How Can Bayern Munich Pay Franck Ribery So Much?

As news filtered out last week of French international Franck Ribery extending his contact with Bayern Munich until 2015, most commentators agreed that this made perfect sense for the German champions, as it would prevent other major clubs from securing the prolific winger’s services for a cut-down fee next summer. What struck me however was just how much the Bavarians needed to pay Ribery to persuade him to sign on the dotted line.

I first noticed this on Twitter when the widely respected journalist Raphael Honigstein, author of the superb “Englischer Fussball”, announced that Ribery’s net salary would increase to €7 million a year (up from €3.75 million). The German press estimated a gross salary of €10 million, which is the highest salary in the club’s history. That’s equivalent to £8.5 million a year or £164,000 a week. Whatever the exact figure, it’s a hell of a lot of money.

Bayern’s colourful president, Uli Hoeness, defended the huge raise, “Do you think he plays for popcorn?” However to place Ribery’s new salary into context, it’s not far behind Lionel Messi (£9.1 million) and is significantly higher than Arsenal’s best paid player Cesc Fabregas (£5.7 million). Let’s get this straight from the start (as Dexys once sang), Franck Ribery is a fine player, whom Bayern sorely missed in the Champions League final, and I am not criticising his abilities for a moment, though his employers probably wish he were injured rather less often.

"Uli Hoeness - pleased as punch"

No, I am more interested in how on earth Bayern can afford to pay such a high salary? Moreover, how does this lucrative remuneration fit in with the notion that clubs in the Bundesliga have to operate within their means? Especially when Christian Seifert, the Chief Executive of the German league, has proudly boasted, “The Bundesliga pay less than 50% of turnover in players’ wages.”

If we analyse Bayern’s financials we should be able to answer these questions and discover whether they generate enough revenue to pay their stars top dollar. As an Arsenal fan, it might also be instructive to compare their accounts with our financials in order to get a sense of perspective, given that the North London club is the poster boy for financial probity in England.

Looking at Bayern’s latest annual accounts (to 30 June 2009), they reported a small pre-tax profit of £1.0 million, though this is no flash in the pan. In fact, this is the 17th successive year that Bayern Munich have produced a profit, which is a notable achievement. It looks to me as if they have a deliberate strategy of operating at a profit, but budget to use all available funds on strengthening their squad, as opposed to Arsenal who made a substantial profit of £39.9 million (even excluding the £5.6 million gains form property sales).

At this stage, I should explain that I have reformatted the German accounts to be in line with the standard British presentation. For example, Bayern’s press release mentioned revenue of €303.8 million, as this included the €14.3 million profit from player sales. Similarly, it highlighted operating profit of €65.5 million, but here they are referring to what Brits call EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), which can be very misleading in football circles. Do you really get a fair picture of a club’s performance if you exclude the amortisation on player purchases? Or the interest paid on loans (Manchester United, Liverpool)?

Anyway, even using the narrower definition of revenue, Bayern’s turnover is hugely impressive at £246.6 million. This is £21.5 million higher than Arsenal’s £225.1 million, but, to be fair, Bayern do have the fourth highest revenue in Deloitte’s Money League (one place ahead of Arsenal) and are behind only the two Spanish giants (Real Madrid and Barcelona) and the marketing machine known as Manchester United. Bayern are also in a league of their own in Germany, achieving revenue almost double that of the next highest ranked German club, Hamburg.

Bayern’s revenue is even more remarkable, when you consider that the 2008/09 season was not particularly successful by their own high standards. They only finished second in the league and were eliminated at the quarter-final stage in both the Champions League and the German cup. Not too bad you might think, but they won the German double in both the preceding and following seasons. Although they did not qualify for the Champions League in 2007/08, they reached the final this year.

"Hey, our finances are pretty good too"

What is also striking is Bayern’s balanced revenue stream, which is typical of the Bundesliga. According to Christian Seifert, this is a “stable and sustainable business model that relies on three revenue sources”, which is very different to the Premier League, where most teams are heavily dependent on television income.

Arsenal, of course, are an exception in England, as they earn tremendous money from match day income following their move to the Emirates. So Bayern earn much less than Arsenal from both broadcasting and the stadium, but they generate nearly triple (three times!) Arsenal’s commercial revenue.

Bayern’s revenue has grown by over £100 million (78%) in the last six years, which is pretty good, but Arsenal have managed to grow their revenue at an even faster rate (117%), thus closing the gap between the clubs from £34.8 million to £21.5 million. This is probably an appropriate point to note the importance of the exchange rate in such comparisons. For example, if we were to use the Euro-Sterling exchange rate of three years ago (1.48), then Arsenal’s revenue in Sterling terms would be £30 million higher than Bayern’s. As a further dampener, a Bundesliga vice-president, the wonderfully named Peter Peters, believes that the football business “can no longer reckon on growth.”

The TV rights for German domestic football are relatively low compared to other leagues, especially the Premier League, as the German television market is possibly the most competitive in Europe with a host of free-to-air channels. The Bundesliga’s report on “The Economic State of Professional Football” states that the broadcast deal is only worth an average €412 million (£351 million) per year until the 2012/13 season, compared to the Premier League’s £1.2 billion (including the 30% increase from next season). As another comparison, Bayern only received about £20 million for winning the Bundesliga, while Chelsea trousered over £50 million for being victorious in the Premier League. This all helps explain why Bayern earn £14 million less than Arsenal from broadcasting revenue.

On the other hand, Bayern still received a total of £59.3 million broadcasting revenue, as they have done very nicely out of the Champions League. In 2008/09, they received €34.6 million (£29.5 million), the second highest of all teams, despite being knocked-out at the quarter-final stage, as they secured the biggest slice of the TV pool with €21.5m. This apparent anomaly arises because the revenue for the German association only had to be shared between two clubs. In comparison, the English revenue had to be split between four clubs, so Arsenal only earned €26.8 million (£22.8 million), despite progressing a round further. Following Bayern’s achievement in reaching the final of this season’s tournament and the 30% increase in the TV pool, their revenue from the 2009/10 Champions League should have gone up to at least €50 million (£42.6 million).

"Space odyssey"

Both Bayern and Arsenal have moved to impressive new stadiums in the last five years, which has helped to significantly increase their match day income, as thousands more fans could attend matches. Although Bayern’s Allianz Arena, has a higher capacity (69,000) than Arsenal’s Emirates Stadium (60,000), their match day revenue of £51.6 million is barely half of Arsenal’s £100.1 million. This is not down to lower attendances, as both clubs report sell-outs for virtually every match, though part of the variance is because Bayern only played 23 home games, nine less than Arsenal.

