Real Madrid and Barcelona's debt
- Thread starter Trizy
- Start date
If you take a look at
http://swissramble.blogspot.co.uk/2012/04/truth-about-debt-at-barcelona-and-real.html
You'll see that according to the "total liabilities" model (the one used in that ESPN article you quote) which for example includes the season ticket revenue taken for matches not yet played, then Arsenal have a similar debt to Real Madrid and Barcelona. United (unsurprisingly) have a much higher debt.
The other points in the article are valid though. Real Madrid would find it easier to fund their new stadium work as a PLC than as a member's club - different financial rules apply to members' clubs. Ironically the EU may force them to become a PLC, so that decision may be taken for them.
The TV money from La Liga is much more fragile than it looks. It has historically been treated by Spanish banks as loan collateral. Such is the fragile state of pay TV, that principle has come to an end. If the remaining big pay TV supplier fails, Madrid and Barca will have to tighten their belts quickly - part of why they are looking at sales as they buy.
Leveraging your entity (.i.e. Accumulating debt) is actually not always a bad thing, as long as your earnings necessitate the lending.
Your average "cost of capital" means the cost you're incurring in running your business - whether that be dividend payments to shareholders or interest (rate) payments to banks.
In most cases, interest charged by financial (lending) institutions is actually lower then dividend payouts expected by shareholders. (Note that there's no legal obligation to pay dividends but it's almost an "expected obligation").
So if we were debt free, and Madrid had a $1bn debt amount, the cost of that debt might still be lower to them, the what were paying the Glazers and any other shareholder in dividends. That's just a bit of theory - as I haven't actually gone through these calcs etc.
The final point being - and this is the most important - the reason companies take out debt is predominantly for expansion and growing their revenue. So Madrid will buy a shiny new toy, which in theory should make them more profitable by:
- winning more trophies and
- expanding into untapped markets
So the net effect is growing their revenue by a bigger margin then the debt they incurred....hence why you need to almost look at the debt in "conjunction" with their earnings/revenue.
That's just the (simpleton) theory behind leverage though. It can be much more complicated. And we all know Madrid gets bailed out of the shit anyway.
Your average "cost of capital" means the cost you're incurring in running your business - whether that be dividend payments to shareholders or interest (rate) payments to banks.
In most cases, interest charged by financial (lending) institutions is actually lower then dividend payouts expected by shareholders. (Note that there's no legal obligation to pay dividends but it's almost an "expected obligation").
So if we were debt free, and Madrid had a $1bn debt amount, the cost of that debt might still be lower to them, the what were paying the Glazers and any other shareholder in dividends. That's just a bit of theory - as I haven't actually gone through these calcs etc.
The final point being - and this is the most important - the reason companies take out debt is predominantly for expansion and growing their revenue. So Madrid will buy a shiny new toy, which in theory should make them more profitable by:
- winning more trophies and
- expanding into untapped markets
So the net effect is growing their revenue by a bigger margin then the debt they incurred....hence why you need to almost look at the debt in "conjunction" with their earnings/revenue.
That's just the (simpleton) theory behind leverage though. It can be much more complicated. And we all know Madrid gets bailed out of the shit anyway.
If you mean with "the cost of buying players" their transfer fee, then it's an amortisation spread over the lenght of the players contract.
Example: If a club buys a player for a 50m transfer fee and he gets a 5 year contract it's in their books not an expense of 50m for the 2014/2015 season but 10m (50m/5) each year over 5 years (2014/15 - 2018/19).
Now if the player extends his contract after 3 years (2017/18) there are 20m left (50m - 3*10m), those 20m get spread over the length of the new contract again. Let's say he extends his contract for 5 more years. This means from 2017/18 on it's only 4m (20m/5) per year in the clubs books.
Debt doesn't necessarily mean losses. Debt isn't necessarily a bad thing either.
This, essentially. It's all theoretical finance and theory and the types of debt and investments you're making all have an impact but theoretical debt isn't always bad.
Those who don't really understand or haven't studied finance won't differentiate the idea of debt from being broke and having to borrow money.
This makes accounting sense however I don't actually think that is how a transfer is accounted for. I believe in a clubs financial statements it's taken as a hit directly in the P&L
Edit: scrap that. A little research shows this can be done, but there's also other practices. Creating reserves, or creating assets rather than a liability is also other practices. Strange!
