered in Spider-Man (or, if you prefer, the works of Voltaire), “with great power comes great responsibility.”

The Truth About Debt At Barcelona And Real Madrid

Despite their failure to reach next month’s Champions League final, Barcelona and Real Madrid are by common consent the best two club sides in world football. Featuring superstars such as Lionel Messi and Cristiano Ronaldo, their talented players entertain and delight us in equal measure, as they dominate La Liga season after season.

However, admiration of their exploits is tempered by the financial advantages that they enjoy compared to other less fortunate clubs. Not only do they generate far more revenue than anybody else (around €100 million higher than the nearest challenger, Manchester United), but one of the main reasons for this substantial competitive advantage is an unbalanced domestic TV deal that awards the two Spanish giants almost half of the money available.

Their reputation off the pitch also suffered a hit recently in the media when it was “revealed” that these great teams were built on a mountain of debt (€590 million at Real Madrid and €578 million at Barcelona), raising questions as to whether this was, to coin a phrase, “financial fair play.”

Quite why this came as a surprise to some analysts is a little perplexing, given that the clubs’ accounts have been available to the public for many months. Whatever.

"Pep Guardiola - Goodbye cruel world"

The fundamental issue is whether this debt is too high, as many commentators suggest, with the implication that these grand old clubs might even be in some financial difficulty.

That might seem like an easy question to answer, but, as is so often the case in the murky world of accounting, it’s not quite so simple. To give a comprehensive response, we have to do three things:

1. Importantly, understand what this debt figure actually represents, as there are numerous definitions, all of which can be equally valid in different circumstances.

2. Look at the overall strength (or weakness) of each club’s balance sheet, i.e. also at assets, not just liabilities.

3. Explore how well the debts are covered by items such as income and cash flow.

To avoid looking at Madrid and Barcelona in isolation, we should also compare their debt position with that at other leading clubs. For the purpose of this exercise, I have opted to look at two English teams, Manchester United and Arsenal, as they are useful comparatives, who are viewed as being at different ends of the spectrum. The former are known for the large amount of debt they have been carrying since the Glazers bought the club via a leveraged buy-out, while the latter are often portrayed as the poster boy of sustainable football clubs.

"Jose Mourinho - I couldn't bear to be special"

1. What is debt?

For people without a financial background, the different definitions of debt can be a bit confusing, as acknowledged by UEFA’s snappily titled Club Licensing Benchmark report, which stated, “In practice, the term ‘football club debts’ has been used in many different ways with a great deal of flexibility, references ranging from the very broad, totalling all liabilities that a club has, to the narrow definition of debt financing either including or excluding interest-free owner loans.”

At the narrowest extreme, we have just bank debt: at the broadest extreme, we can use total liabilities, which covers all financial obligations, including tax liabilities, trade creditors, provisions for future losses, accrued expenses and even deferred income. Often, when the media refer to debt, they actually mean total liabilities.

This includes what might be described as operational debt, such as: (a) trade creditors (payables) for amounts outstanding on bills for products or services received, e.g. rent, electricity; (b) money owed to staff, e.g. wages earned by staff paid at the end of the month, bonus payments; (c) other accrued expenses (accruals), which are the same as payables except no invoice has yet been received; (d) provisions, which are an estimate of probable future losses, e.g. legal claims; (e) and, most bizarrely, deferred income for payments received for services not yet provided, e.g. season ticket revenue for matches to be played in the future.

That last one highlights one danger of using liabilities as a definition for debt, as season ticket money received in advance is clearly not a bad thing, as UEFA explain: “It is recorded as a liability, as accountants consider the cash received as not yet being fully earned until the matches take place. This is a liability, but not a debt that will have to be paid back.”

So, much of Madrid’s €590 million and Barcelona’s €578 million debt includes liability for what might be termed normal operations. If we apply the same definition to Manchester United, they have debt (total liabilities) of just under €1 billion (£824 million converted at a rate of 1.20). Even Arsenal’s debt on the same basis is €524 million, which the journalists would no doubt describe as “eye-watering” if they were talking about others and not their template for a well-run club. To use an old adage, you have to make sure that you are comparing apples with apples.

