Only 91 million of the 481 million in losses were down to the pandemic
Within the whirlwind of numbers and figures offered by Joan Laporta, president of FC Barcelona, at last Monday's press conference, the enormous losses for the 2020-2021 financial year attracted a lot of attention.
According to the Barcelona president, the club ended the last financial year with total losses of 481 million euros, of which only 91 million euros could be attributed to the pandemic. This is not a minor issue, as the Royal Decree of 22 December 2020 allows sporting entities to continue subtracting losses caused by the pandemic from their total losses for liability purposes.
Simple mathematics tells us, therefore, that the club's board must be responsible for the losses of 390 million euros. Let us not forget that Josep Maria Bartomeu and his board resigned on 28 October, with Joan Laporta being elected as president on 17 March 2021. Between these dates, Carles Tusquets acted as interim president. In this sense, the law is very clear in terms of responsibility for a financial year. Without going into detail, Laporta admitted in last week's press conference that some of these huge losses were due to the devaluation of certain Barça first team players. While he didn't identify them in his speech, the names of five players - Matheus Fernandes, Coutinhi, Neto, Umtiti and Pjanic - were mentioned in the account closure report sent to the LFP on 30 June.
Devaluation and losses
The net book value of a player is the result of subtracting the purchase price (plus agent's fees, signing on bonus, etc.) from what you have already amortised. This amortisation, even if paid in full up front, is always divided by the years of the player's contract, which is usually for five seasons.
Let's take Coutinho as an example. Between the fixed fee and variables (120+40), the annual depreciation of the Brazilian midfielder (who signed a five-and-a-half year contract in January 2018) is 29 million euros per tax year. If FC Barcelona has now devalued the player and given him a market value of zero (we do not know if this is still the case or if another figure has been applied), since he still has two years left on his contract and there are 60 million yet be amortised, if he is sold in the next couple of years the profit for the club will be what it obtains from said sale minus what remains to be amortised. In summary, those 60 million euros will count towards losses for the 2020-2021 season. The same applies to the four other players, with Pjanic being the most notable case, with there still being 48 million euros to amortise. If the Bosnian is worth zero today, part of what is obtained for him in this summer market will be a net profit for the 2021-22 season.
This practice, known as 'cushions', has always raised suspicions. It is an accounting gimmick allowed by auditors which, in the case of football clubs, is highly relative, since it allows the devaluation of players for subjective reasons. However, the revaluation of a player or the market price of each season cannot be recorded in the same balance sheet.
The other 122 million euros
Of the 481 million euros in losses, 122 million are not attributed to the Covid-19 pandemic or the devaluation of the aforementioned players.
Of these 122 million, around 84 were for 'fiscal contingencies' and legal fees. Before 30 June, FC Barcelona had set aside 45 million euros for the law suit with Neymar Jr. On 26 July, however, the club announced that it had reached an agreement with the player to withdraw all claims. Accounting law allows for losses in 2020-21 to be classed as profits in 2021-22.
On the other hand, the club continues to maintain a disparity of criteria with regard to some tax proceedings, and until there is a final resolution, due to the well-known 'principle of prudence', these amounts, totaling around 40 million euros, must be accounted for. The same thing applies: if today it is registered on the balance sheet as a loss, but if the final ruling is favourable, it will be classed as a profit.
The auditors who have closed the accounts of Laporta's board have deemed it appropriate to write off 26 million euros for 'commercial impairments'. While the club has not officially explained what these are, they are related to the the sponsorship contracts that are in place with Rakuten and Beko, who will pay less for the 2021-22 season than they did in 2020-21.
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