Last edited:
Yeah, there are probably different ways but I think it's the most common.
I also think it makes even more sense now with FFP because the monitoring period is 3 years.
Meaning you can write off a big transfer fee (which could mean you'd fail FFP) over a longer period if you give the player a long contract and thus stay under the accepted deviation if you spend less or nothing in the following year(s).
Aye. Also wouldn't be surprised to see reserved to smooth transfer fee expenses. I'm sure the accountants at the clubs have got their wits about them.
Their Debt/value is 4% on both, I appreciate I'm speculating but surely RM are higher debt to value ratio than 4%, they may be worth 2.6B, but they've spent over half a billion on players in the last 5 years
Player spends for Real, not sure how much accurate.
2009 - 275m
2010 - 65m
2011 - 50m
2012 - 40m
2013 - 169m
2014 - 120m
Total - 719m/ 6 seasons = £119.8m a season on average and this summer isn't done which If they sign anyone extra will drag that average up.
2010 - 65m
2011 - 50m
2012 - 40m
2013 - 169m
2014 - 120m
Total - 719m/ 6 seasons = £119.8m a season on average and this summer isn't done which If they sign anyone extra will drag that average up.
They do get decent value for selling their unwanted players, so it's not quite as bad as all that.
Of course, and it wouldn't matter how they hide it/allocate it as it's the bottom line we are talking about, but I still their yearly fee's on players/wages gazumps others...
I'd imagine they make slightly more money than other top teams for player sales, while spending quite a bit more on transfers, and spending a hell of a lot more on wages, as an overall picture, it's quite a bit higher I'd imagine, but I am trying to pose this more of a question than a fact as I'm not 100%, this is just my opinion, I haven't researched it.
in what way isnt it a bad thing?
It's explained in the rest of the thread.
Yes, their net spending per season for the 5 years prior to this is just over £60m, and they've lowered the average age of the squad during the period.
Wages wise City tops the global rankings.
Madrid and Barcelona pay more or less the same as each other, depending on bonuses.
United and Bayern pay around the same.
For 2013 - average first team salaries
- 1 (1) Manchester City: Premier League £5,337,944 (£102,653)
- 2 (5) New York Yankees: MLB £5,286,628 (£101,666)
- 3 (2) Los Angeles Dodgers: MLB £5,119,701 (£98,456)
- 4 (3) Real Madrid: La Liga £4,993,393 (£96,027)
- 5 (4) Barcelona: La Liga £4,901,327 (£94,256)
- 6 (16) Brooklyn Nets: NBA £4,485,019 (£86,250)
- 7 (9) Bayern Munich: Bundesliga £4,402,905 (£84,671)
- 8 (12) Manchester United: Premier League £4,322,251 (£83,120)
- 9 (19) Chicago Bulls: NBA £3,985,706 (£76,648)
- 10 (8) Chelsea: Premier League £3,984,536 (£76,626)
- 11 (15) Arsenal: Premier League £3,901,923 (£75,037)
- 12 (20) New York Knicks: NBA £3,862,191 (£74,273)
I can't find the total wages cost figures at the moment, because obviously actual spending depends on squad size (small at Barca and Madrid) as well as average pay.
In business, debt is a method to fund a business. From an accounting perspective and a legal perspective, a company is a separate and distinct legal entity. You and your company are NOT one, you are separate even though you own it. Therefore, if you give money to your company, then the company owes you money. That is called "equity" financing. Debt financing is where the company gets money from a bank, thus, owes the bank/debt holders money.
All of this roles into the theory of the "cost of financing" or "cost of capital" for technical terminology. If you get debt, you owe the holder interest payments. If you get money from equity, then you legally owe them nothing, but they would expect a return in dividends.
Imagine you are an investor. Would you rather invest in debt or equity? Obviously debt right? because if you invest in debt, you will be guaranteed payments from the company. Therefore, investing in debt is less riskier than equity for an investor, and as such they require less return from their investment (more risk = need more returns). Therefore it is theoretically cheaper to finance your company through debt than equity.
You might say, but why not just issue equity and never pay out anything? Simple really - becaus eif you do that then no one will ever invest in you, and thus that would detract from the value of your business.
of course there is a limit. If you have TOO MUCH debt, then there is greater risk because the risk of bankruptcy comes into play. But, I can assure you that United or Real or Barca are anywhere close to bankruptcy.
bit off topic but i want to ask- our debt, are these "healthy loans" or is there still a portion of those PIK's with 14 % interest rates?
