Friday, May 28, 2010

Q3 Results - first thoughts and update post analysts' call

Edit post analysts call:
Not much new came out of United's call with analysts.  One point worth noting is that Edward Woodward reiterated the club's "guidance" (a term for a steer given to markets by a company on a particular subject) of net transfer spend of around £25m each financial year.

Up to 31st March this year, the reported net cash transfer spend is £32m.  Foster has since been sold (for around £4m) so the net number is now around £28m.  The "guidance" would suggest no more signings between now and the end of June.

From July, there is theoretically a lot of money available to Sir Alex, including the 2010/11 £25m budget and the Ronaldo money.  The club also has a further £75m credit facility available.  Add that lot up and you get firepower almost as massive as City's.

Of course moaning people like me think that a big chunk of that money will go off to pay some of the PIKS. Only time will tell.

The only other feature of the call was an unwillingness to be drawn on how renewals were going.  Quelle surprise.....

Links to Q3 results:

Figures here
Presentation here

New information from today's figures:

"Net finance charges for the three months ended 31 March 2010 were impacted by an exceptional £40.7 million loss on interest rate swaps related to our previous senior bank facilities. As disclosed in the bond Offering Memorandum, the swaps were linked to the previous bank facilities and the loss crystallised upon repayment of our bank loans."

So unwinding the swap cost £40.7m. The original estimate in the bond prospectus was £35m. The swap was only in place because of the bank debt the club previously had. Under the bank covenants, at least half the debt had to be "hedged". The club chose to hedge almost all of it, a bad mistake as rates fell sharply.

Other points:
Turnover up £3.7m (4.6%) in the nine months vs. last year, all due to playing two more league home games during the period (but one fewer domestic cup game). Obviously we played two fewer home league games compared to the year before in the final three months. So matchday income for the year will be flattish.

Turnover up £23.3m (26.7%) for the nine months. All due to the better CL deal that kicked in for the 2009/10 season.

Nine months turnover up £6.1m (11.8%). This is the impact of the new platinum sponsors the London commercial office have been securing.

So robust revenue on the media and commercial side, stagnating matchday income.

Staff costs up £6.7m (7.6%) for the nine months - all related to pay rises.
Other costs up £0.6m (1.4%). Good cost control.

I take it from these numbers that the Glazers have not yet taken the £6m management fees for the year to which they are "entitled".

The last quarters to include interest charges for the old bank loans saw a net finance charge of £29.2m for the nine months (before adding the swap unwind cost mentioned above). That's an annualised £38.9m per annum, below the annual cost bond interest cost of £45m the club will now be paying.

Q3 is a cash negative quarter for the club and there was a working capital outflow of £18.5m (£52.3m for the nine months).
Net cash spend on players for the nine months was £32.4m. This covers the net spend since 30 June 2009 remember, so that includes Valencia, Obertan, Diouf, Smalling and probably "Chicharito" but excludes the Ronaldo sale.
The club spent £3.3m on the stadium during the nine months.
The net impact of the bond issue/bank debt repayment was a cash outflow of £16m for the nine months - issue costs etc.
£12.7m of the £40.7m of swap cancellation costs were paid out in cash during the quarter, the rest is still to come.

Balance sheet
With the cash outflows, cash on the balance sheet fell from £122.1m at 31st December to £95.9m at 31st March. The Ronaldo money is still safely tucked away. I believe it will be used to partially repay the PIKS. You can make up your own minds.
The gross debt is £520.9m, primarily the bonds. This does not include the PIKS (in RFJV) which will currently total c. £220m.

Initial summary
A well run football club, benefiting from better TV deals and new sponsorship deals. No growth in matchday income. Wage costs are still rising well above inflation.

Below the football club sit some very nasty financials. A £45m annual interest bill soaks up half the EBITDA, the £41m swap closure costs is half the Ronaldo proceeds on it's own. A totally pointless waste of money. Lurking, unseen in these figures, are the PIKS rising at 14.25% pa.

More later.....

Thursday, May 27, 2010

United to sign Javier Hernandez

Hi guys, I'm gonna tell all my United fans about a new rumour. It seems that Javier Hernandez from Mexico could sign for Manchester United next season.

The 22-years-old striker had agreed new terms with United and passed a medical in April. United has not said anything about fees but it could be £ 6-8m.

He will officially join The Red Devils on 1 July. Sir Alex has said some words about Hernandez "He has been in prolific form for both his club and his country, he will be a great addition to our squad." 

Javier Hernandez is scheduled to join Ferguson's squad in mid-July for the Philadelphia leg of United's pre-season tour of the United States and Canada. And on 30 July he is scheduled to appear against his former club Chivas in a match to open their new 45,000-seat stadium.

Source: BBC Sport
Thanks for reading!

“Do not consider this to be a threat but a warning……”

A regular correspondent emails in to pass on some comments from ticket office staff on how renewals are going….

"[They] told me they had sold 6,000 in total including exec tickets. They said this compared badly with the same stage as last year and was down by at least 4/5,000. They also told me they had been selling STs to brand new customers."

Hearsay of course and completely inconsistent with David Gill's recent comments:

"Our season ticket sales, renewals, for this upcoming season are on track with previous years. Our executive ticket renewals are on track."