No, the main reason is ticket prices. While Arsenal’s tickets are just about the most expensive in Europe, Bayern’s tickets are very cheap like all clubs in the Bundesliga (which may be why they have the highest average football crowds in the world). In the 2008/09 season, a ticket for a Bundesliga match cost an average of just over €20 (£18), while fans in the Premier League have to pay over twice as much. As Christian Seifert explained, “It is not in the clubs’ culture so much to raise prices. They are very fan orientated.”

The reason that Bayern can afford such generosity is the almost unbelievable amount they generate from commercial enterprises: £135.7 million, which is an incredible £87.5 million more than Arsenal’s £48.1 million. The North London club should not feel too bad, however, as Bayern earn more commercial revenue than any other football club: even higher than the Spanish giants Real Madrid (£118.6 million) and Barcelona (£95.5 million) and England’s most successful marketers, Manchester United (£70 million). It is with some justification that club Chairman, Karl-Heinz Rummenigge, commented, “In terms of sponsorship, FC Bayern remains one of the world’s most successful clubs.”

I have often said that this is an area where Arsenal (and other English clubs) have a big opportunity to grow their revenue without fleecing the fans. New chief executive Ivan Gazidis is acutely aware of the revenue left on the table when the club (understandably) committed itself into long-term contracts with Emirates (stadium naming rights until 2021, shirt sponsorship until 2014) and Nike (shirts until 2014) in order to provide security for the stadium financing, but Bayern’s stratospheric revenue only emphasises the size of the prize. This is why he recently restructured and strengthened his commercial team, including the recruitment of Tom Fox from the NBA as Chief Commercial Officer, to explore new partners and overseas markets.

Bayern have the most lucrative shirt sponsorship deal in the world with long-standing partner, Deutsche Telekom. Currently worth €18 million a season, the contract was recently extended for a further three years with a guaranteed income of €22.5 million. However, the then General Manager, Uli Hoeness, revealed that there was a strong performance-related element on top and the money “will go up if we’re extremely successful internationally. There could be icing on the cake.” Deloittes estimated that this could take the annual earnings close to €30 million a year.

The partnership with Audi was also extended with the sponsorship element worth €110m, which works out to €10 million a season. The shirt supplier, Adidas, contribute another €4.5 million a year, and the club make a lot of money from the sales of replica shirts, especially for the major stars like Ribery, Arjen Robben and Miroslav Klose. In truth, Bayern has a whole raft of premium partners, including Coca Cola, Lufthansa, Nikon, Siemens and Sony Ericsson.

"We know a commercial opportunity"

Amazingly, Bayern’s commercial revenue had dropped from the highs of the previous year, as the difficult economic climate caused sponsors to tighten their belts. Commercial revenue had grown considerably in 2008 after the club bought out the 50 per cent of the Allianz Arena owned by 1860 Munich, who play their matches at the same ground, to take full ownership of the stadium. The €11 million payment saved their city neighbours from the threat of bankruptcy, but, according to Rummenigge, “was not done because of brotherhood or sympathy. It’s in our own self-interest.” You can say that again, as revenue from the stadium company was worth €35 million to Bayern, thanks to naming rights, stadium tours, rent, hospitality and catering.

Although Arsenal’s total revenue may be £21.5 million less than Bayern’s, they more than compensate (and live up to their parsimonious reputation) with their costs being £39.1 million lower. As always, the wage bill is the highest element in expenses with Bayern spending more on salaries (£118.6 million) than Arsenal (£104 million). Moreover, Arsenal’s wage to turnover ratio is also lower (46 per cent against 48 per cent), even though this is a fundamental principle for the Bundesliga.

"Hair Becker (Herr Becker - geddit?)"

Boris Becker, who is bizarrely a Bayern Munich director (Tim Henman for the Arsenal board, anyone?), said, “We wouldn’t even consider bidding £100 million for a player like Kaka, because it is irresponsible.” However, the club has still signed some big names, as explained by the former England international, Tony Woodcock, who played in Germany during the 1980s, “They have attracted Franck Ribery, Mario Gomez and Arjen Robben. To get them, you have to offer good rates. Bayern realise this.” This was supported by the list of the top 50 footballers’ salaries, which included four from Bayern.

However, their approach appears to be a balanced one, as an unofficial list of the club’s payroll suggests that other players are on comparatively low salaries, especially those developed in-house. Furthermore, after splashing out over £60m last summer on new players, director of sport Christian Nerlinger said, “We are going to try to reduce the wages. The wages have gone through the roof and therefore we have got to get our message through to the players that a new contract does not necessarily mean a pay rise.” True to his word, Bayern offloaded four players in the January transfer window, including the very highly paid Luca Toni.

Having said that, even Nerlinger admitted that Ribery could be an exception to the rule, because “every case has to be dealt with individually and according to the market.” Bayern’s selective approach was confirmed by Rummenigge, “We’ll never pursue a risky business strategy, but we will continue to sign high quality players. We’ll invest in quality, not quantity. We’d rather have one more Ribery than three surplus players.” Some Arsenal fans might prefer their club to tweak the youth policy by also signing a few more world-class players to combine with the home-produced talent.

"How much you paying me?"

Bayern’s higher player amortisation costs (£28.3 million against £23.9 million) indicate their greater willingness to spend their cash. Remember, this expense reflects how much money has been spent on buying new players. The accounting treatment here is to write-off the costs associated with buying players over the length of their contracts, based on the assumption that a player has no value after his contract expires, since he can then leave on a “free”. Having said that, Bayern’s amortisation is still much lower than most other big clubs, so they’ve hardly been spending like Imelda Marcos at Jimmy Choo’s.

Indeed, Bayern are (again like Arsenal) to an extent a selling club, making £12.2 million profit on player sales. This may have been lower than Arsenal’s £23.2 million, but it should be noted that Bayern benefited from an “enormous transfer surplus” of £28 million the year before, compared to Arsenal’s £26 million in the same period. However, they’re not afraid to play hardball in the transfer market. When Ribery was linked to Manchester United and Real Madrid last summer, Uli Hoeness joked, “We will only negotiate under certain conditions, namely when another club does something crazy. €50 million would only get one of his legs.”

Craziness is the very antithesis of the German model with the Bundesliga strictly regulating its clubs. In order to obtain a licence that allows them to play in the league, clubs have to submit detailed information about their budgets and expenditure and in effect prove that they are financially stable. There are strict rules controlling the level of debt that each club can have and the amount of money that can be spent on players’ wages.

"Arsenal have some stars too"

There is some concern that this financial caution has a price, namely that it limits the ability of the German clubs to compete with their big-spending English counterparts, who are permitted to take on loads of debt and pay their players high salaries without fear of intervention from the Premier League. Given the relative lack of success in the Champions League in the last decade with only one German team reaching the final (Bayer Leverkusen in 2002), those critics might have a point, though Bayern would appear to have blown it out of the water this season. The improvement might well be due to the decline of Sterling, which contributed to the dramatic reduction in players moving to the Premier League last summer.