Of course, if you wanted to make a club’s debt look as bad as possible, then you would absolutely use the total liabilities definition. However, it is very conservative to say the least. Indeed, in response to their critics, Madrid and Barcelona might feel like misquoting Mark Twain: “The reports of my debt have been greatly exaggerated.”

The net debt reported in an English club’s financial statement will be in line with IFRS (International Financial Reporting Standards) and essentially covers purely financial obligations, such as overdrafts, bank loans, bonds, shareholder loans and finance leases less cash. On this basis, the gross debt of Madrid and Barcelona at €146 million and €150 million respectively is not only considerably smaller than the figure highlighted in the press, but is also much lower than Arsenal €310 million and Manchester United €551 million.

The difference is not quite so large for net debt, as both United and Arsenal have substantial cash balances, but the Spanish clubs are still lower: Madrid €48 million and Barcelona €89 million. Arsenal are much of a muchness with €117 million, while United are the outlier with a hefty €370 million.

In their Financial Fair Play (FFP) guidelines, UEFA introduce a third definition of debt which lies somewhere between the narrow calculation employed in annual accounts and the widest possible measure of total liabilities: “A club’s net player transfers balance (i.e. net of accounts receivable from players’ transfers and accounts payable from players’ transfers) and net borrowings (i.e. bank overdrafts and loans, owner and/or related party loans and finance leases less cash and cash equivalents).”

They go on to explicitly state, “Net debt does not include trade or other payables.” However, it does include the net balance owed on player transfers, which is a reasonable approach to take, as this can be an important element in the business model adopted by some football clubs, e.g. this amounts to €76 million at Madrid (actually down from €111 million the previous year and an astonishing €211 million in 2009), though it is only €12 million at Arsenal, which probably comes as no surprise to those fans that have been exhorting the club to spend some money.

This has clearly been an important factor in allowing Madrid to finance big money acquisitions. Although all clubs make stage payments for transfers, very few do so to the same extent as Madrid (and indeed Barcelona).

Of course, this does not make the practice inherently wrong. Indeed, UEFA commented, “It is worth noting that the size of transfer payables reported in financial statements can be influenced by the timing of the financial year-ends relative to the timing of transfers, and that transfer payables are, in most cases, not overdue but in line with the payment schedule agreed between the respective clubs.”

Under this UEFA definition, it is remarkable how similar the net debt is between Madrid, Barcelona and Arsenal, with all three clubs reporting a balance in a narrow range of €124-131 million. The exception to the rule is United with, deep breath, €442 million.

2. Strength of the balance sheet

To state the blindingly obvious, liabilities are only one side of the story (or balance sheet). To get a full picture of a football club’s health, we also have to look at its assets. This is where the English clubs start to look better, as they tend to have higher assets, especially as they usually own their own stadiums.

United’s net assets (assets less liabilities) are a mighty €973 million, though €618 million of this is due to inter-company receivables from the parent undertaking, while Arsenal have a highly respectable €322 million. Madrid are far from shabby with net assets of €251 million, but Barcelona fall down on this measure with net liabilities (also described as negative equity) of €69 million. In other words, their reported liabilities are larger than their reported assets. Barcelona are far from alone in this, as UEFA’s benchmarking report noted that 36% of clubs reported negative equity in 2010, but it is still nothing to be proud of.

If this ratio is refined to only cover current assets and liabilities (payable within 12 months), then it is even worse for the Spanish clubs, as they both have net current liabilities: Madrid €141 million and Barcelona €226 million.

Once again, the accounting values are a little misleading when looking at the balance sheet, because of the way that certain assets are treated in the accounts. As UEFA say, “Some of the principal assets of a club, such as a loyal supporter base, reputation/brand, membership/access rights to lucrative competitions, and home-grown players, are not included within balance sheet assets since they are extremely difficult to value, despite them unquestionably having a value. These unvalued assets tend to be greater for larger clubs.”

"The Glazers - Money (that's what I want)"

This is highlighted when a football club is sold. Invariably, the purchaser pays a higher price than the fair value in the accounts and the difference is booked as an asset called goodwill. In this way, Manchester United’s balance sheet includes £421 million of goodwill.