Well here's an email sent to an executive ticket holder today. It can be read two ways; that the source above is correct and sales are weak, or that sales are so strong there's a waiting list of people waiting to snap up executive tickets. Make up your own mind (my emphasis added):

Dear Executive Member,
I am writing to inform that if you do not renew your Old Trafford executive facility for the forthcoming 2010/11 season before the renewal deadline of 31 May, your facility will automatically be released to the seasonal hospitality waiting list.

Our records show that you have not renewed your seasonal hospitality facility and we are unclear of your intentions.

Please do not consider this notification to be a threat but a warning; we have an ever growing waiting list for seasonal hospitality, of which it is now Club policy to release all non-renewed amenities to the New Sales Waiting List as of Tuesday 1 June.

If you do wish to renew your facility for the 2010/11 season, please contact your Client Relationship Manager now or call the dedicated Client Relations Team line on 0161 868 8000 (option 2 then 4).

Alternatively, if your intentions are to retain seasonal facilities at Manchester United but move somewhere else within the stadium, the Client Relations team can assist you but only up to the renewal deadline of 31 May.
This is now a matter of urgency so if you have any queries or questions please contact your Client Relationship Manager.

Kind regards,
Head of Client Relations

Hard to know where to start in why that's no way to treat your must valuable customers…. Let's just say that I always work on the principle that if you need to say "this is not a threat" to a client something has gone wrong.

And where has this waiting list for seasonal hospitality suddenly come from? The January bond prospectus said:

"For the 2009/10 season, reduced demand for executive and box seats has resulted in approximately 16% of those facilities (by value) remaining unsold as at 30 September 2009, compared with just over 12% unsold at the same stage in the 2008/09 season."

The March Red Football Q2 results presentation called matchday hospitality sales "challenging". So we must commend the United sales team for turning around this difficult situation in a matter of weeks. The Head of Client Relations who wrote that email definitely deserves a bonus in my opinion.

Anyway, make up your own minds about how renewals are going!

Wednesday, May 26, 2010

UEFA Say Fair Play To Arsenal

Some time tomorrow in a nondescript, modern building overlooking Lake Geneva in Switzerland, football’s great and good, also known as UEFA’s Executive Committee, will meet to implement the snappily titled Club Licensing and Financial Fair Play Regulations. This vision was first given the green light in UEFA’s September 2009 meeting and they are now expected to approve their March 2010 draft proposal, which requires clubs to break-even from the start of the 2012-13 season, if they wish to qualify for European competitions like the Champions League. In the slow-moving world of football bureaucracy, it is striking how quickly UEFA has managed to translate the initial concerns of President Michel Platini, who had described clubs borrowing to buy sporting success as “financial doping”, into a practical, workable document.

UEFA’s aim is no less than “protecting the long-term viability and sustainability of European club football”. Under this financial fair play concept, clubs will have to balance their books and operate within their financial means, thereby helping restore stability to the European game. Clubs will be required to spend no more than they earn to “introduce more discipline and rationality in club finances and to decrease pressure on players’ salaries and transfer fees.” They will be forced to settle their liabilities on a timely basis, but will also be encouraged to invest for the good of the club in areas such as youth development and infrastructure (stadium, training ground).

"Only thing bust about Arsenal"

This is probably all beginning to sound very familiar to Arsenal fans, who have observed the club investing in these themes over the last few years, but wait, it gets even better. In order to ensure a level playing field, UEFA have also targeted the influence of wealthy benefactors. General Secretary Gianni Infantino baldly stated, “It will not be possible for the big sugar daddy to just write-off a cheque at the end of each season”. President Platini went further, encompassing clubs financed by mountains of debt, when he called the initiative the end to “success on credit”.

In recent seasons, many clubs have reported repeated financial losses, which have been getting worse. The wider economic situation has created difficult market conditions for clubs in Europe, negatively impacting revenue generation and creating additional challenges for clubs in respect of availability of financing. Many clubs have experienced liquidity shortfalls, for instance leading to delayed payments to players, other clubs and even the tax authorities (Portsmouth) with auditors questioning the ability of some to continue as a going concern (Liverpool, Hull City).

In February UEFA published a mighty tome entitled “The European Club Footballing Landscape”, a financial survey of more than 650 clubs all over Europe, which contained some jaw-dropping statistics. Gianni Infantino reported, “We found that 50 per cent of those clubs are making losses every year, and 20 per cent of them are making huge losses, spending 120 per cent of their revenue every year.” He said that the primary reason for the losses is wage and transfer inflation, driven by clubs relying on owner finance or debt, “Around one third of the clubs are spending 70 per cent or more of their revenues on wages. Revenues across European football grew by 10 per cent last year, but the salaries of players and coaches have gone up by around 18 per cent.”

"Gianni Infantino looking through the books"

While such over-spending “may be sustainable for a single club, it may be considered to have a negative impact on the European club football system as a whole.” As Infantino said, “The problem is that all clubs try to compete. A few of the biggest can afford it, but the vast majority cannot. They bid for players they cannot afford, then borrow or receive money from their owners, but this is not sustainable, because only a few can win.” In other words, the richest clubs drive up players’ salaries and transfer costs, forcing smaller clubs to over-stretch their budgets to compete. Intriguingly, UEFA’s draft proposal states, “clubs will therefore be assessed on an individual basis as well as in the wider context of the European club football environment.” Not sure how they are going to achieve that, but it sure sounds good.

