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Barcelona Is $1.6 Billion In Debt After Messi's Departure
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Hey Friends,
Lionel Messi has dominated the news for most of the last month. After 17 seasons with Barcelona — a club that he joined at just 13-years-old — the now 34-year-old Argentinian legend has moved on, agreeing to a 2-year deal with Paris Saint-Germain.
The move sent shockwaves through the sports world, depleting Barcelona of its greatest player ever and leaving the Catalan club with more than $1.6 billion in debt. But it also reopened the conversation around using unique financial incentives to retain premium talent in professional sports adequately.
Michael Moritz, a partner at Sequoia Capital, wrote an interesting opinion piece for the Financial Times circulating yesterday on Twitter. You can read the full article here, but I’ve also included an image & excerpt below.
If you find the picture hard to read, and you can’t link out to the entire article because of the paywall, here’s the most important part:
Imagine if every football club set aside about 25 percent of its equity for player compensation, requiring that players sell their shares upon leaving the club. If Barcelona had compensated Messi with a combination of 50 percent cash and 50 percent equity, both he and the club would be far better off today. Two years before Messi joined the club it had revenues of $123m which, during the pre-pandemic season, had risen to more than $1bn.
When Messi made his debut for Barcelona in 2004, the club was probably worth about $400m (precise figures are unavailable). Today it is worth about $4.8bn. If, as his value became clear, Messi had been granted shares or options, for about 10 percent of the club, that would be worth about $500m today.
I know this sort of approach will be laughed out of town in the boardrooms of the world’s most valuable clubs. But I know too that, had it been adopted by the management of Barcelona, today they would not need to beg for money to pay for the maintenance of the graveyard they created.
While I agree with the general sentiment that Michael lays out in the article — aligning incentives through structured equity payouts — a few problems come to mind initially.
Barcelona is a member-owned organization, with nearly 145,000 adult men and women owning membership cards in the historic club. There is no single individual owner. The club is not publicly traded, and similar to Real Madrid & Athletic Bilbao, Barcelona is structurally set up as a registered association.
That means, unlike a traditional limited company, it is not possible to purchase shares in the club. Instead, you must become a “Socios,” or member. These individuals pay a membership fee of about $200 annually and form an assembly of delegates, the highest governing body of the club.
The paramount perk of being a Barcelona member is voting in club elections and having a say on who becomes the president of the historic institution. Still, members are provided additional benefits like free and unlimited access to Barca TV, the club's official media channel, and correspondence in the form of a newsletter.
Ultimately, I think Michael has the right idea but the wrong club. Barcelona's organizational and equity structure makes something like this unfeasible from a regulatory standpoint, but that doesn’t mean it’s a bad idea.
Traditional fans fear the continued infiltration of venture capitalists in sports. They think that they’ll come in, cut costs, maximize profit, and not have a care in the world for the one thing fans actually desire — winning.
But the equity structure that Michael lays out can actually be beneficial to winning also. For example, if Barcelona kept a portion of its equity reserved for players and they had to sell it upon departure from the club, it would allow the world’s best players to participate in the financial upside of the team while still helping the club avoid long-term debt due to salary expenses outpacing earnings.
This is all in the past, of course. Messi has departed for Paris, and Barcelona will have to find another way out of its $1.6 billion debt. But don’t be surprised if the world’s most valuable sports teams & leagues eventually adopt some form of an equity-based compensation model.
After all, there is a reason why the Silicon Valley elite love it so much. Incentives drive the world, and very few things align individuals more than equity in a business, especially when billions of dollars are at stake.
Michael Moritz may be “laughed out of town in the boardrooms of the world’s most valuable clubs” today, but when multi-billion-dollar franchises across the world inevitably adopt a variation of this model, he’ll be the only laughing then.
Have a great day, and I’ll talk to everyone tomorrow.
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