This can also be seen very clearly with player valuations. In the accounting world, when a player is bought, football clubs do not expense the cost immediately, but instead book it onto the balance sheet as an intangible asset and write it off evenly over the length of the contract. Following the Bosman ruling, the assumption is that the player will have no value after his contract expires, since he could then leave on a “free”.

However, the value in the real world is almost always higher. As Javier Faus, Barcelona’s Vice President of Finance once explained, his club has over €250 million of assets that are not reflected in the balance sheet. This is particularly the case for the Catalans, as their team is full of players developed in-house by the legendary La Masia, and these effectively have zero value in the accounts. I don’t know exactly how much the likes of Messi, Xavi and Iniesta would be worth if sold, but I do know that it’s more than zero.

The respected Transfermarktwebsite does actually list values for each major team’s squad, so we can get an idea of how much stronger each club’s balance sheet would look if you applied real values instead of accounting values. As expected, this is most striking in the case of Barcelona, where the real value is estimated as €591 million, so €470 million higher than the books, leading to adjusted net assets of €401 million.

Of course, it would kind of defeat the object if a club were to realise that value by selling all its players, but a few judicious sales can make a big difference to the reported strength of a club’s balance sheet.

3. Debt coverage

As we said earlier, Real Madrid (€480 million) and Barcelona (€451 million) have the highest revenues in world football, covering around 80% of their debt, which is significantly higher than their English counterparts, Arsenal 57% and Manchester United 40%. In Arsenal’s case, this is obviously a function of much lower revenue (€307 million), even though I have included property income, as liabilities are not split by business segment.

However, as the old saying goes, “revenue is for vanity, profit is for sanity”, so a more useful ratio might be cash flow to debt, which provides an indication of a club’s ability to cover total debt with its annual cash flow from operations. There are many ways of defining cash flow, but I have used EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) for simplicity’s sake. Others might adjust for (irregular) profit on player sales, while you could also use free cash flow, (operating cash flow minus capital expenditure).

Contrary to popular belief, Real Madrid and Barcelona are relatively profitable: Madrid have made total profits of around €200 million in the last five years, including €47 million last season; while Barcelona’s loss was only €12 million. Adjusting for non-cash flow expenses like depreciation and amortisation plus interest produces very impressive EBITDA of €151 million for Madrid and pretty good €66 million for Barcelona. In the same way, Manchester United’s notable ability to generate cash results in excellent EBITDA of €138 million.

So, Madrid’s cash flow over debt ratio comes in at 26%, much better than the others: Manchester United 14%, Arsenal 13% and Barcelona 11%. Simply put, the higher the percentage, the better the club’s ability to pay its debt.

While it is clearly important to be able to ultimately pay off debt, a club’s ability to service its interest expenses is absolutely crucial. This can be explored with the interest coverage ratio (cash flow/interest payable), which tells a similar story to debt coverage, i.e. Madrid’s ratio of 11.7 is by far the best, though the others are not too bad: Barcelona 4.5, Arsenal 3.9 and Manchester United 2.5 (anything below 1.5 is a bit questionable).

What is striking here is just how much higher the interest payable is at United €56 million (£46 million) compared to the other clubs: Arsenal €18 million, Barcelona €15 million and Madrid €13 million. In fact, both “heavily indebted” Spanish clubs actually pay less interest than the two English clubs.

Let’s look at the debt in a bit more detail for the clubs we are reviewing, as this might throw up some other anomalies.

Real Madrid’s accounts use yet another definition for debt, which is essentially the same as UEFA’s definition (bank debt plus net transfer fees payable) plus selected creditors (essentially stadium debt). This gives a net debt of €170 million, a reduction of €75 million from the €245 million in 2010. That’s pretty impressive, especially when we consider that the net debt peaked at €327 million the year before.

That said, for many years before 2009 they had no bank debt at all. The loans are split evenly between Caja Madrid and Banco Santander and were mainly used to finance the major signings that summer. The interest rate is relatively low, but the loans do have to be repaid by 2015, though even here Madrid were given some leeway with lower payments in the first three years.

