As Barcelona struggle to register new signings and Real Madrid scramble to cover their losses, one cannot help at how Spain’s, and arguably Europe’s, two biggest clubs landed in such a mess.
The fiscal mismanagement of the clubs by messrs Perez, Bartomeu, and Laporta has been extraordinary but it could have been worse still, if not for La Liga’s financial rules.
WHAT ARE SPENDING CAPS?
Spending caps is a form of financial control that is currently used by Spain’s La Liga to forbid clubs from spending extravagant amounts of money that would lead to unsustainable levels of investment in transfer fees and wages.
Named the ‘Economic Cost Control’ measures – they are aimed at checking clubs’ spending over the past three seasons to tailor out a budget that is sustainable for that club to spend over the next season.
But how does it work? How is the ideal budget amount determined for each club in the Spanish top-flight? And how does it affect clubs’ spending patterns in the long run?
FootTheBall will be analysing the spending cap measure in detail for those who wish to gain more insight into the concept of financial fair play in football.
HOW DO THEY WORK?
Barcelona’s financial troubles are well-documented in sports media and the spending caps in La Liga do not help the Catalans at all. The Spanish club cannot register new players unless they generate more revenue or make more savings.
This conundrum has led to the limbo state of Messi’s contract and has prevented the Blaugrana from registering the likes of Sergio Aguero and Memphis Depay.
Before a new season begins, each club in La Liga submits financial data relating to its estimated revenue and spending that is then analysed by a team of financial experts before arriving at that particular club’s maximum allowed spending budget for the concerned season.
A club’s spending takes two forms – transfer fees and wages (including the academy, first-team coaches and physios). Therefore, to increase its spending budget for say the 2021-22 season, a club can either sell players or release them after terminating their contract(s).
Both these scenarios will help the club in recouping money, either in the form of transfer fees received or savings made as the wage bill is lowered.
For this very purpose, La Liga has an elaborate system that requires players to register players on an online application named ‘La Liga Manager’. The application oversees that no club spends obnoxious amounts of money without earning a significant sum to justify its massive outlay.
This is a far more effective system of financial fair play as compared to UEFA’s Financial Fair Play Rules. La Liga’s spending cap is forward-looking, as it analyses financial data in advance to prevent clubs from overspending.
Meanwhile, UEFA’s FFP rules can only facilitate retrospective action being taken against clubs that violate the regulations around sustainable spending. More often than not, clubs can escape by paying fines as the stakes have been pretty much decided during the business part of the season when such overspending was actually going on.
In stark contrast, La Liga believes in taking preemptive action to stop clubs from overspending by determining the spending budget for the season that a club cannot violate.
BARCELONA’S WOES CAUSED BY LA LIGA CAP
The most notable example of the application of La Liga’s spending caps is in the case of Barcelona. The Catalan club cannot register players before they make amends for the enormous losses they have incurred during the Bartomeu era.
La Liga will not allow #FCBarcelona to register its new signings unless the club makes savings of over €200m. These signings include Sergio Aguero, Eric Garcia, Memphis Depay and Emerson Royal. These are mainly free transfers, but Barca still cannot complete the transactions.
— Swiss Ramble (@SwissRamble) July 26, 2021
Joan Laporta and company are in a situation where their wallet has effectively been confiscated by La Liga authorities in accordance with the system of spending caps. The Azulgrana cannot register the four players they have signed in this summer transfer window before they make savings of more than €200 million in their books elsewhere.
Tebas noted, “When a club goes over its salary cap, it can only include players who represent 25% of the savings.” This means that teams are allowed to use 25% of transfer profits to cover new costs, but 75% must be used to pay off money owed.
— Swiss Ramble (@SwissRamble) July 26, 2021
The Catalan club has responded by either selling or loaning players to other clubs in Europe, including Francisco Trincao’s loan move to Wolves and Junior Firpo’s sale to Leeds United to recoup their losses.
But, it will not be enough as the club’s wage bill currently disallows them to spend even a meagre amount on transfers. That is why, all their signings have been free transfers to prevent paying transfer fees that would add to their troubles.
The main problem with Barcelona is that the players such as Dembele and Coutinho, who can be sold to make a windfall in the transfer market are currently injured and therefore not on the market for sale.
To make matters worse, the duo are in the upper echelon of wage earners in Barcelona – something that has put enormous financial strain on Barcelona’s pocket.
Just a couple of seasons ago, Barcelona had the highest spending budget in La Liga after adjusting for spending caps, but now they are struggling to even register new signings in their squad.
Sergio Aguero and Memphis Depay have agreed to take pay cuts in order to play for Barcelona, and Messi has reportedly agreed to a 50% cut in his wages to sign a new contract with the Catalans.
But all of this would amount to nothing if Barcelona cannot find a way to reduce their current wage bill given the strict cap on spending that has been enforced by La Liga.
SPENDING CAP TO BE ROLLED OUT IN OTHER LEAGUES TOO?
Currently other top 5 leagues in Europe do not follow the strict and stringent measures that are in force in La Liga. The Premier League, however, has its own form of financial control – dubbed the ‘Profitability and Sustainability’ rules.
Under this system, clubs are allowed the leeway to incur a maximum loss of £15 million before tax over a rolling three-year timespan. But, certain costs are left out of the equation (academy, community, women’s team and infrastructure) alongwith owners being granted the option of contributing a further £90 million by issuing shares over the same three-year period.
These rules, even though aimed at reducing lavish spending by the financially well-off clubs, do have one flaw – it is, like UEFA’s FFP rules, backward-looking in nature. This means that even if clubs violate regulations, they will face sanctions only after the season has ended.
Relegation battles and the vying for Champions League qualification will have ended by the time the Premier League decides to levy fines on a club for breaching the regulations. But as of now, there is no immediate clamour within England for the introduction of a stricter financial control system.
For any new system to be rolled out in the Premier League, there will have to be a due voting procedure in which two-thirds majority (14 clubs) must be achieved for the current financial fair play system to be replaced with stricter, newer norms.
Regardless of the rules being changed or not, clubs employ lawyers and accountants who are adept at finding loopholes irrespective of a forward-looking or backward-looking financial fair play system.
Therefore, to change the rules in the Premier League an independent regulator is a must nad they should be expecting to smooth out the demerits and loopholes in the financial fair play system as and when they arise.