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Spanish football faces financial implosion

Spanish football is currently riding a wave of euphoria following the success of the national side in South Africa. Andres Iniesta’s late goal in Soccer City in Johannesburg sparked wild celebrations throughout the country. However, there is another wave that is growing, and it is one that is threatening to wash away any positive feelings in Spanish football. And that is the financial situation that is threatening the very existence of La Liga.

Just as Spain are currently the darlings of the international scene, Spain’s flagship club side, FC Barcelona, have drawn admiring glances from all corners in recent years, both for their attractive style of football, but also for the sensible and responsible manner in which the club has been run. ‘Mes que un club’ is their motto – ‘More than a club’ – and it is seen as not just a business, but an integral part of the community.

However, recent weeks have seen more unsavoury issues cropping up. The new club president, Sandro Roselli, had hinted at financial problems during his election campaign, and these have come to the fore in spectacular fashion. The club has experienced major liquidity problems that have led to the players not being paid for last month. They have been forced to approach the market for an additional €155m to cover their working costs, which they received from a group of Spanish banks. They have also been forced to sell Dmitro Chygrynskiy back to Shakhtar Donetsk for €15m, having paid over €25m for him less than 12 months previously. The more interesting aspect of this deal though is that manager, Josep Guardiola, wanted to keep the player, but the club sold him over his head to relieve the cash-flow problem.

Increased wage costs are a large part of the reason for the problems at Barcelona. In 2008, wages were just under €170m, but these have rocketed by 55% up to €262m in 2009/10. Some of this increase can be attributed to greater bonus payments as a result of the remarkable success that the club has experienced in recent times. Unfortunately, revenue has only increased by 33% over that same period. This means that wages now account for almost 64% of income. Furthermore, a major worry is that the short-term debt of €392m that the club faces far exceeds their working capital of €110m. There are some worries around the club that they may have to default on some of their loans during the close season.

However, it is not just Barcelona facing financial difficulties at the current time. The economic conditions in Spain at the moment have led to many clubs being forced deep into the red, and some to the brink of bankruptcy. The worst recession in over 50 years, the collapse of the real estate market and the dramatic increase in wage and transfer costs have all contributed to the current financial crisis in La Liga.

The financial statistics paint a damning picture. The 20 clubs in La Liga have a combined debt of €3.53bn, having recently overtaken the Premiership as the most indebted league in the world. Revenue growth in 07/08 and 08/09 has slumped from 10% to 4%, whilst operating costs have risen to €1.7bn, outstripping income of just €1.46bn – a significant difference of €240m. Only 3 clubs – Real Madrid, Barcelona and Numancia – made an operating profit. Labour costs represent 85% of total operating income of the 20 clubs.

As we can see, the situation is worrying, and getting worse. A major reason for the financial disparity in Spain is the negotiation of TV deals. Each club negotiates their own TV deal, rather than the collective bargaining agreement that is commonplace in other countries. As a result, Real Madrid and Barcelona rake in around half of the €600m pot of TV revenue between them – more than double that of the 3rd placed team, Valencia, and almost 19 times that of lowly Xerez. This leads to the big two having more money to spend that the other clubs, who often overspend in order to try and bridge the gap.

Despite the wishes of the other clubs to move to a collective bargaining agreement, the government and sporting bodies have shown no inclination to accede to their demands. This has led to the dramatic threat by a number of the richer clubs to break away from La Liga, creating a new and separate first division. This would clearly cause absolute chaos in Spanish football, and is likely to eventually lead to a change in the negotiations.

Potential new regulations are being debated where clubs will be limited to not spending more than 70-75% of their income on wages and transfer fees. This would include the powers to exclude any offenders from competitions. Whilst these new regulations would help, they still provide plenty of room for offenders to avoid them, and it seems as though they have come too late. With Valencia’s recent problems, and 5th placed Mallorca entering administration on the brink of bankruptcy, these issues should really have been addressed sooner.

Spain’s victory in the World Cup will provide a boost for Spanish football, but it needs to be harnessed in the correct manner to help to provide a financial benefit for the game in the country. Otherwise, the growing financial problems in the country are threatening to not only lead to the destruction of individual clubs, but could also rip apart the fabric of the league itself in Spain. And nobody would like to see that.

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