Stop me, if you’ve heard this before, but Barcelona also use a different definition for debt, providing their Annual General Meeting with a figure of €364 million, which is not fully explained, but the main distinguishing factor is that some debtors are deducted to arrive at the net balance.

This represents a 15% reduction from the €430 million reported the previous season, but is still higher than the preceding years. Indeed, Javier Faus, Barcelona’s Vice President of Finance, admitted, “We’ve reduced the debt, but we’re still in a delicate situation. The debt is still too high for us to be able to dictate our future. We can’t afford to owe so much money to the bank, and we need to generate more income.”

He emphasised the board’s concern when he added, “It’s not the debt that we want, and we have to reduce it further, to sustainable levels, with regard to the cash flow generated by the club. We’ll continue to work on it.” Ideally for Faus, the net debt would be “just over €200 million.”

Indeed, Barcelona were forced to take out syndicated loans of €155 million in 2010 from a group of banks led by La Caixa and Banco Santander, though club president Sandro Rosell has defended Barca’s debt level, arguing that it is eminently serviceable via its huge revenues, “The club is not bankrupt, because it generates income. The banks know that we have a business plan that will allow them to recover the money.”

Indeed, the willingness of Spanish banks to help Barcelona is a factor, as it is difficult to imagine a scenario where a local financial institution would be responsible for damaging the emblem of Catalonia, given that its customer base is largely made up of the club’s supporters – even with the struggles in the Spanish economy. This is evidenced by the banks ignoring Barcelona’s breach of commitments in terms of total liabilities made when securing the 2010 loan.

Manchester United have also succeeded in reducing their net debt, which was cut from £377 million to £308 million (£459 million gross debt less £151 million cash), after the club bought back £64 million of its bonds. This is down from a peak of £474 million in 2008.

Last year the club raised around £500 million of funds via a bond issue, so that they could repay the previous bank loans, in order to fix the club’s annual interest payments for a longer period (up to 2017), thus ensuring more financial stability. However, there was a price to be paid, which can be seen with a comparison to Arsenal’s bonds, as the debt has to be repaid quicker (7 years vs. 21 years) and the interest rate is higher (8.5% vs. 5.75%).

The really annoying thing for United fans is that this is still unproductive debt. While clubs like Chelsea and Manchester City have used their debt to fund the purchase of better players and Arsenal used theirs to build a new stadium, United’s debt was only used to enable the Glazers to buy the company.

At least the owners managed to find £249 million last November to pay off the prohibitively expensive Payment In Kind notes (PIKs), which carried a stratospheric interest rate of 14.25% (rising to 16.25%), though it is unclear how they funded this repayment. Including the PIKs, United’s gross debt was at one point as high as £773 million with annual interest payments of around £70 million. To paraphrase Winston Churchill, “never has so much been owed by so many to so few.”

"Emirates Stadium - good debt"

Included within the net debt as at 30 June 2011 are astounding cash balances of £151 million, though this was boosted by cashing the £80 million Ronaldo cheque and the £36 million upfront payment from the shirt sponsor. United’s board has argued that it likes to retain so much cash to provide “flexibility”, but this seems a strange decision when they have to pay 8.5% interest on the bonds, while cash balances are unlikely to attract more than 2% interest.

The latest financial engineering from the Glazers is the decision to float a minority stake of the club via an IPO (Initial Public Offering) on the Singapore Stock Exchange with whispers suggesting that the board is seeking to raise £600 million for a 30% stake. The IPO was postponed last year due to volatile market conditions, but is now reportedly back on the agenda.

If some of the proceeds were used to repay part of United’s debt, as the club has apparently briefed journalists, then they would benefit from lower interest payments, though this would not improve cash flow if they were then replaced by dividends to the new shareholders.

Arsenal have now eliminated the debt they built up as part of the property development in Highbury Square, reducing gross debt to £258 million as at end-May 2011. That comprises the long-term bonds that represent the “mortgage” on the Emirates Stadium (£231 million) and the debentures held by supporters (£27 million). Once cash balances of £160 million are deducted, net debt was down to only £98 million, which is a significant reduction from the £136 million last year and the £318 million peak in 2008.