Debt may be a four-letter word for UEFA, but apparently loss is an even worse one, as the break-even requirement is described as the “cornerstone” of the new regulations. Gianni Infantino again, “We are not speaking about debts. We are speaking about losses. Debt per se is not necessarily a bad thing. The problem with debt is the cost of the debt, for example the interest you have to pay, and this can create a loss. We are focusing on the losses.” The key principle is that a club should always aim to at least break-even excluding expenditure for the long-term benefit of the club and must not repeatedly spend more than the income it generates.

So how do England’s finest fare under the new regulations? Of the seven teams that qualified for Europe this season, four of them fail to break-even – and by a long way. As we can see in the table above, Chelsea, Manchester City, Aston Villa and Liverpool are the offenders. This should come as no great surprise, as three of those clubs are funded by rich owners, most obviously with Roman Abramovich at Chelsea and Sheikh Mansour at Manchester City, but also to a lesser extent with Randy Lerner at Aston Villa. In marked contrast, Liverpool are not, having to bear the considerable burden of loans arising from the Hicks and Gillett takeover, which resulted in £40m interest payments last year.

That leaves just three clubs making a profit (Arsenal, Manchester United and Tottenham), but even this is misleading and over-states the situation. United’s profit only arose after last summer’s £80 million sale of Cristiano Ronaldo to Real Madrid, which is hardly likely to be repeated every year. Without this once-off factor, United would have reported a hefty loss thanks to their crippling £70 million interest payments. Despite this, United’s Chief Executive David Gill has claimed that the club would not fall foul of the new regulations, “We have seen what the proposals are and we would meet the financial break even rules.” Hmm. His confidence was not shared by the club’s bond prospectus, where the risk factors included the following, “These rules are intended to discourage clubs from continually operating at a loss. There is a risk that, in conjunction with increasing player salaries and transfer fees, the financial fair play initiative could limit our ability to acquire or retain top players and, therefore, materially adversely affect the performance of our first team.”

"David Gill - trust me, I'm an accountant"

What about Spurs? Although they don’t have to make huge interest payments, they are actually in a similar position to United, as their profit was only due to significant player sales of £57 million (Dimitar Berbatov to United and Robbie Keane to Liverpool). Without this, they would also have made a loss. Indeed, in the subsequent interim accounts for the six months up to 31 December 2009, Tottenham reported a loss before tax of £8.3 million. It looks like Harry Redknapp is beginning to work his magic on another club, as the impact of all his player purchases begins to bite. Sooner or later, this strategy will feed through into higher player amortisation, as, like all clubs, Spurs have to capitalise the cost of acquiring a player and then write-off that cost over the period of the player’s contract. To place this into context, Tottenham’s amortisation costs of £38 million are higher than United’s, but their revenue is only 40 per cent of Old Trafford’s franchise.

No, the only one of these clubs that is genuinely profitable is Arsenal, even after excluding the money made from property sales. Again, this should not raise too many eyebrows, as UEFA had already advised that Arsenal was the only major English club that would meet the financial fair play criteria today.

"Away From The Numbers"

The more financially astute will already have noticed that UEFA’s break-even template is subtly different from a regular profit and loss account. As they almost said on Star Trek, “It’s a P&L, Jim, but not as we know it.” The UEFA template introduces the concept of relevant income and expenses, which looks complicated, but is essentially a variant of the good old “carrot and stick” incentive that tries to achieve two goals: (a) encourage clubs to make sensible long-term investment; (b) close any loopholes which might allow clubs to artificially meet the break-even target.

Let’s take the positive aspect first. Clubs will still be permitted to borrow for “good” projects like improving the stadium or training facilities. Any costs associated with this investment, like interest on loans to fund the construction or depreciation on the resultant fixed assets, are excluded from the break-even calculation. In other words, an excess of expenses over income may still be allowed if the excess is solely related to costs that are for the long-term benefit of the club. As Infantino explained, “We are also saying losses can be admitted, if the money is invested for long-term purposes — developing a youth academy for example or infrastructure. This of course can lead to a loss in the short-term, but in the long-term it will be beneficial for the club, help increase the revenues.”

So the costs of building the Emirates Stadium would be removed from Arsenal’s relevant expenses, as indeed would the depreciation. Eagle-eyed observers will have noticed that this guideline appears to greatly benefit Manchester United, as they can deduct £44 million of depreciation and amortisation, largely because they report £35 million amortisation of goodwill. In accounting terms, goodwill arises after the acquisition of a subsidiary and represents the difference between the purchase price and the fair value of the net assets. This is capitalised like any other asset and amortised over the estimated useful economic life. This deduction makes a huge difference to United’s profitability. Maybe this is why David Gill was so confident of United meeting UEFA’s new regulations?


On the other hand, UEFA are clearly no mugs, as they have addressed some of the more obvious ways of getting around the new regulations. Many clubs these days have an intricate inter-company structure and there were fears that a club like Liverpool could argue that the football club was profitable, as their massive interest was paid out of the club’s holding company. Clearly, that does not make sense to any reasonable man and UEFA have caught that one, “For the calculation of relevant expenses, management must include any expenses incurred in the reporting period in respect of the activities of the club that are not otherwise recorded in the audited annual financial statements of the reporting entity that forms the basis for preparation of the break-even calculation.”

