FootBiz newsletter #11: Juve, Barca accounts, Newcastle stadium and a consequential legal ruling

This weekend I am in Turin where Juventus host Cagliari, and I am struck by how little confidence the locals appear to have in this once-great team.

The Old Lady have been the dominant force in Italian football for much of my adult life, or they had been. 

Recent seasons in Turin have been bleak for a club that seemed like it had ridden the wave of surging broadcast revenue during the 2010s and become as embedded among the elite as one of Spain’s big two or FC Bayern, boasting nine Serie A titles in a row.

Instead, this year will make it five seasons without a domestic title unless their new era under Thiago Motta can get off to the perfect start and unseat an Inter team that is starting to look like a mini-dynasty itself.

Now, we already knew that the 2023/24 accounts we going to be bad. The starting point was the €117m loss in 2022/23 and then Juve missed out on European football for the first time in over a decade. Without those UEFA revenues, the question was more about how shocking the numbers would be rather than whether they would be. 

Key figures:

• Revenue €360m

• Ebitda €-46m

• Operating P/L €-197m

• P/L after tax €-199m

• Gross debt €279m

In the end, their loss widened by €79m to €197m and the losses over the past five years (19/20: €81m, 20/21: €224m, 21/22: €238m, 22/23: €117m) total nearly €900m before tax. 

Eye-watering barely covers it. 

With UEFA having spent the last 15 years or so tweaking the financial distributions to reward more historically successful (read: bigger and more influential) clubs, Juventus were receiving between €75m and €100m every season for playing in the Champions League. Obviously with that reduced to zero and almost the exact increase in losses, it is easy to see where on-field performance has hurt the club’s financials this year. Poor performance domestically also cost them more than €50m in Serie A TV revenue too though.

In their own statement, Juve said that the losses were chiefly caused by the "non-participation of the men's first team in the UEFA Champions League", which cost the club around €90-95m and meant revenues dropping to €360m.

(They didn’t mention that ‘non-participation’ meant ‘banned by UEFA for breaking financial rules)

So much of this overspend stems back to their unholy unloading of cash on Cristiano Ronaldo in 2018, who they believed to be the final piece of the jigsaw in their pursuit of the Champions League. As ever with those sorts of signings - misevaluating your own squad and betting too heavily on the result of a couple of high-variance knockout fixtures - it did not play out like that.

Indeed, the club now faces two separate judicial processes from that era that could lead to further sporting, financial and criminal punishments.

The first relates to financial crimes, principally player registrations and payment of staff and agents. The second is from Italy’s equivalent of the Securities and Exchanges Commission into market manipulation and non-disclosure around player transfers and salaries in an almost identical period. Juve are publicly traded in Italy. Serie A deducted 10 points from them last season, resulting in their seventh-place finish.

And after all that cheery stuff, it’s probably time to get into the newsletter.

Table of Contents

• Prem politics

• Ten Hag saved by FFP?

• Barca’s profit (that is a loss)

• New look for Newcastle

• The biggest transfer news

• M&A Murmurs

Prem politics

Where money and power are on the line, there will always be politics.

The Premier League is no exception.

With key votes that will shape the future of the league, an interesting development has occurred during the last few months of Richard Masters’ stewardship and the Premier League has changed its approach to tabling votes.

Crucially, a changing dynamic among the league’s owners might just have swung things back in Masters’ favour as several of these crucial issues play out.

For premium subscribers, a look inside Premier League politics

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Coming tomorrow for premium subs: Rob Draper on how clubs value (or don’t) their academies.

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Ten Hag saved by FFP?

When Manchester United inexplicably extended Erik Ten Hag’s contract in the summer (just weeks after getting dogwalked 4-0 by Crystal Palace) they might have committed themselves to the Dutchman even more than they had expected.

What they certainly wouldn’t have expected after winning the FA Cup and blinding themselves with a one-game sample size was such a poor start to the season, with United struggling in 13th place and beaten 3-0 at home by Tottenham last Sunday.

Talk shows and newspapers on Monday openly discussed whether Ten Hag’s time was up but he has something going for him in that extra term on his contract.

The 54 year-old coach makes ~£9m per year after his salary was reduced when United failed to return to the Champions League. He would not be paid out in full for the remaining 21 months of his deal but most industry figures estimate a compensation payment in the region of £15-20m for United to move on from their coach.

Given the club makes nearly £700m in revenue you’d think that would be fine, but north of £300m in losses over the last three years mean that United are instead fairly tight when it comes to Financial Fair Play rules.

People as boring as I am will be aware that clubs are only allowed to lose £105m over a three-year period according to the Premier League’s rules, but new CEO Omar Berrada said in the latest accounts that the club was “in compliance with” those rules when you factor allowances and deductions. Obviously the league will check that is correct, but another £20m of extraordinary expenses is not thought to be an easy sum for them to fit in to their budget. Compensation payments are not PSR deductible.

One American observer of football finance asked me why United don’t follow the example of college football ‘boosters’ and find a sponsor to provide the money.

USA Today reported recently that University of Florida boosters have pulled together donations to pay head coach Billy Napier’s $26m buyout.

I am not aware of it ever being done in (real) football but there can always be a first time.

Barca’s profit (that is a loss)

Financial lever enthusiasts FC Barcelona released some basic financials this week and there is a lot of delusion optimism.

These accounts still need to be approved, which is why we don’t have the full numbers and instead have to tease out the truth from a list of bullet points published by the club.

The headline figure is a €91m loss, although they leave that until the final bullet point. A loss was expected, particularly while playing at the much smaller and less lucrative Montjuic Stadium while the Camp Nou is being redeveloped. The club estimates that costs them €100m per year.