There are occasional detractors in Germany too with the Hannover president, Martin Kind, claiming, “The rule means the loss of many Bundesliga clubs' ability to compete nationally and internationally. And in some ways it prevents further development of German football, especially those clubs who play in the lower half of the Bundesliga, as they do not have enough financial resources.” However, he seems to be a lone voice, as all the other clubs in the Bundesliga voted against his proposal to modify the regulations.

Some English supporters might wish that a similar system had been in place in England, as their clubs have been financially embarrassed – and worse. The Bundesliga’s Chief Executive beautifully summed up these clubs’ willingness to gamble on their future, “It's a completely crazy thing to burn billions of Euros so that one club can win the Champions League. In Germany we call it the rat race. No matter how fast the rat is running, it's still one piece of cake.”

"Seifert - a good Christian"

One little known aspect of the German licencing system is that clubs also have to run a youth academy, which is the main reason why Bayern fielded four homegrown players in the Champions League final: Philipp Lahm, Bastian Schweinsteiger, Holger Badstuber and Thomas Muller.

This conservative approach is greatly assisted by the German ownership model, which is essentially that football clubs are sporting associations owned by their members. Up until the late 1990s, all Bundesliga clubs were 100 per cent owned by members (or fans) who had paid to be part of the club, e.g. Bayern has over 150,000 registered members. This approach was modified because of the fears that this traditional stance would indeed limit the clubs’ ability to compete with their European rules, hence the advent of the so-called “50+1” rule, whereby the members must own a minimum of 50 per cent of the shares plus a deciding vote. Although this still prevents an unwelcome owner from taking control, it allows considerable scope for private individuals or businesses to invest in the club.

The more astute among you will by now be asking: what about Wolfsburg and Bayer Leverkusen? Aren’t they owned by Volkswagen and, er, Bayer respectively? This is true, but Christian Seifert has an answer for this too, “If a company is supporting football in a club for more than 20 years, then it can acquire the majority. The idea is that a company has by then proved to fans and the league that they take their engagement in the Bundesliga seriously, that it's not just a fancy toy.”

"Chairman of the Board"

This continuity is also clearly seen in Bayern Munich’s leadership. In fact, most of the management cadre comprises former players: the legendary “Kaiser”, Franz Beckenbauer, was the club’s president until last year; his replacement, Uli Hoeness, was the club’s General Manager since 1979; Karl-Heinz Rummenigge is the Chairman; while Christian Nerlinger is the new boy, trying to fill the large hole left by Hoeness climbing up the corporate ladder. The club is owned 81% by its members, but has two important shareholders from the business world, both with 9.09%. Adidas acquired their stake for €77 million back in 2002, while Audi bought their shares last year for €90 million (bringing their total commitment to €200 million when the sponsorship is included).

These cash injections have been used to help pay off Bayern’s loans quicker than planned. What’s that I hear you say? You were under the impression that Bayern had no debt? Well, it’s certainly true that the football club has no debt. Indeed, Finance Director Karl Hopfner stated, “We can state without reservation that the AG has no debts or bank liabilities whatsoever.” However, there are two companies that form Bayern Munich’s consolidated accounts (FC Bayern Munchen AG and Allianz Arena Munchen Stadion GmbH) and all the group’s debt is in the Allianz Arena company. To be fair, this is “good” debt, used to finance the €346 million needed to build the stadium. The annual interest and repayment costs amount to around €30 million, which is why Bayern’s finance costs are £10m higher than Arsenal’s.

"Kindred spirits?"

However, at the last AGM, Hopfner informed the shareholders that €163 million had already been repaid: €90 million from Allianz itself with the remainder being funded by Adidas’ equity injection. According to Rummenigge, the €90 million investment from Audi “will (also) largely be used as repayments on the Allianz Arena, so our stadium will be free of debt considerably earlier than originally planned”, which will free up an additional €30 million a year. This lead to Hoeness bragging, “When we’ve paid off the debt for the stadium, we’ll be the richest club in Europe.”

Credit where it’s due: in his own larger-than-life manner, Hoeness has presided over a hugely successful financial transformation at Bayern Munich. In his final statement before taking over the presidency, he rather more modestly said, “It is very important for me to be handing over the club in a sound financial condition.” His thoughts were echoed by fellow director, Boris Becker, “Sustainability is very important. As a football club you never want to be dependent on one rich guy, because after a couple of years, what if he loses interest in the club? Or what if his valuation crashes on the stock market?” Who would have thought that “Boom Boom” could speak so much sense? Game, set and match to the Germans.

UEFA Say Fair Play To Arsenal

Some time tomorrow in a nondescript, modern building overlooking Lake Geneva in Switzerland, football’s great and good, also known as UEFA’s Executive Committee, will meet to implement the snappily titled Club Licensing and Financial Fair Play Regulations. This vision was first given the green light in UEFA’s September 2009 meeting and they are now expected to approve their March 2010 draft proposal, which requires clubs to break-even from the start of the 2012-13 season, if they wish to qualify for European competitions like the Champions League. In the slow-moving world of football bureaucracy, it is striking how quickly UEFA has managed to translate the initial concerns of President Michel Platini, who had described clubs borrowing to buy sporting success as “financial doping”, into a practical, workable document.

UEFA’s aim is no less than “protecting the long-term viability and sustainability of European club football”. Under this financial fair play concept, clubs will have to balance their books and operate within their financial means, thereby helping restore stability to the European game. Clubs will be required to spend no more than they earn to “introduce more discipline and rationality in club finances and to decrease pressure on players’ salaries and transfer fees.” They will be forced to settle their liabilities on a timely basis, but will also be encouraged to invest for the good of the club in areas such as youth development and infrastructure (stadium, training ground).

"Only thing bust about Arsenal"

This is probably all beginning to sound very familiar to Arsenal fans, who have observed the club investing in these themes over the last few years, but wait, it gets even better. In order to ensure a level playing field, UEFA have also targeted the influence of wealthy benefactors. General Secretary Gianni Infantino baldly stated, “It will not be possible for the big sugar daddy to just write-off a cheque at the end of each season”. President Platini went further, encompassing clubs financed by mountains of debt, when he called the initiative the end to “success on credit”.

In recent seasons, many clubs have reported repeated financial losses, which have been getting worse. The wider economic situation has created difficult market conditions for clubs in Europe, negatively impacting revenue generation and creating additional challenges for clubs in respect of availability of financing. Many clubs have experienced liquidity shortfalls, for instance leading to delayed payments to players, other clubs and even the tax authorities (Portsmouth) with auditors questioning the ability of some to continue as a going concern (Liverpool, Hull City).