Next, they have anticipated the possibility of a wealthy owner paying a ridiculous £200 million to sponsor his team by embracing the concept of “related parties” and “fair value” so beloved of tax authorities when reviewing inter-company transactions. In short, if an owner over-pays for services, this income will be adjusted down to a fair value, i.e. what the club would have received if the transactions were conducted on an “arm’s length” basis. Enough tax jargon for you? The guidelines list specific examples like sale of sponsorship rights and use of executive box, but I wonder whether this regulation might also apply to interest-free loans? After all, banks don’t usually provide loans without charging interest.

UEFA wish to exclude any income and expenses from non-football activities, which are “clearly and exclusively not related to the activities, locations or brand of the football club”. This might be a factor for Arsenal, as any profit made from future property sales at Highbury Square, Queensland Road, etc would presumably be excluded from the break-even calculation. On the other hand, this might benefit a club like Barcelona, if they can eliminate the £24 million losses they make on other sports (basketball, handball and hockey).

However, you would not expect UEFA to be too tough on their meal ticket and, sure enough, they revealed the velvet fist inside the iron glove by making a number of concessions to Europe’s top clubs. The most significant is that there will now be a phased implementation over five years. The scheme will still kick-off (if you’ll excuse the pun) in 2012, but there will be a three-year transitional period and it will not be fully operational until 2015. As David Gill said, “If clubs are not complying now, then there is time for them to get their house in order.” Or, as cynics might say, there will be time for clubs like Manchester City to accelerate their spending before the regulations take full effect.

Furthermore, in the same way that British transport classifies trains as being “on time” if they are only ten minutes late (or something like that), UEFA have stretched the definition of break-even to include an “acceptable deviation”. Losses that are not underwritten by club owners are allowed up to a total of €5 million over three seasons. To be fair, Infantino’s explanation makes sense, “You can have losses for one year, because perhaps you had one bad season and you did not qualify (for Europe). So we are looking at losses over a multi-year basis. So one year you can make a loss, but not over three years.”

Less justifiable is the acceptable deviation for billionaire owners, who will be allowed to absorb aggregate losses of €45 million over three years from 2012, so long as they are willing to cover the club’s losses by making equity contributions. To be fair, the maximum permitted loss then falls to €30 million from 2015 and will be further reduced from 2018 (to an unspecified amount). This means that in the transition (weaning-off) period, owners can pump in an average per season of €15 million up to 2014 and then €10 million up to 2017. After that, who knows? Perhaps break-even will actually mean what it says by then.

Maybe the soft landing is why the top clubs have given UEFA’s initiative their support. The European Club Association (ECA), which represents the 137 leading clubs in Europe, voted unanimously to approve the proposal at their General Assembly with their chairman, former German international Karl-Heinz Rummenigge, declaring, “these measures will shape the future of European club football into a more responsible business and ultimately a more sustainable one.” According to Platini, “The owners are asking for rules, because they can’t implement them themselves. Many of them have had it with shoveling money into clubs. They asked me to do something – Roman Abramovich asked me, the owner of Manchester City agreed – and I think it’s very moral. And it’s not just the biggest clubs – it’s all the clubs.”

"Pointing the way"

The owners might also have been stunned into action when Portsmouth went into administration. If a club from the world’s richest league could crash in this way, what about the rest? Inter’s Chief Executive, Ernesto Paolillo, admitted, “The old times are finished. Sometimes you need a shock and this is it.” At the same Soccerex Forum, Sevilla’s vice-president, Jose Maria Cruz, said that half a dozen Spanish clubs faced bankruptcy. Whether clubs are a going concern is clearly in UEFA’s thoughts and the regulations specifically require a club to “prove that it has no payables overdue towards other football clubs arising from transfer activities and towards employees and social/tax authorities.” This is evidently a major issue with the Footballing Landscape report listing €1,650 million of transfer debts, including €550 million over 12 months old. To put this more bluntly, clubs are fielding players that they have not paid for.

Although UEFA will come down hard on clubs that owe money to those in the “football family” (other clubs or players) and the unforgiving tax man, they appear more sanguine about debt in general. Platini and Infantino have both said that debts will be permitted if clubs can service the payments, so the issue is not so much the level of debt as whether the interest payments can be covered. UEFA have effectively acknowledged that debt can be an important tool for funding growth, but they want it to be manageable. However, they have expressly commented on the debt at Manchester United and Liverpool, “Just over half of the Premier League’s commercial debt has been placed into the clubs as a result of leveraged buy-outs, acting principally as a burden rather than to support investment.”

Some have argued that this UEFA initiative is one reason why the owners at Chelsea and Manchester City have wiped out their clubs’ debt by converting loans into equity, but I’m not sure that it makes much difference. Given that the loans were effectively interest-free, in terms of the break-even calculation, this is simply moving money from the left pocket to the right.

"Stuck in the middle with you"

However, it does affect one of the financial ratios used by UEFA as “warning signs”. A red flag will be raised if net debt exceeds annual turnover and the club will be asked to provide additional information, including proof that the debt level is sustainable. UEFA helpfully define net debt as “the borrowings of the club less cash” with borrowings including loans from banks and the owner. Journalists, please note that it does not include accounts payable or trade creditors.