Many fans ask whether it would be possible for Arsenal to pay off the outstanding debt early in order to reduce the interest charges, but chief executive Ivan Gazidis has implied that this is unlikely, arguing that not all debt is bad, “The debt that we’re left with is what I would call ‘healthy debt’ – it’s long term, low rates and very affordable for the club.” In any case, the 2010 accounts clearly stated, “Further significant falls in debt are unlikely in the foreseeable future. The stadium finance bonds have a fixed repayment profile over the next 21 years and we currently expect to make repayments of debt in accordance with that profile.”

So, Real Madrid and Barcelona might not exactly be sitting pretty in terms of debt, but their situation is not quite as bad has been made out. However, it is true to say that debt is a major issue for many other Spanish clubs.

A recent study by Professor José Maria Gay de Liébana of the University of Barcelona revealed that total debt of La Liga clubs was €3.5 billion with half of them having negative equity (though it should be noted that the accounts from seven clubs were only from the 2009/10 season and two from as far back as 2008/09).

As Professor Gay said, “Everyone is concentrated on Madrid and Barca, who are the kings of the banquet, while the rest live a real uncertain future. Many clubs are living dangerously.”

While Madrid and Barcelona unsurprisingly top the list with debt (total liabilities) of €590 million and €578 million, seven other clubs have debt over €100 million, most notably Atletico Madrid €514 million, Valencia €382 million (even after selling stars like David Villa, David Silva and Juan Mata) and Villarreal €267 million. In contrast to the big two’s debt cover (by revenue) of around 80%, theirs is much lower, e.g. Atletico Madrid just 19%.

Spanish football’s struggles are highlighted by the fact that no fewer than six clubs in the top division are currently in bankruptcy protection: Racing Santander, Real Mallorca, Real Zaragoza and all three promoted clubs (Real Betis, Rayo Vallecano and Granada). Furthermore, the beginning of this season was delayed by a players’ strike over unpaid wages. The figures are frightening with 200 players owed a total of €50 million, up from €12 million owed to 100 players the previous year.

"Athletic Bilbao: good football, low debt - what's not to like?"

This is due to two factors: (a) Spanish football’s inability to govern itself properly; (b) the awful state of the economy.

Up until recently, the Spanish Football League (LFP was unable to impose any meaningful sanctions on financial miscreants, but a new law came into force in January 2012 that now authorises the authorities to relegate a club in administration – though whether they have the stomach for a confrontation with a club’s supporters is debatable.

In fairness to the LFP, they have also been impacted by the troubled economy, as Spain is entering recession with a record unemployment rate of 24% (a horrific 40% for young people) and Standard & Poor’s cutting the country’s credit rating. As LFP president José Luis Astiazaran noted, “We are not immune to the wider economy.” Professor Gay agreed, “Football is largely a reflection of what has been happening in our economy, with people spending way beyond their income, relying on fanciful growth forecasts and ending up with unsustainable debt and an asset pricing bubble.”

It could be argued that the dominant position of the two Spanish powerhouses is slowly killing Spanish football. This financial pre-eminence is boosted by the “every man for himself” approach taken with the individually negotiated TV deals. Madrid and Barcelona both trouser €140 million a season with the nearest club to them, Valencia, receiving about a third at €48 million. Thirteen of La Liga’s clubs receive between €13-18 million, including Athletic Bilbao with just €17 million. What price them holding on to all of the scintillating young talents that have enthralled us during their Europa League campaign?

Spain is unique among the leading European leagues in not having a collective TV deal, which explains why accusations of selfishness have been aimed at Madrid and Barcelona. The Sevilla president, José Maria del Nido, complained, “We cannot allow a situation where, because two clubs are very powerful, they bring about the demise of the Spanish league.”

That said, football is an amazingly resilient industry and it has not yet collapsed under the weight of debt in Spain, even though the issue is not a new one. In fact, La Liga debt has been about the same level of €3.5 billion for the last four years. Although it rose €50 million last season, the 2001 debt of €3.53 billion is actually lower than the €3.561 billion peak in 2008.