In February UEFA published a mighty tome entitled “The European Club Footballing Landscape”, a financial survey of more than 650 clubs all over Europe, which contained some jaw-dropping statistics. Gianni Infantino reported, “We found that 50 per cent of those clubs are making losses every year, and 20 per cent of them are making huge losses, spending 120 per cent of their revenue every year.” He said that the primary reason for the losses is wage and transfer inflation, driven by clubs relying on owner finance or debt, “Around one third of the clubs are spending 70 per cent or more of their revenues on wages. Revenues across European football grew by 10 per cent last year, but the salaries of players and coaches have gone up by around 18 per cent.”

"Gianni Infantino looking through the books"

While such over-spending “may be sustainable for a single club, it may be considered to have a negative impact on the European club football system as a whole.” As Infantino said, “The problem is that all clubs try to compete. A few of the biggest can afford it, but the vast majority cannot. They bid for players they cannot afford, then borrow or receive money from their owners, but this is not sustainable, because only a few can win.” In other words, the richest clubs drive up players’ salaries and transfer costs, forcing smaller clubs to over-stretch their budgets to compete. Intriguingly, UEFA’s draft proposal states, “clubs will therefore be assessed on an individual basis as well as in the wider context of the European club football environment.” Not sure how they are going to achieve that, but it sure sounds good.

Debt may be a four-letter word for UEFA, but apparently loss is an even worse one, as the break-even requirement is described as the “cornerstone” of the new regulations. Gianni Infantino again, “We are not speaking about debts. We are speaking about losses. Debt per se is not necessarily a bad thing. The problem with debt is the cost of the debt, for example the interest you have to pay, and this can create a loss. We are focusing on the losses.” The key principle is that a club should always aim to at least break-even excluding expenditure for the long-term benefit of the club and must not repeatedly spend more than the income it generates.

So how do England’s finest fare under the new regulations? Of the seven teams that qualified for Europe this season, four of them fail to break-even – and by a long way. As we can see in the table above, Chelsea, Manchester City, Aston Villa and Liverpool are the offenders. This should come as no great surprise, as three of those clubs are funded by rich owners, most obviously with Roman Abramovich at Chelsea and Sheikh Mansour at Manchester City, but also to a lesser extent with Randy Lerner at Aston Villa. In marked contrast, Liverpool are not, having to bear the considerable burden of loans arising from the Hicks and Gillett takeover, which resulted in £40m interest payments last year.

That leaves just three clubs making a profit (Arsenal, Manchester United and Tottenham), but even this is misleading and over-states the situation. United’s profit only arose after last summer’s £80 million sale of Cristiano Ronaldo to Real Madrid, which is hardly likely to be repeated every year. Without this once-off factor, United would have reported a hefty loss thanks to their crippling £70 million interest payments. Despite this, United’s Chief Executive David Gill has claimed that the club would not fall foul of the new regulations, “We have seen what the proposals are and we would meet the financial break even rules.” Hmm. His confidence was not shared by the club’s bond prospectus, where the risk factors included the following, “These rules are intended to discourage clubs from continually operating at a loss. There is a risk that, in conjunction with increasing player salaries and transfer fees, the financial fair play initiative could limit our ability to acquire or retain top players and, therefore, materially adversely affect the performance of our first team.”

"David Gill - trust me, I'm an accountant"

What about Spurs? Although they don’t have to make huge interest payments, they are actually in a similar position to United, as their profit was only due to significant player sales of £57 million (Dimitar Berbatov to United and Robbie Keane to Liverpool). Without this, they would also have made a loss. Indeed, in the subsequent interim accounts for the six months up to 31 December 2009, Tottenham reported a loss before tax of £8.3 million. It looks like Harry Redknapp is beginning to work his magic on another club, as the impact of all his player purchases begins to bite. Sooner or later, this strategy will feed through into higher player amortisation, as, like all clubs, Spurs have to capitalise the cost of acquiring a player and then write-off that cost over the period of the player’s contract. To place this into context, Tottenham’s amortisation costs of £38 million are higher than United’s, but their revenue is only 40 per cent of Old Trafford’s franchise.

No, the only one of these clubs that is genuinely profitable is Arsenal, even after excluding the money made from property sales. Again, this should not raise too many eyebrows, as UEFA had already advised that Arsenal was the only major English club that would meet the financial fair play criteria today.

"Away From The Numbers"

The more financially astute will already have noticed that UEFA’s break-even template is subtly different from a regular profit and loss account. As they almost said on Star Trek, “It’s a P&L, Jim, but not as we know it.” The UEFA template introduces the concept of relevant income and expenses, which looks complicated, but is essentially a variant of the good old “carrot and stick” incentive that tries to achieve two goals: (a) encourage clubs to make sensible long-term investment; (b) close any loopholes which might allow clubs to artificially meet the break-even target.

Let’s take the positive aspect first. Clubs will still be permitted to borrow for “good” projects like improving the stadium or training facilities. Any costs associated with this investment, like interest on loans to fund the construction or depreciation on the resultant fixed assets, are excluded from the break-even calculation. In other words, an excess of expenses over income may still be allowed if the excess is solely related to costs that are for the long-term benefit of the club. As Infantino explained, “We are also saying losses can be admitted, if the money is invested for long-term purposes — developing a youth academy for example or infrastructure. This of course can lead to a loss in the short-term, but in the long-term it will be beneficial for the club, help increase the revenues.”

So the costs of building the Emirates Stadium would be removed from Arsenal’s relevant expenses, as indeed would the depreciation. Eagle-eyed observers will have noticed that this guideline appears to greatly benefit Manchester United, as they can deduct £44 million of depreciation and amortisation, largely because they report £35 million amortisation of goodwill. In accounting terms, goodwill arises after the acquisition of a subsidiary and represents the difference between the purchase price and the fair value of the net assets. This is capitalised like any other asset and amortised over the estimated useful economic life. This deduction makes a huge difference to United’s profitability. Maybe this is why David Gill was so confident of United meeting UEFA’s new regulations?

"Moneyball"

On the other hand, UEFA are clearly no mugs, as they have addressed some of the more obvious ways of getting around the new regulations. Many clubs these days have an intricate inter-company structure and there were fears that a club like Liverpool could argue that the football club was profitable, as their massive interest was paid out of the club’s holding company. Clearly, that does not make sense to any reasonable man and UEFA have caught that one, “For the calculation of relevant expenses, management must include any expenses incurred in the reporting period in respect of the activities of the club that are not otherwise recorded in the audited annual financial statements of the reporting entity that forms the basis for preparation of the break-even calculation.”

Next, they have anticipated the possibility of a wealthy owner paying a ridiculous £200 million to sponsor his team by embracing the concept of “related parties” and “fair value” so beloved of tax authorities when reviewing inter-company transactions. In short, if an owner over-pays for services, this income will be adjusted down to a fair value, i.e. what the club would have received if the transactions were conducted on an “arm’s length” basis. Enough tax jargon for you? The guidelines list specific examples like sale of sponsorship rights and use of executive box, but I wonder whether this regulation might also apply to interest-free loans? After all, banks don’t usually provide loans without charging interest.