Although they have resisted calls for a salary cap, another warning sign occurs if the wages to turnover ratio is over 70 per cent. In a slightly contradictory statement, Infantino explained the thinking on salaries, “The limit would be the break-even rule. You could spend 80 per cent on salaries, if the rest of your costs are 20 per cent. But if your other costs are higher, then the salaries will have to go down.”

Monitoring of the clubs and their adherence to the rules will be overseen by the newly-formed Club Financial Control Panel, which will be made up of financial and legal experts, who will conduct audits to ensure that the system is applied correctly. Chairing the panel will be former Belgian Prime Minister, Jean-Luc Dehaene, which is an example of how seriously UEFA is taking financial fair play. Michel Platini described Dehaene as being “very experienced in financial matters and a great football fan. He is the ideal person to take charge of the economic destiny of European football.” We shall see. If this Panel believes that the requirements have not been fulfilled, it can refer the case to the scary sounding Organs for Administration of Justice with the ultimate sanction being a ban from UEFA competitions.

"Jean-Luc Dahaene - a formidable figure"

Obviously, the introduction of such a scheme will not be without difficulties. Platini himself admitted, “It is not easy, because we have different financial systems in England, France and Germany. In England you can have debts; in France you’re not allowed to have debts; and in Germany you get relegated to the second division (if you have debts).” As always, the devil is in the detail and we can already anticipate many tedious arguments from lawyers and accountants. Nevertheless, the break-even analysis is based on accounts that have been audited and we must hope that common sense is applied during any disputes.

The other major concern is that far from making football fairer, all this initiative will achieve is to make permanent the domination of the existing big clubs: survival of the fattest, rather than the fittest, if you will. The argument goes that those clubs that have already reached the promised land of the Champions League will continue to benefit from the highly lucrative broadcasting revenues, while the challengers will no longer be able to spend big in a bid to catch up. This may be why Abramovich’s support may be considered a tad hypocritical, as he has already spent his millions to join this exclusive club.

"Back off, Europe!"

This is one of the reasons why the Premier League has reservations. Chief Executive Richard Scudamore said that he was opposed to any limits being set on the ability of owners such as Sheikh Mansour to invest money in their clubs. A spokesman went further, “The benefactor model of investment is not one the Premier League wants to see outlawed. We don’t want to discourage investment in our league, which has benefited clubs of all sizes.” There is something to this, but, for me, the financial fair play regulations are the lesser of two evils. They might make it more difficult to gatecrash the party, but they will stop clubs like Portsmouth (and Leeds in the past) gambling their future to “live the dream”. As Platini argued, being financially supported by a single backer is not sustainable, as he might run out of money (or might never had any). Of course, an Arsenal fan might also point out that their club has managed to qualify for the Champions League for many years without spending any money.

The Premier League contends that it has introduced its own financial criteria, which give them increased powers of scrutiny and intervention and will go a long way to preventing another “Portsmouth”. Clubs will have to submit annual accounts and budgetary information. Scudamore explained, “If the board believes the club is at risk of not being able to meet its obligations, then it has to step in and agree a budget for the running of that club. It has the ability to embargo any transfers or, and I think this is a first, to stop clubs renegotiating upwards any player contracts and remuneration.” Not sure about you, but his words don’t exactly inspire me with confidence.

"Ivan Gazidis - fair comment"

Will all these regulators have the bite to go with their bark? Expelling teams from European competitions works fine on paper, but would it ever happen in reality, especially when you consider that Europe’s most indebted teams are among those that attract the largest television audiences. Would UEFA really bite the hand that feeds? Indeed, one of the members of the Club Financial Control Panel admitted that there was a risk that aggrieved clubs “could fly off into the ether and form their own competition.”

Let’s end on a positive note and leave the last word to Arsenal’s Chief Executive, Ivan Gazidis, “The fundamental issue that we all face is do we have the courage and fortitude to control our spending in a fairly irrational environment. If we can manage that, there's no reason why anyone can't have a long-term stable business in football.” Can’t say fairer than that.

Happy Treble Day and Happy Birthday Sir Matt

So the 26th May rolls around again....

Can it really be 11 years since that magical day in Barcelona?

I arrived in Barca that morning, somewhat hungover, on a sleeper train from Paris to find the hotel we thought we'd booked had no record of us. Cue small panic and cheap and nasty hostel. But who needs accommodation when you can party all night?

So if Michael, Michael senior or John are reading this - what a day, what a night!

For every other red out there, have a great treble day, remember what Sir Matt did for our club and don't let anyone tell you the Glazers have brought us "unparalleled" success.

Do you think Joel and Avram were watching that night?

No. Me neither.


Tuesday, May 25, 2010

Half “The Equalizer” and half “Josh Lyman”?

I hear on the grapevine that select print and broadcast journalists are being invited into 50 Pall Mall, Manchester United's London office, for off the record briefings by Edward Woodward. Woodward is United's brilliantly named but oddly titled "Chief of Staff". I've never had the pleasure of meeting him as he came on board from JP Morgan after the takeover, but I can't help imagining him as a cross between:


Anyway, the message from the Chief of Staff is that all is well with United's finances. On the thorny subject of the PIKS, let me quote the BBC's David Bond (who is clearly one of the chosen few invited to hear the gospel) in his latest blog (my emphasis):

"One of the reasons why the Glazers took out a £500m bond to refinance what they call their "senior debt" (a term which basically tells you it has priority over the PIKs) earlier this year was to free them from the restrictions which prevented them from taking cash out of the club to pay off the PIKs.
The bond has now liberated them and, with the club predicting cash reserves of £150m by June, the money is there to start paying them off.