But a lot of the issues within these financials surround the palancas that Barca have yanked continuously to try and dig themselves out of their own mess.

Now, allow me to pause for a second and say we’ve already tried to fix FC Barcelona. Rob wrote about that recently and you can read that by clicking here.

Much of the advice is: stop pulling levers.

With that advice ignored, a big part of Barca’s troubles this year is non-payment of a €141m debt by German investors Libero for their Barca Vision digital subsidiary. That non-payment turned what would have been a profitable year (€12m pre-tax) into a loss, though much of the jacked-up sponsorship revenue (€210m, up €10m) is also from bringing future revenue forwards, something they’re still attempting to do in their ongoing renegotiation with Nike. Record turnover of their merchandising subsidiary, BLM (€109m) suggests that demand for (and commercialisation of) the brand is still strong.

The club should be praised for continuing to reduce its wage bill, which is now at least in a more reasonable shape. That came down €170m to just over €500m, which it says positions them in the ‘healthy’ ratio of wages-to-turnover suggested by UEFA. They predict it will stay roughly the same next year and that they will make a profit of around €5m.

For what it’s worth, the Nike extension is rumoured to be announced this month at around €100m per year with €100m signing bonus to help fluff up next year’s accounts.

By then, there is a feeling internally at Barca that they will be out of the financial woods. It isn’t shared as strongly externally, but things are improving. Let’s see the full accounts first though.

New look for Newcastle

Newcastle United are understood to have put on hold announcing their stadium plans while finding a replacement for CEO Darren Eales, but the Magpies will almost certainly push ahead with an expensive renovation rather than moving next door to Leazes Park.

While the club’s owners are determined to play in a bigger and more modern arena to bolster revenues, their exploratory work has projected a bill of nearly £1bn to add just 10,000 seats to the capacity.

COO Brad Miller did say back in August that PIF were willing to sign a “once in a generation” cheque to get those extra seats and it sounds like they will have to.

The biggest transfer news

It will not command a deadline-day countdown clock, or even Sky Sports' famous yellow ticker, but the most consequential transfer news of the season is likely to emerge from a court in Luxembourg tomorrow morning. 

After six months' consideration the European Court of Justice will finally rule on former France midfielder Lassana Diarra's 10-year legal battle with FIFA, in a landmark judgement which could have profound implications for the future of the transfer market. 

Diarra, who played for Chelsea and Arsenal before securing an unlikely transfer from Portsmouth to Real Madrid, first swapped the football pitch for the courtroom after being sacked by Lokomotiv Moscow in 2014, with the Russian club accusing him of breaching his contract. After taking legal action both FIFA and the Court of Arbitration for Sport backed Lokomotiv, with FIFA's Dispute Resolution Chamber ordering Diarra to pay €10.5m in damages to his former employers in 2015, a decision upheld by CAS the following year.

A proposed transfer to Charleroi collapsed after FIFA refused to issue Diarra's International Transfer Certificate on the grounds he had not paid the compensation to Lokomotiv (in the same way clubs can not register players if they miss paying instalments of transfer fees).

The Belgian club pulled out of the deal after FIFA made clear that they would also be held liable for damages if they went ahead. Diarra responded by launching legal action against FIFA and the Belgian FA before a local commercial court in Charleroi, seeking €6m in compensation himself for loss of income caused by the collapse of the transfer. 

The local court upheld Diarra's claims and ordered FIFA and the Belgian FA to pay compensation. FIFA and the Belgian FA appealed this judgement before the Court of Appeal of Mons, which passed the matter on to the European Court of Justice for guidance. 

At the heart of the matter is the question of whether FIFA's transfer regulations are consistent with articles 45 (freedom of movement of workers) and 101 (prohibition of cartels) of the Treaty on the Functioning of the European Union. Diarra's legal team led by Jean-Louis Dupont, who represented Jean-Marc Bosman in the seismic 1995 ECJ case which established the principle of free agency and freedom of contract for players, are arguing that by denying their client a transfer FIFA broke EU labour laws.

To complicate matters further, the ECJ's Advocate General Maciej Szpunar has already provided "non-binding opinion" in April, which appeared to strongly endorse Diarra's case. "There is little doubt about the restrictive nature of the FIFA regulations," Szpunar wrote. "The contested regulations naturally restrict the players' options to change clubs."

The ECJ are not obliged to follow Szpunar's legal opinion, but the ramifications are likely to be far-reaching if they do. Following tomorrow's judgement the matter will then be sent back to the Belgian courts to decide on how the ECJ guidance should be applied. 

A defeat for FIFA could result in the world governing body losing control of the international transfer system, while the validity of existing player contracts may face further legal challenges. 

Any further pressure on contracts would significantly increase the power and freedom of the players in an acceleration of the changes brought about by the landmark Bosman ruling 29 years ago. While clubs could potentially benefit in some ways through the reduction of transfer fees, they would have far less control over their players.

M&A Murmurs

I was recently sent an investment deck for a profitable Serie B club that piqued my interest.

Stable in the Italian second tier and having spent some time in Serie A fairly recently, a profit of €2m isn’t to be sniffed at.

A quick play around with some numbers suggest that getting promoted would provide around 10x broadcast revenues as well as uplifts elsewhere. Even with increased costs, this models out as a fairly enticing opportunity assuming you can get the data and sporting department right.

Looking at other transactions in Italy, Genoa’s €180m sale to 777 Partners was around 2.5x forward revenues in Serie B. The same multiple would mean this profitable club costing around €40m.

When you look at some of the recent transactions in Serie A (Atalanta €500m, Roma €590m) you do wonder whether the second tier might be the new value destination for investors.

“The upside is easier to see than France or Holland” said one investor.