Lionel Messi is breaking up with Barcelona, and the numbers are huge.
Any club looking to bring on the all-time soccer great will have to come up with hundreds of millions of dollars for his salary. And that’s not counting the $825 million transfer fee FC Barcelona contends it’s owed – although Messi’s camp believes the fee no longer applies.
In return, his new team could expect $175 million of value per year if the Argentinian forward stays true to form, according to a calculation from Matt Balvanz, vice president of analytics at Navigate, a data-driven consulting firm in sports and entertainment.
Here’s how it works out:
About 2 million Messi jerseys are sold each year at prices ranging from $100 to $200. Teams typically net 15% of apparel proceeds, so his new team could expect about $45 million from jersey sales alone.
But Balvanz says you can also look to Barcelona’s revenue, which was a chart-topping $960 million in 2019. Assuming each of the club’s starting eleven is responsible for an equal proportion of those sales, Messi would be worth about $87 million (that figure includes jersey sales). Take a small leap and assume that Messi’s contribution to ticket sales, media rights and sponsorships is really more than double the average Barcelona player, and Balvanz concludes that Messi could be worth about $175 million a year.
That’s a staggering sum, but not far off what Transfermarkt has pegged Messi’s value at in the past. In 2018, the soccer website valued him at $198 million. It has his current market value as $123 million.
Using the same logic, Messi’s potential exit would probably end Barcelona’s standing as the richest club in soccer. And it would give a significant revenue boost to whichever team decides to sign up a 33-year-old who became synonymous with Barca’s successes on and off the field in recent years. Manchester City, which is currently favoured to take him on, is sixth in Deloitte’s Football Money League.
Big opportunity for Barcelona?
Alex Webb, writing for Bloomberg Opinion, believes losing Lionel Messi needn’t be a catastrophe for F.C. Barcelona. It may be an opportunity.
The Catalan soccer team is — by revenue — the richest sports club in the world, wealthier even than the NFL’s Dallas Cowboys. But Messi’s reported annual salary has a distorting effect on Barca’s cost structure, allowing other (worse) players to seek comparable pay, and dragging overall costs up. The club last year reported net profit representing just 0.5% of its 837 million euros ($996.5 million) ) in sales. The exit of Messi should let it reset salary expectations and allocate its capital more efficiently.
The measly profit is partly because the club is owned by its 142,000 members, which means that it reinvests all proceeds into the playing squad.
As the club’s income has increased, so have player salaries. The 44% revenue jump in revenue between 2017 and 2019 was matched by a commensurate increase in player wages.
The single biggest sales boost came from a new sponsorship agreement with Nike Inc., which started in 2018. It was reported to be worth at least 155 million euros ($184.5 million) a season, although it has ended up being quite a bit less after Barca reclaimed some marketing rights. That deal gave Messi the chance to snag a pay rise of his own. Bumper contracts followed for other players such as striker Luis Suarez, midfielder Frenkie de Jong and French star Antoine Griezmann.
Barca’s total salary bill now exceeds 485 million euros ($577.4 million) a year, the highest of any soccer team in the world. But performance on the pitch hasn’t kept up.
The team has failed to win the Champions League, Europe’s top club football competition, since 2015. When Liverpool won the tournament in 2019, its wage bill was just 276 million euros ($328.6 million) — and it had five more players in the squad.
Because Barcelona’s largess hasn’t been rewarded with silverware and prize money, the club has inched toward being unprofitable. Were it not for some transfers, it might have been.
For example, last year it exchanged second-choice goalkeeper Jasper Cillessen for Valencia’s Neto in a straight swap. But because of the way player values are amortised over the duration of their contract, that might have allowed Barca to record an increase in the value of its intangible assets (its players), without actually paying out any extra money. This can translate into an accounting profit at the operating level, even though there’s no cash income involved.
The Catalan giant’s ownership structure makes cash flow more important than it might be for teams with equity holders. The more it spends on players, the less it has in reserve for lean times.
Being owned by the fans means that Barca can’t sell a stake in itself if it ever encounters financial difficulties. Or, at least, it can’t do so without the approval of the members, making it all but impossible.
That fan-based model also means it can borrow much less than its big rivals. Manchester United Plc has net debt that’s 2.7 times trailing Ebitda, an earnings measure, but Barcelona’s statutes limit its debt to twice Ebitda. Even with those limits, it will always need a steady flow of cash to service its borrowing costs, and to provide a financial cushion.
Messi’s expected departure won’t be painless for Barca’s accountants. While he has a reported 700 million-euro ($833.5 million) buyout clause in his contract, he’s trying to invoke a provision which would let him leave for free. It seems unlikely that Barcelona will let that happen, but the net present value of a departure may make even a cut-price deal worthwhile. The savings on his contract would be worth a lot in today’s money.
Not only would a sale reduce the expense on Messi himself, it would also curb the inflationary effect on other salaries.
That could be essential as we head into the first full season where pandemic-emptied stadiums will reduce clubs’ sales.
The Argentine megastar has been the talisman for a team that was deemed — at one stage — the greatest club side ever, and he helped transform Barca into a money-spinning behemoth. In recent years, his pay package has stretched costs for less reward. Fans may ask how do you replace the irreplaceable, but decline comes to everyone eventually.
Now is a good time to hit the reset button.
© 2020 Bloomberg L.P