And yet, they don't expect to start removing cash from United's hugely successful commercial operation in the near future - certainly not before the end of the current financial year which closes on 31 June [sic].
Why? Implausible as it may seem the Glazers are apparently comfortable with the loan. They view it as a tax deductible, benign security."

So that's OK then. A debt instrument ratcheting up at 16.25% per annum and heading towards £600m by the end of its life in 2017 is "benign". As for the tax deductible nature of the instrument, the c. £26m of interest added to the PIKS in the last financial year saves a whole £7.3m in corporation tax. Well worth the risk I'm sure you'll agree!

Anyway, it's nice to hear that all is well. How very reassuring during the period when the club is asking fans to renew their season tickets....

PS. Q3 results confirmed for Friday at 12.30pm.

PPS. Wouldn't it be nice if United's senior management would talk to the supporters customers for a change?


Monday, May 24, 2010

United’s Q3 results to be published this week – some things to bear in mind

Edit: 28 May. Results now out.  Initial comments here.

One of the (few) positives of the bond issue, is that Red Football Ltd is now obliged to publish quarterly and annual accounts in a timely fashion. The requirement for quarterly accounts is set out in clause 2 on pages 144 and 145 of the pdf version of the bond prospectus (my emphasis):

"within 60 days following the end of each of the first three fiscal quarters in each fiscal year of the Parent, quarterly reports containing the following information: (a) an unaudited condensed consolidated balance sheet as of the end of such quarter and unaudited condensed statements of income and cash flow for the quarterly and year-to-date periods ending on the unaudited condensed balance sheet date, and the comparable prior year periods for the Parent, together with condensed footnote disclosure; (b) pro forma income statement and balance sheet information of the Parent, together with explanatory footnotes, for any material acquisitions, dispositions or recapitalisations (excluding acquisitions or dispositions of player registrations) that have occurred since the beginning of the most recently completed fiscal quarter as to which such quarterly report relates; and (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment), including a discussion of the consolidated financial condition and results of operations of the Parent and any material change between the current quarterly period and the corresponding period of the prior year;"

The first results under these obligations, Red Football's 2nd financial quarter to 31st December 2009, were published on 2nd March 2010 on the Luxembourg Stock Exchange website ( and on the new MU Finance plc webite ( The results were somewhat overshadowed by the announcement of the existence of the Red Knights group the same day.

The Q3 results to 31st March 2010 are due within 60 days of that date. As the 60th day falls on Sunday 30th May when the Luxembourg Stock Exchange is closed, I expect the results will be published on Friday 28th May, or even one of the three days between now and then, early publication is at the company's discretion.

I don't believe much of interest will be revealed on Friday but ahead of the results, I thought I'd note a few points to bear in mind about the figures:
  • These figures relate to the period 1st January to 31st March.
  • These figures only relate to Red Football Ltd and its subsidiaries, and not to Red Football Joint Venture Ltd which holds the PIKS. The debt numbers shown will therefore exclude the PIKS. On 2nd March, the Daily Express and BBC website forgot this and published (for a short time in the BBC's case) articles saying "huge fall in Manchester United's debt" when in fact they were comparing the previous RFJV figures with the PIKS to RF's quarterly numbers without them.
  • In the last quarterly figures, the amount of bond debt shown (pro-forma) was £512m. That number was struck using an exchange rate of $1.62 to £ on 29th January. Sterling had fallen to $1.507 by 31st March, so expect the bond debt (in sterling) to be around £532m at the quarter end.
  • All the mood music from inside the club to journalists suggests that at 31st March, the £70m "restricted payment" to RFJV had not been made. If this is indeed the case, expect the club to push the line that "the Ronaldo money is still there". I stick by my prediction that this money will go to pay down some of the PIKS, I just don't know when. Nobody should be surprised that the club don't want this money to publically vanish in the middle of the season ticket renewal period. Those who believe I am scaremongering can go on believing that of course.
  • If the £70m dividend has been paid to RFJV Ltd since 31st March, line (b) in the paragraph from the prospectus shown above seems to suggest that it would not have to be disclosed as it would not fall into the categories of post balance sheet "acquisitions, dispositions and recapitalisations" that must be shown.
  • The club quite correctly warn bond investors not to pay too much attention to one quarter's figures compared to another. The timing of PL home games in particular can cause quite a swing year-on-year, as it did in Q2 when there were two more games compared to last season. A quick look at suggests that in Q3 there were the same number of home games this season and last, but there may be other timing issues which can skew the numbers.
  • The bond issue completed on 29th January, so the "interest charge" for the quarter will be a combination of one month of bank interest and two months of bond interest. It will be interesting (for the dweebs amongst us) to see when the interest rate swap was closed and at what cost. In cash terms, there was a semi annual bond coupon payment in February.
Other areas we may learn more about include:
  1. Are the Glazers already taking their entitlements to £6m pa in "management fees" and £3m pa in parent company expenses? There may not be enough detail to tell.
  2. Have any more of the future US$ coupon payments been hedged against sterling?
  3. Whilst these results don't cover season ticket, exec and box renewals, will there be more comment on hospitality sales (described as "challenging" in the last results)?
  4. How seasonal is United's cash flow? This will be a weak cash flow quarter and the pro-form cash balance at 31st December 2009 was £98m.
So all in all expect a fairly quiet and unremarkable set of numbers.