Does any one have any info when we are expected to be debt -free?
Does any one have any info when we are expected to be debt -free?
It will be a long time before we're debt free, for the simple fact that operationally it makes more financial sense to retain some debt. The interest payments get to be small enough that its easier to pay the interest rather than the capital.
So if we have (for the sake of argument) £100M debt remaining, and we're paying £8M in interest payments, its better for the club to pay off £5M per year rather than pony up £100M to clear the debt, which has few benefits.
I suspect some debt will sit there until the club is eventually sold.
Take a mortgage - a mortgage is a form of debt that allows you to buy a house. If mortgages didn't exist, then you'd have to buy a house up front in cash. So in this sense, a mortgage is good because it allows you buy a house and still have money in the bank for living purposes. The same goes for taking out a loan to start a company, or to buy a car.
All big companies have debt - a lot of it. Walmart has about $57b worth of debt. Coca-Cola has about $38b. Apple has about $17b. Google has about $8b.
Actually our debt is a little bit different. The type of debt we have isn't conventional debt.
Normally, a business takes a loan or increases debt so they can invest, into new assets or players for example. However in our case, the loan was taken to purchase what was already there. We got no benefit from the income received from issuing that debt.
However, having said that, what was bad then isn't so different now. That debt being there isn't really hampering the operations of the club, it isn't something to worry about.
With regards to going debt free: I'm not sure we need to be/ever will be. As discussed to no end, being debt free might not be the best thing. I suspect we will keep our debt at a steady level, that is manageable.
James Rodriguez is a political signing for Real Madrid. Look back to last season when Barcelona made a block buster signing in Neymar, Real were forced to try and match them in terms of a big transfer, therefore Bale was bought for a record fee. This season Barca have bought Suarez, now Real have had to match them with James. Its the same malarkey every year
Yep, as boring as the financial world is etc, these are actually the (much) more interesting concepts and strategic financing mechanisms we can implement etc.
The concept of debt has a very bad press among United fans because the club was subjected to an LBO. As supporters of the asset rather than the shareholders we saw absolutely zero benefit from the debt piled on the balance sheet and in fact suffered from it as investment in football-related areas was cut as spare cash flow was diverted to debt servicing. For Madrid though, it's totally different. Their debt has been accumulated as a result of investment in the squad, has almost certainly been cheaper than the alternative means of raising finance and is easily serviced from their huge revenues.
The local government can bail them out if needed. Their debts are not the same as an English teams debts.
Does FFP have any say in that matter?
You say that as if it's positive. The country is skint, unemployment rates are through the roof, if the government bailed out Madrid with hundreds of millions, there would literally be riots on the streets.
These ref's bonuses are taking the piss nowadays.
No they don't and no they can't.
That picture of Liga style debt is however confusing to most English fans. For example it includes the season ticket money they've collected for this season for the matches they haven't yet played.
Again look at:
http://swissramble.blogspot.co.uk/2012/04/truth-about-debt-at-barcelona-and-real.html
to understand the different ways of analysing club debt.
Debt is only an issue when there is an obligation to pay back. For some reason Real don't seem to be under that obligation.
Wait didn't they say they reduced the debt and were almost debt free now?
Not sure whether they said that but their debts rising doesn't necessarily mean they aren't "debt free", which generally refers to net debt. Every single football club will have debts to pay, but that doesn't mean they're in debt if they're making enough to pay off the debt when required.
isn't net debt for Real Madrid really low?
Barcelona I believe has 287 million debt, lower than last year. I guess that's a good thing. Finance definitely not my strong domain.
http://www.fcbarcelona.com/club/detail/article/club-record-income-of-530-million-euros
What is United's debt numbers?
http://www.fcbarcelona.com/club/detail/article/club-record-income-of-530-million-euros
What is United's debt numbers?
We need a new thread for this given the clusterflux that is the OP. Or at least an updated OP
FFP has little to do with debt. If you've got income you can spend it. It's the major floor in it in my opinion - cant spend cash from the owner but can spend when you owe everyone else but I suppose that's an argument for another day.
That being said I don't see a massive issue for Real Madrid because of the turnover. If they can service their debt it's irrelevant and no different from what the Glazers have done.
The business model works - spend money on players who generate income on and off the pitch.
United gross debt was £341.8m at 30th June 2014.