UEFA wish to exclude any income and expenses from non-football activities, which are “clearly and exclusively not related to the activities, locations or brand of the football club”. This might be a factor for Arsenal, as any profit made from future property sales at Highbury Square, Queensland Road, etc would presumably be excluded from the break-even calculation. On the other hand, this might benefit a club like Barcelona, if they can eliminate the £24 million losses they make on other sports (basketball, handball and hockey).

However, you would not expect UEFA to be too tough on their meal ticket and, sure enough, they revealed the velvet fist inside the iron glove by making a number of concessions to Europe’s top clubs. The most significant is that there will now be a phased implementation over five years. The scheme will still kick-off (if you’ll excuse the pun) in 2012, but there will be a three-year transitional period and it will not be fully operational until 2015. As David Gill said, “If clubs are not complying now, then there is time for them to get their house in order.” Or, as cynics might say, there will be time for clubs like Manchester City to accelerate their spending before the regulations take full effect.

Furthermore, in the same way that British transport classifies trains as being “on time” if they are only ten minutes late (or something like that), UEFA have stretched the definition of break-even to include an “acceptable deviation”. Losses that are not underwritten by club owners are allowed up to a total of €5 million over three seasons. To be fair, Infantino’s explanation makes sense, “You can have losses for one year, because perhaps you had one bad season and you did not qualify (for Europe). So we are looking at losses over a multi-year basis. So one year you can make a loss, but not over three years.”

Less justifiable is the acceptable deviation for billionaire owners, who will be allowed to absorb aggregate losses of €45 million over three years from 2012, so long as they are willing to cover the club’s losses by making equity contributions. To be fair, the maximum permitted loss then falls to €30 million from 2015 and will be further reduced from 2018 (to an unspecified amount). This means that in the transition (weaning-off) period, owners can pump in an average per season of €15 million up to 2014 and then €10 million up to 2017. After that, who knows? Perhaps break-even will actually mean what it says by then.

Maybe the soft landing is why the top clubs have given UEFA’s initiative their support. The European Club Association (ECA), which represents the 137 leading clubs in Europe, voted unanimously to approve the proposal at their General Assembly with their chairman, former German international Karl-Heinz Rummenigge, declaring, “these measures will shape the future of European club football into a more responsible business and ultimately a more sustainable one.” According to Platini, “The owners are asking for rules, because they can’t implement them themselves. Many of them have had it with shoveling money into clubs. They asked me to do something – Roman Abramovich asked me, the owner of Manchester City agreed – and I think it’s very moral. And it’s not just the biggest clubs – it’s all the clubs.”

"Pointing the way"

The owners might also have been stunned into action when Portsmouth went into administration. If a club from the world’s richest league could crash in this way, what about the rest? Inter’s Chief Executive, Ernesto Paolillo, admitted, “The old times are finished. Sometimes you need a shock and this is it.” At the same Soccerex Forum, Sevilla’s vice-president, Jose Maria Cruz, said that half a dozen Spanish clubs faced bankruptcy. Whether clubs are a going concern is clearly in UEFA’s thoughts and the regulations specifically require a club to “prove that it has no payables overdue towards other football clubs arising from transfer activities and towards employees and social/tax authorities.” This is evidently a major issue with the Footballing Landscape report listing €1,650 million of transfer debts, including €550 million over 12 months old. To put this more bluntly, clubs are fielding players that they have not paid for.

Although UEFA will come down hard on clubs that owe money to those in the “football family” (other clubs or players) and the unforgiving tax man, they appear more sanguine about debt in general. Platini and Infantino have both said that debts will be permitted if clubs can service the payments, so the issue is not so much the level of debt as whether the interest payments can be covered. UEFA have effectively acknowledged that debt can be an important tool for funding growth, but they want it to be manageable. However, they have expressly commented on the debt at Manchester United and Liverpool, “Just over half of the Premier League’s commercial debt has been placed into the clubs as a result of leveraged buy-outs, acting principally as a burden rather than to support investment.”

Some have argued that this UEFA initiative is one reason why the owners at Chelsea and Manchester City have wiped out their clubs’ debt by converting loans into equity, but I’m not sure that it makes much difference. Given that the loans were effectively interest-free, in terms of the break-even calculation, this is simply moving money from the left pocket to the right.

"Stuck in the middle with you"

However, it does affect one of the financial ratios used by UEFA as “warning signs”. A red flag will be raised if net debt exceeds annual turnover and the club will be asked to provide additional information, including proof that the debt level is sustainable. UEFA helpfully define net debt as “the borrowings of the club less cash” with borrowings including loans from banks and the owner. Journalists, please note that it does not include accounts payable or trade creditors.

Although they have resisted calls for a salary cap, another warning sign occurs if the wages to turnover ratio is over 70 per cent. In a slightly contradictory statement, Infantino explained the thinking on salaries, “The limit would be the break-even rule. You could spend 80 per cent on salaries, if the rest of your costs are 20 per cent. But if your other costs are higher, then the salaries will have to go down.”

Monitoring of the clubs and their adherence to the rules will be overseen by the newly-formed Club Financial Control Panel, which will be made up of financial and legal experts, who will conduct audits to ensure that the system is applied correctly. Chairing the panel will be former Belgian Prime Minister, Jean-Luc Dehaene, which is an example of how seriously UEFA is taking financial fair play. Michel Platini described Dehaene as being “very experienced in financial matters and a great football fan. He is the ideal person to take charge of the economic destiny of European football.” We shall see. If this Panel believes that the requirements have not been fulfilled, it can refer the case to the scary sounding Organs for Administration of Justice with the ultimate sanction being a ban from UEFA competitions.

"Jean-Luc Dahaene - a formidable figure"

Obviously, the introduction of such a scheme will not be without difficulties. Platini himself admitted, “It is not easy, because we have different financial systems in England, France and Germany. In England you can have debts; in France you’re not allowed to have debts; and in Germany you get relegated to the second division (if you have debts).” As always, the devil is in the detail and we can already anticipate many tedious arguments from lawyers and accountants. Nevertheless, the break-even analysis is based on accounts that have been audited and we must hope that common sense is applied during any disputes.

The other major concern is that far from making football fairer, all this initiative will achieve is to make permanent the domination of the existing big clubs: survival of the fattest, rather than the fittest, if you will. The argument goes that those clubs that have already reached the promised land of the Champions League will continue to benefit from the highly lucrative broadcasting revenues, while the challengers will no longer be able to spend big in a bid to catch up. This may be why Abramovich’s support may be considered a tad hypocritical, as he has already spent his millions to join this exclusive club.

