Tuesday, 27 July 2010

Be sure to be prudent: FC Barcelona’s amazing disappearing profits

Different country? Same economy....

Having shocked the sporting world by failing to pay their players in June (and announcing they needed to take out a €150m bank credit facility), FC Barcelona went further today with the announcement of major adjustments to their previously published (although unaudited) results for the year to June 30th 2010.

The unaudited results had been published by the previous Treasurer, Xavier Sala i Martin on 30th June 2010 and showed EBITDA of €96m and net profit of €9m on turnover of €446m. The new President (Sandro Rosell) and his executive management have agreed substantial changes to the audited accounts with the club's auditors Deloittes. The changes generally relate to judgments about what revenue and costs to recognise, with the Rosell management and Deloittes taking a far more prudent approach than the previous board.

The accounting changes can be seen below:

The biggest adjustments come from two connected disputes over TV rights in Spain. FCB are now recognising a potential €37.8m liability to TV company Sogecable and are no longer recognising €18.5m owed by as yet unpaid by current rights holder Mediapro. Mediapro has sought court protection from its creditors due to a dispute with (small world) Sogecable. Although FCB have not yet published a cash flow statement, it seems likely that Mediapro's travails were the main cause of the June cash flow crisis.

Whilst the Mediapro/Sogecable adjustments are just tighter accounting practice, the need to make further adjustments relating to land sales and valuations and player sales (including that of Thierry Henry) hint at darker goings on to massage the shape of the balance sheet during the Laporta presidency.

The impact of the above changes can be seen below:

The official FCB statement talks of a higher revised debt number of €442m (and €552m "gross debt"), compared to the originally published figure of €326m. From a normal IAS (or UK GAAP) accounting perspective, this is misleadingly high, as Rosell and his team like to include all sorts of short term liabilities in their numbers (such as prepayments). We will have to wait for the full accounts to see the true debt position.

With numbers so limited (and a considerable dose of Catalan politics to take into account), proper analysis of the situation is difficult at the moment. Having said this, FCB's financial difficulties should be a salutary reminder of not relying too much on an endless bonanza of TV money.....