Barcelona reached 'technical bankruptcy' at peak of financial crisis

 

Barcelona have released a ‘financial due diligence’ report commissioned by the current board of directors when they took office in March 2021, shedding light on the truly shocking state of affairs.

The new regime, led by president Joan Laporta, wanted an in-depth analysis of Barça’s condition from the start of the 2018/19 season until March 2021 when they took over the running of the club from the previous board headed by Josep Maria Bartomeu.

Barça chief executive Ferran Reverter has now publicly presented the findings, which has concluded there had been ‘serious administrative deficiencies’ in the running of the club during those particular two years and nine months in question.

Most damning of all is the use of the term ‘technical bankruptcy’ to describe the financial situation.

Technical bankruptcy is defined by Investopedia as occurring ‘when a borrower is unable to make payment on a debt obligation but has yet to officially declare bankruptcy before a legal authority.’

That situation is listed as a consequence of the club having a negative net worth.

The current board also described what they inherited: "debt and future liabilities amounting to 1.35 billion euros, with an urgent need for refinancing; zero operating cash flow, with difficulty to meet the payroll; widespread non-compliance with financial ratios, limiting the registration of new players and decision-making; deteriorated facilities and a Camp Nou in a precarious situation; an undervalued Espai Barça project with serious shortcomings; and a lack of governance and internal control, which made it difficult to control and manage the institution."

The report dispels any lingering myths that Barcelona are in this financial mess because of the COVID-19 pandemic. Crippling economic deterioration was already set in.

The wage bill grew 61% from 2016 to 2021 as a result of new signings and contract renewals – the point is made that without changes to the squad this season, wage expenditure alone would have hit €835m and exceeded the club’s expected recurring revenue before any other costs.

A ‘lack of governance and management’ is blamed for a 56% increase in administrative expenses between 2016 and 2020, while in those years the financial cost ‘multiplied six-fold’ because of an increased net debt and a ‘lack of financial planning’.

The board have now outlined what has been done to tackle each of the major problems.

That includes a new strategic five-year plan to address the negative net worth, reducing player expenses by €155m to fix the zero operating cash flow, changing the financial structure, continued commitment to La Masia, reviewing organisational structure and improving internal controls.