"Back off, Europe!"

This is one of the reasons why the Premier League has reservations. Chief Executive Richard Scudamore said that he was opposed to any limits being set on the ability of owners such as Sheikh Mansour to invest money in their clubs. A spokesman went further, “The benefactor model of investment is not one the Premier League wants to see outlawed. We don’t want to discourage investment in our league, which has benefited clubs of all sizes.” There is something to this, but, for me, the financial fair play regulations are the lesser of two evils. They might make it more difficult to gatecrash the party, but they will stop clubs like Portsmouth (and Leeds in the past) gambling their future to “live the dream”. As Platini argued, being financially supported by a single backer is not sustainable, as he might run out of money (or might never had any). Of course, an Arsenal fan might also point out that their club has managed to qualify for the Champions League for many years without spending any money.

The Premier League contends that it has introduced its own financial criteria, which give them increased powers of scrutiny and intervention and will go a long way to preventing another “Portsmouth”. Clubs will have to submit annual accounts and budgetary information. Scudamore explained, “If the board believes the club is at risk of not being able to meet its obligations, then it has to step in and agree a budget for the running of that club. It has the ability to embargo any transfers or, and I think this is a first, to stop clubs renegotiating upwards any player contracts and remuneration.” Not sure about you, but his words don’t exactly inspire me with confidence.

"Ivan Gazidis - fair comment"

Will all these regulators have the bite to go with their bark? Expelling teams from European competitions works fine on paper, but would it ever happen in reality, especially when you consider that Europe’s most indebted teams are among those that attract the largest television audiences. Would UEFA really bite the hand that feeds? Indeed, one of the members of the Club Financial Control Panel admitted that there was a risk that aggrieved clubs “could fly off into the ether and form their own competition.”

Let’s end on a positive note and leave the last word to Arsenal’s Chief Executive, Ivan Gazidis, “The fundamental issue that we all face is do we have the courage and fortitude to control our spending in a fairly irrational environment. If we can manage that, there's no reason why anyone can't have a long-term stable business in football.” Can’t say fairer than that.

How Can Barcelona Afford Cesc Fabregas?

For the past few days there has been intense speculation about whether the Arsenal captain Cesc Fabregas will make his long-anticipated return to Barcelona, the team who brought him through their famed academy system. Trying to discern fact from fiction is extremely difficult, but the question that concerns me is exactly how Barcelona can afford to buy him, especially now that one of the Catalan club’s own presidential candidates has described the club’s level of debt as “stratospheric”.

Barcelona has already spent £34m this week to secure prolific striker David Villa from Valencia, while they splashed out around €90m last summer on bringing new players to the Camp Nou, including the mercurial forward Zlatan Ibrahimovic, the unpronounceable defender Dmytro Chygrynskiy and two Brazilians: the veteran full-back Maxwell and the promising striker Keirrison. Estimates of a transfer fee for Fabregas have ranged from a ridiculously low £30m to an optimistic £80m, but whatever the price, I think it’s worth looking at whether Barcelona are “mes que un club” from the financial viewpoint.

"Future team mates at Barca?"

So, do they have enough money to buy Fabregas? To be honest, it’s almost an impossible question to answer, given the willingness of Spanish banks to hand over loans to Barcelona (and Real Madrid) to fund their acquisition plans, but if we analyse Barcelona’s financials we might just be able to see whether they generate sufficient cash themselves. It might also be interesting to compare their accounts with Arsenal’s to get a sense of perspective, but before we get stuck in, I should give a few health warnings:

(a) We will look at the last set of annual accounts, not the more recent interims, as they do not contain the wealth of detail of the full-year figures. These cover the 2008/09 season, though Arsenal’s accounts are for the twelve months until 31 May 2009, while Barcelona closed their books a month later on 30 June 2009.

(b) Unsurprisingly, Barcelona’s financial statements are as per the Spanish National Chart of Accounts, which is very similar to the British format, but not exactly the same, so I have slightly amended their presentation to enable like-for-like comparisons.

(c) I have excluded Arsenal’s property development business, as this is a temporary activity for Arsenal, which should come to a (happy) end in the near future.

(d) However, I have included Barcelona’s non-football sporting activities (basketball, handball and hockey), as this is normal business for the club. In any case, it is not significant to their revenue (only £1.3m in total), though the costs are more of a drain, reducing last year’s profit by £24.3m.

(e) Currency movements can play a big part in the comparison with the Pound around 25% lower against the Euro than two years ago, even after the recent collapse of the Eurozone currency. This means that Barcelona’s revenue in Sterling terms is now much higher than it was. For convenience, I have used the same exchange rate as Deloittes in their 2010 Money League, namely €1.1741.

The first point to note is that both clubs make money, which is a rarity in the world of football. Barcelona’s profit before tax was a highly respectable £7.5m (€8.8m), but Arsenal’s was even more impressive at £39.9m, even after excluding £5.6m from property development. This difference may be down to a divergence in strategy, as Barcelona’s approach appears to be to remain profitable, but only just, as they spend available money on strengthening their squad. However, when Barcelona vice-president Joan Boix describes the club’s economic model as “solid and sustainable, independent of any sporting success”, it sounds uncannily similar to the Arsenal ethos. Having said that, you would expect their figures to be good after an incredibly successful season, during which the Catalans won the Champions League and the domestic double of La Liga and Copa del Rey. In comparison, Arsenal did not win any trophies, but their report card was not too shabby either: reaching the Champions League semi-finals, finishing fourth in the Premier League and reaching the semi-finals and quarter-finals of the FA Cup and Carling Cup respectively.

However, there is an enormous difference in revenue with Barcelona generating an incredible £311.7m (€365.9m), which is £86.6m (or nearly 40%) more than Arsenal’s £225.1m. To put that into context, Arsenal’s turnover is the second highest in England and the fifth highest in Europe. I should mention that Barcelona report their turnover as €384.8m, as they include profit on player sales, but this is shown separately in British accounts, which is the approach I have taken. Deloittes used the same assumption in compiling their Money League.

Even though the Camp Nou has a far larger capacity (98,800) than the Emirates (60,400), Arsenal’s match day revenue of £100.1m is actually £18.7m higher than Barcelona’s £81.3m. This is due to a couple of factors. First, Arsenal fill their stadium (or at least sell all the tickets), while Barcelona’s average attendance is 76,000, which is only 77% of capacity. More importantly, Arsenal’s ticket prices are among the highest in Europe, including 9,000 premium seats that generate approximately 35% of match day revenue, though any continued lack of success in terms of winning trophies might adversely affect demand at this level.