United remain a very profitable football club weighed down with a significant interest bill and with owners who have just signed up to a bond deal that actually increases the interest bill but introduces rights to take out a high proportion of the club's cash flow for themselves. No light is likely to be cast on the real issues of renewals, transfer spending and the stripping of cash out of the club until later this year and into 2011. And remember, we only get to see the state of RFJV and its PIKS once a year in January or February, six or seven months after its year end.


Friday, May 21, 2010

Dimitar Berbatov will stay @ OT

Sir Alex Ferguson has said that Manchester United have no intention of selling Striker Dimitar Berbatov. 

The Bulgarian striker has struggled to make an impact at Old Trafford following his £30.75million move from Tottenham in August 2008.

He has managed to score just 26 goals in two seasons.
But boss Fergie has no plans to offload the "fantastic" 29-year-old.
He said: "No, no, definitely not.
"There is speculation about Berbatov but we know he's a good player.
"He is a fantastic footballer and he'll be with us next year."

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How Can Barcelona Afford Cesc Fabregas?

For the past few days there has been intense speculation about whether the Arsenal captain Cesc Fabregas will make his long-anticipated return to Barcelona, the team who brought him through their famed academy system. Trying to discern fact from fiction is extremely difficult, but the question that concerns me is exactly how Barcelona can afford to buy him, especially now that one of the Catalan club’s own presidential candidates has described the club’s level of debt as “stratospheric”.

Barcelona has already spent £34m this week to secure prolific striker David Villa from Valencia, while they splashed out around €90m last summer on bringing new players to the Camp Nou, including the mercurial forward Zlatan Ibrahimovic, the unpronounceable defender Dmytro Chygrynskiy and two Brazilians: the veteran full-back Maxwell and the promising striker Keirrison. Estimates of a transfer fee for Fabregas have ranged from a ridiculously low £30m to an optimistic £80m, but whatever the price, I think it’s worth looking at whether Barcelona are “mes que un club” from the financial viewpoint.

"Future team mates at Barca?"

So, do they have enough money to buy Fabregas? To be honest, it’s almost an impossible question to answer, given the willingness of Spanish banks to hand over loans to Barcelona (and Real Madrid) to fund their acquisition plans, but if we analyse Barcelona’s financials we might just be able to see whether they generate sufficient cash themselves. It might also be interesting to compare their accounts with Arsenal’s to get a sense of perspective, but before we get stuck in, I should give a few health warnings:

(a) We will look at the last set of annual accounts, not the more recent interims, as they do not contain the wealth of detail of the full-year figures. These cover the 2008/09 season, though Arsenal’s accounts are for the twelve months until 31 May 2009, while Barcelona closed their books a month later on 30 June 2009.

(b) Unsurprisingly, Barcelona’s financial statements are as per the Spanish National Chart of Accounts, which is very similar to the British format, but not exactly the same, so I have slightly amended their presentation to enable like-for-like comparisons.

(c) I have excluded Arsenal’s property development business, as this is a temporary activity for Arsenal, which should come to a (happy) end in the near future.

(d) However, I have included Barcelona’s non-football sporting activities (basketball, handball and hockey), as this is normal business for the club. In any case, it is not significant to their revenue (only £1.3m in total), though the costs are more of a drain, reducing last year’s profit by £24.3m.

(e) Currency movements can play a big part in the comparison with the Pound around 25% lower against the Euro than two years ago, even after the recent collapse of the Eurozone currency. This means that Barcelona’s revenue in Sterling terms is now much higher than it was. For convenience, I have used the same exchange rate as Deloittes in their 2010 Money League, namely €1.1741.

The first point to note is that both clubs make money, which is a rarity in the world of football. Barcelona’s profit before tax was a highly respectable £7.5m (€8.8m), but Arsenal’s was even more impressive at £39.9m, even after excluding £5.6m from property development. This difference may be down to a divergence in strategy, as Barcelona’s approach appears to be to remain profitable, but only just, as they spend available money on strengthening their squad. However, when Barcelona vice-president Joan Boix describes the club’s economic model as “solid and sustainable, independent of any sporting success”, it sounds uncannily similar to the Arsenal ethos. Having said that, you would expect their figures to be good after an incredibly successful season, during which the Catalans won the Champions League and the domestic double of La Liga and Copa del Rey. In comparison, Arsenal did not win any trophies, but their report card was not too shabby either: reaching the Champions League semi-finals, finishing fourth in the Premier League and reaching the semi-finals and quarter-finals of the FA Cup and Carling Cup respectively.

However, there is an enormous difference in revenue with Barcelona generating an incredible £311.7m (€365.9m), which is £86.6m (or nearly 40%) more than Arsenal’s £225.1m. To put that into context, Arsenal’s turnover is the second highest in England and the fifth highest in Europe. I should mention that Barcelona report their turnover as €384.8m, as they include profit on player sales, but this is shown separately in British accounts, which is the approach I have taken. Deloittes used the same assumption in compiling their Money League.