Nevertheless, there is no room for complacency, when a comparison is made with the other major European leagues. At €3.5 billion, Spanish liabilities are by far the highest, almost a billion Euros more than Serie A €2.7 billion (up €327 million in 2010/11) and the Premier League €2.6 billion (2009/10 figure). The debt levels in the financially disciplined leagues are unexpectedly much smaller: the Bundesliga €0.9 billion and Ligue 1 €0.7 billion.

In addition, the Spanish league also has the worst debt coverage (in terms of revenue) at 47% compared to the others: Serie A 63%, Premier League 95%, Ligue 1 140% and the Bundesliga 193%.

This sad state of affairs was underlined when it emerged that Spanish clubs owed the taxman €752 million, including €426 million from clubs in the top division. In fact, that came from just 14 of the 20 clubs, as the remaining six had no outstanding tax debt. According to the AS newspaper, that included Real Madrid, which seems a little strange, as both the club’s accounts and the study by Professor Gay do list tax liabilities.

Once again, Atletico Madrid have the dubious honour of leading the pack with the largest tax debt of €155 million, even after paying the €50 million from the sale of Sergio Aguero to Manchester City directly to the tax authorities. The next highest was Barcelona with €48 million.

This high level of tax debt is galling to many, particularly given the fragile Spanish economy, not to mention the fact that Spain has five clubs in the semi-finals of the Champions League and the Europa League – including the aforementioned Atletico Madrid.

As always, Uli Hoeness, the forthright president of Bayern Munich, got straight to the point, “This is unthinkable. We pay them hundreds of millions to get them out the shit and then the clubs don’t pay their debts.” In fairness, some clubs have negotiated payment plans with the authorities, such as Atletico Madrid (€15 million a year), Levante (5 years) and Mallorca (10 years).

On top of that, the Spanish government and the football league recently announced new rules that would pave the way for the clubs to repay the outstanding tax debts, as the threat of intervention from European Union anti-trust officials loomed large. The LFP said, “Economic control will be strict, as well as the sanctions regime.” These measures will include clubs being obliged to set aside 35% of TV rights revenue for tax payments from the 2014/15 season; clubs possibly being forced to sell players to raise cash; and clubs maybe even booted out of the league.

"Holidays in the sun"

Of course, Spain is hardly unique in having clubs facing severe tax issues, as fans of Rangers and Portsmouth would no doubt attest, but it is the magnitude of the debt in Spain that is concerning, especially given the relatively low revenue of some of the clubs involved.

Given the understandable focus on tax liabilities recently, it might also be a good idea for UEFA to include these in their definition of debt in order that clubs take this issue more seriously than they appear to have done in the past. It is actually a little strange that UEFA do not, as Article 50 of the FFP regulations specifically states that there should be no overdue payables to social/tax authorities (as well as employees) in the same way that Article 49 prohibits overdue payables towards football clubs. While the latter is included in their definition of net debt, the former is not.

In conclusion, while there are some very real debt problems in Spanish football, the situation is not quite so dramatic at Barcelona and Real Madrid as some would have people believe. It would obviously be better for their balance sheets if the debt was lower, but their ability to generate revenue is unsurpassed, admittedly partly due to the current unfair TV deal, but also their high gate receipts and awesome commercial strength. These operations continue to grow, as seen by Barcelona’s record-breaking shirt sponsorship deal with the Qatar Foundation and Real Madrid’s plans to build a $1 billion holiday resort in the United Arab Emirates.

"Put your shirt on it"

Of course, the two Spanish giants may still come under pressure from their creditors at some stage, especially if they embark on a summer spending spree following the disappointing Champions League semi-final exits. Nor should the impact of Spain’s faltering economy be trivialised, but the fact is that right here, right now, the important debt (bank loans, transfers and tax liabilities) is relatively low, at least for clubs of this size.

When reading reports on how much Barcelona and Real Madrid owe, it’s not quite a case of “don’t believe what you read”, but you do need to understand what any analysis is actually referring to, because, as we have seen, debt has many different definitions.

Caveat emptor – or something like that.