"Grounds for optimism"

Of course, the Emirates is a brand new stadium with state-of-the-art facilities, while the Camp Nou is a venerable old ground in need of a facelift. Barcelona had planned a €250m redevelopment, adding 10,000 seats and improving corporate facilities, which would have increased revenue, but this has been postponed after complaints from local residents.

In contrast to Arsenal, Barcelona do collect good revenue from pre-season tours and lucrative friendlies. For example, their tour to America plus a friendly match in Kuwait produced over £6m. They also receive money from over 170,000 members, though this is not a significant factor, only delivering £15.1m.

However, in broadcasting revenue there really is no comparison. Although Arsenal’s TV revenue of £73.2m is nothing to be sniffed at, Barcelona’s £134.9m is virtually double the size, thanks to the unique ability of Spanish clubs to negotiate individual deals in contrast to the Premier League’s collective bargaining system. This means that Barcelona earn around €120m in television rights from their deal with Mediapro, which runs until season 2012/13, but the other, smaller teams earn considerably less. For example, Valencia and Sevilla only earn €30m and €20m respectively. Apart from the obvious financial benefits, this has another advantage to Barcelona (and Real Madrid), as it makes it almost impossible for the other teams in Spain to compete with them, allowing the big two to prioritise the Champions League. Even though Arsenal, like other Premier League clubs, will receive an additional £7.5m a year from next season following the recent overseas rights deal, they are still greatly disadvantaged relative to the Spanish giants.

With Italy returning to collective rights next season, Spain is the only leading European championship in which clubs sign their TV rights individually. Not surprisingly, the other clubs in La Liga have denounced this process as “completely unbalancing the league’s sporting potential”, but time will tell whether their pressure for change bears fruit. Equally predictably, Barcelona would resist any change, being “radically and absolutely against the collective sale of TV rights.” President Joan Laporta explained the club’s position, “I don’t want to damage the interests of Barcelona Football Club, because we have to compete against teams in other countries.”

"Business is business"

Joan Boix has said that Barcelona “only budget for the team to reach the quarter-finals of the Champions League”, so their revenue got a boost when they won it in 2009, though their share of the revenue distributed by UEFA (€31m) was not much higher than the €26.8m received by Arsenal. Although they were given €7m more for winning the competition, Arsenal’s share of the TV pool was €3.1m higher, as the English TV market is larger.

Similar to TV revenue, Barcelona’s commercial revenue of £95.4m is very nearly twice Arsenal’s £48.1m. We know that this is an area of weakness for Arsenal with their revenue lagging way behind the club’s English peers (Manchester United £70m, Liverpool £68m and Chelsea £53m), but we also understand why, as the club tied themselves into long-term deals with Emirates (stadium naming rights until 2021, shirt sponsorship until 2014) in order to provide security for the stadium financing.

"Absolutely Fabregas"

Although Barcelona are famous for not having a shirt sponsorship deal, instead having an innovative partnership with UNICEF whereby they fund some of the charity’s projects, Laporta’s regime is determinedly commercial with the club’s website listing 26 sponsors, providers and partners, including Nike who pay a guaranteed minimum of €30m a year (“the best deal in our history”, according to Laporta). Unlike English clubs, when Barcelona sign a player, they also retain a significant portion of his image rights, which allow them to make millions in advertising deals. The club also receive an incredible £18.7m a year from its museum.

Arsenal chief executive Ivan Gazidis is well aware of the opportunities here and has recently restructured and strengthened his commercial team to explore new partners and overseas markets. Recent deals by other clubs highlight the size of the prize, which are conservatively worth another £20m a year. Indeed, Barcelona are a good example here, having increased commercial revenue under Laporta’s leadership from a paltry €39m in 2002/03 to €112m today.

In fact, it’s worth looking at how revenues have grown at the two clubs since Joan Laporta’s election as Barcelona president in June 2003. At that time, Arsenal and Barcelona had almost identical revenues with the North London club’s turnover of £103.8m only just lower than Barcelona’s £105.1m. Since then, Arsenal have managed to more than double their revenue to £225.1m, which is an impressive performance, but pales into insignificance compared to Barcelona, who have all but tripled their revenue to £311.6m. One of Laporta’s first acts was to replace practically the entire management team with top-class professionals, many of them recruited from outside the football industry, which shows what can be achieved with the right people. Nevertheless, Joan Boix admitted that “the growth in income in the past six years has exceeded all expectations.”

Since the annual accounts, revenue has grown still further at Barcelona with the club reporting a substantial 19.7% (€36.8m) increase from €186m to €222.8m for the six months up to 31 December 2009, though this gain was more than wiped out by a 27.1% (€45m) rise in costs from €166m to €211m, due to an increase in salaries following the signings of Ibrahimovic et al plus higher bonuses for winning the Club World Cup and the European and Spanish Super Cups. Despite “the success on the filed having a short-term economic cost”, the club still believes that “the figures highlight that Barcelona is consolidating year after year a self-financing and sustainable business model.”

"The joy of Cesc"

Arsenal’s interims told a similar story, though revenue from the football segment only grew by £1.8m (less than 2%) with property development being responsible for almost all of the club’s £40m reported increase in turnover. Again, this was more than off-set by the £10.1m cost growth to £101.4m, largely due to the £8.6m rise in player wages, despite the departure of Emmanuel Adebayor and Kolo Toure, who were on pretty high salaries, which reflected the re-signing of 17 first-team players on improved long-term contracts.

Although Barcelona’s revenue is significantly higher than Arsenal’s, so is their cost base. Their annual expenses of £307.7m are a full £113.4m more than Arsenal’s £194.3m. As always, the wage bill takes up the largest slice of the pie at both clubs: £104m at Arsenal and a jaw-dropping £171.5m (over €200m) at Barcelona. This still gives a respectable wages to turnover ratio of 55%, although not as low as Arsenal’s 46%, which admittedly is exceptionally good for a football club. Much of Barcelona’s huge staff costs is due to high variable costs of nearly £50m for bonuses payable for winning the treble, which was £28m more than the previous season when they did not win anything (third, in La Liga, semi-finalists in the Champions League and Copa del Rey).

Even so, Barcelona has eight players in the list of the top 50 footballers’ salaries with Ibrahimovic £10.4m and Lionel Messi £9.1m being the best paid. Next in the list is Thierry Henry, so if he departs for the MLS, as expected, some £6.5m will be cut from the payroll. Arsenal only has one player on this list, Andrei Arshavin in 47th position with £4.1m, though Fabregas’ reported increase to £110,000 a week would result in an annual salary of £5.7m, taking him into the top 20.

"Pep talk"

Clubs in La Liga have been helped by the so-called “Beckham law”, which allows foreigners in the top tax bracket to only pay 23% tax for their first five years in the country. In comparison, players in England now pay 50%. This means that clubs in Spain can either pay lower gross salaries to produce the same net salary as in England or pay the same salaries, leaving the players with a higher net package. It has been reported that this law is under review, but I don’t think that it has been revoked yet.

The other meaningful operating expense is player amortisation, which reflects how much money has been spent on buying new players. The accounting treatment here is to write-off the costs associated with buying players over the length of their contracts, based on the (prudent) assumption that a player has no value after his contract expires, since he can then leave on a “free”. Barcelona’s amortisation of £46.4m is considerably higher than Arsenal’s £23.9m, but this is more due to Arsenal’s very low transfer spend than any profligacy on Barcelona’s part. As a comparison, Barcelona’s amortisation is quite similar to the other “Big Four” English clubs: Chelsea £49m, Liverpool £45.9m and Manchester United £37.6m. However, given last summer’s spending spree, I would expect it to be a fair bit higher next year.

It would be a bit harsh to overly criticise Barcelona’s big money transfers, as the majority of their first team have emerged from the club’s youth system, including great players like Xavi, Andres Iniesta, Victor Valdes, Gerard Pique and Carlos Puyol. Indeed, many have described Arsenal’s own “youth project” as an attempt to emulate the Catalan system. Barcelona’s strategy is in marked contrast to Real Madrid with Laporta memorably boasting, “We create Ballon d’Or winners, while others have to buy them. One is the model of a youth system and the other one, that of Madrid, is of a wallet.”

"Project Youth at its best"

Barcelona are not afraid to splash the cash, but they also recoup some of that outlay via player sales, which earned them £15.1m in 2009 (after £20.4m the year before). Of course, Arsene Wenger is also renowned for his ability to generate revenue from the transfers of players that he has developed. In particular, last year’s accounts include a profit of £23m from the sale of player registrations and that did not include the £42m received last summer for Adebayor and Toure from the City slickers.

This is all very well, but what about all this debt that Barcelona is supposed to have? Strange – the accounts show that Barcelona’s net interest payable of £11.6m is actually lower than Arsenal’s £14.4m. Both of these are considerably lower than the annual interest payments at clubs with a genuine debt mountain like Liverpool’s £40m and Manchester United’s eye-watering £68m. We know that the solid progress on property sales has enabled Arsenal to reduce net debt by circa £160m in the last twelve months to around £175m with the property developments now being essentially debt-free, but what about Barcelona?

The precise figure for their debt is actually quite confusing with the amounts reported ranging from €30m to €489m (see table above), but the explanation is quite straightforward. The only genuine bank debt that Barcelona has is a €29m loan from La Caixa that was taken out in February 2009 (repayable February 2010) and that is the debt the club mentioned at the AGM. At the same time a club spokesman referred to net debt of €202m, which is also the figure quoted in the annual accounts, which represents the bank loan plus provisions and accruals. The Guardian quoted a net debt of €350m, which appears to be calculated from the total current liabilities of €360m, i.e. including €247m of trade creditors, less the cash at bank of €10m. Finally, one of the Barcelona presidential candidates, Sandro Rosell, argued yesterday that the debt was €489m, which is simply the sum of all the club’s liabilities (current and non-current). As Mark Twain almost said, “the reports of my debt have been greatly exaggerated.”

So which figure is correct? In their own way, all of them. The definition of debt is “amounts owed to people or organisations for funds borrowed”, but this can be broadly interpreted. At the narrowest extreme, we have just the bank debt; at the broadest extreme, we can take total liabilities (“all financial obligations, debts, claims and potential losses”). It all depends on your purpose. The club clearly wishes to under-play their debt level, while a presidential candidate would obviously want to use the highest possible figure – which is exactly what they have done. Barcelona’s view is, “We have kept the level of debt stable and we hope to carry on lowering it”. Even after the costly purchases last July, they claimed that “the ultimate proof that Barca has a solid economic base is that we didn’t have to make any new debts when signing new players this summer.” As we have seen earlier, they are not unwilling to sell players, which would reduce any debt, though I’m not sure that they would want to make money on Messi (for example).

"Sandro Rosell - he would say that, wouldn't he?"

But do the provisions include anything that might be a sting in the tail? Yes, they do – a couple of nasty surprises, in fact. First, the club has provided €36m for a payment to the Spanish tax authorities following irregularities in the late 1990s, having already paid out €25m over the same issue for earlier years. Second, they have provided €16m against a claim made by TV company Sogecable. Trade creditors are normally just the cost of doing business, so personally I would not include them within debt, but even these include some “funnies”. For example, Barcelona owe nearly €50m to other football clubs on transfer purchases, ironically including €16m to Arsenal (€12m for Thierry Henry and €4m for Alex Hleb). These “disputes” don’t quite tie in with the club’s “holier than thou” image.

There are many things to admire about Barcelona. Not just the way the team plays the beautiful game, but also the way that the club is structured, so that the executive is accountable to the club’s members with the president being elected every four years. Alfons Godall, another presidential candidate, said, “I believe ours is the best model, an example to England. We are free. We do not depend on a Mr. Abramovich. We want to be successful, but also to have meaning, social values.” It all sounds a little too good to be true and indeed there are some who consider Barcelona to be the football equivalent of Coldplay: a bit self-righteous, adored by the masses and just a little too free with their opinions. Their image would be rather more convincing if they didn’t spend so much time unsettling other clubs’ players, or if there weren’t so many empty seats at the Camp Nou.

"On your bike"

In fact, Spanish domestic football is far from healthy. Only this week, the Guardian revealed that La Liga’s debt of £3 bln was even higher than the Premier League’s £2.9 bln. The individual TV rights may be wonderful for Barcelona and Real Madrid, but every other club in Spain suffers, highlighted by Real Mallorca announcing that they would file for voluntary administration, even though they narrowly missed out on qualifying for the Champions League. In a thinly veiled message to Fabregas, Arsene Wenger said, “I can't see anyone who has a competitive edge going to Spain. They have two good teams, but the third team is 21 points behind and this week the players threatened to go on strike because they are not paid. It's a league that is in complete disarray. If you are competitive you stay in England, that's where the competition is and that's where the best players want to be.”

We don’t know what is happening behind the scenes with Arsenal’s captain, but if Fabregas does not end up at Barcelona, I don’t think it will be for financial reasons. The Catalans generate a huge amount of revenue, which they clearly budget to spend on improving their squad. Thanks to their productive youth scheme, they only need to make a few “marquee” signings every season, so they can afford to allocate a lot of money to one or two individual transfers. I don’t think that their debt levels would prevent them from making a bid, as the majority is derived from normal operations (trade creditors, provisions and accruals) and their bank debt is tiny. In any case, we have seen that Spanish banks are more than willing to lend to Barcelona and Real Madrid. Whether Barcelona would be willing to spend as much as £80m is another question, as every buyer has his limit, beyond which he will not go. Let’s hope that this is a case of an irresistible force meeting an immovable object.