Even though the Camp Nou has a far larger capacity (98,800) than the Emirates (60,400), Arsenal’s match day revenue of £100.1m is actually £18.7m higher than Barcelona’s £81.3m. This is due to a couple of factors. First, Arsenal fill their stadium (or at least sell all the tickets), while Barcelona’s average attendance is 76,000, which is only 77% of capacity. More importantly, Arsenal’s ticket prices are among the highest in Europe, including 9,000 premium seats that generate approximately 35% of match day revenue, though any continued lack of success in terms of winning trophies might adversely affect demand at this level.

"Grounds for optimism"

Of course, the Emirates is a brand new stadium with state-of-the-art facilities, while the Camp Nou is a venerable old ground in need of a facelift. Barcelona had planned a €250m redevelopment, adding 10,000 seats and improving corporate facilities, which would have increased revenue, but this has been postponed after complaints from local residents.

In contrast to Arsenal, Barcelona do collect good revenue from pre-season tours and lucrative friendlies. For example, their tour to America plus a friendly match in Kuwait produced over £6m. They also receive money from over 170,000 members, though this is not a significant factor, only delivering £15.1m.

However, in broadcasting revenue there really is no comparison. Although Arsenal’s TV revenue of £73.2m is nothing to be sniffed at, Barcelona’s £134.9m is virtually double the size, thanks to the unique ability of Spanish clubs to negotiate individual deals in contrast to the Premier League’s collective bargaining system. This means that Barcelona earn around €120m in television rights from their deal with Mediapro, which runs until season 2012/13, but the other, smaller teams earn considerably less. For example, Valencia and Sevilla only earn €30m and €20m respectively. Apart from the obvious financial benefits, this has another advantage to Barcelona (and Real Madrid), as it makes it almost impossible for the other teams in Spain to compete with them, allowing the big two to prioritise the Champions League. Even though Arsenal, like other Premier League clubs, will receive an additional £7.5m a year from next season following the recent overseas rights deal, they are still greatly disadvantaged relative to the Spanish giants.

With Italy returning to collective rights next season, Spain is the only leading European championship in which clubs sign their TV rights individually. Not surprisingly, the other clubs in La Liga have denounced this process as “completely unbalancing the league’s sporting potential”, but time will tell whether their pressure for change bears fruit. Equally predictably, Barcelona would resist any change, being “radically and absolutely against the collective sale of TV rights.” President Joan Laporta explained the club’s position, “I don’t want to damage the interests of Barcelona Football Club, because we have to compete against teams in other countries.”

"Business is business"

Joan Boix has said that Barcelona “only budget for the team to reach the quarter-finals of the Champions League”, so their revenue got a boost when they won it in 2009, though their share of the revenue distributed by UEFA (€31m) was not much higher than the €26.8m received by Arsenal. Although they were given €7m more for winning the competition, Arsenal’s share of the TV pool was €3.1m higher, as the English TV market is larger.

Similar to TV revenue, Barcelona’s commercial revenue of £95.4m is very nearly twice Arsenal’s £48.1m. We know that this is an area of weakness for Arsenal with their revenue lagging way behind the club’s English peers (Manchester United £70m, Liverpool £68m and Chelsea £53m), but we also understand why, as the club tied themselves into long-term deals with Emirates (stadium naming rights until 2021, shirt sponsorship until 2014) in order to provide security for the stadium financing.

"Absolutely Fabregas"

Although Barcelona are famous for not having a shirt sponsorship deal, instead having an innovative partnership with UNICEF whereby they fund some of the charity’s projects, Laporta’s regime is determinedly commercial with the club’s website listing 26 sponsors, providers and partners, including Nike who pay a guaranteed minimum of €30m a year (“the best deal in our history”, according to Laporta). Unlike English clubs, when Barcelona sign a player, they also retain a significant portion of his image rights, which allow them to make millions in advertising deals. The club also receive an incredible £18.7m a year from its museum.

Arsenal chief executive Ivan Gazidis is well aware of the opportunities here and has recently restructured and strengthened his commercial team to explore new partners and overseas markets. Recent deals by other clubs highlight the size of the prize, which are conservatively worth another £20m a year. Indeed, Barcelona are a good example here, having increased commercial revenue under Laporta’s leadership from a paltry €39m in 2002/03 to €112m today.

In fact, it’s worth looking at how revenues have grown at the two clubs since Joan Laporta’s election as Barcelona president in June 2003. At that time, Arsenal and Barcelona had almost identical revenues with the North London club’s turnover of £103.8m only just lower than Barcelona’s £105.1m. Since then, Arsenal have managed to more than double their revenue to £225.1m, which is an impressive performance, but pales into insignificance compared to Barcelona, who have all but tripled their revenue to £311.6m. One of Laporta’s first acts was to replace practically the entire management team with top-class professionals, many of them recruited from outside the football industry, which shows what can be achieved with the right people. Nevertheless, Joan Boix admitted that “the growth in income in the past six years has exceeded all expectations.”

Since the annual accounts, revenue has grown still further at Barcelona with the club reporting a substantial 19.7% (€36.8m) increase from €186m to €222.8m for the six months up to 31 December 2009, though this gain was more than wiped out by a 27.1% (€45m) rise in costs from €166m to €211m, due to an increase in salaries following the signings of Ibrahimovic et al plus higher bonuses for winning the Club World Cup and the European and Spanish Super Cups. Despite “the success on the filed having a short-term economic cost”, the club still believes that “the figures highlight that Barcelona is consolidating year after year a self-financing and sustainable business model.”

"The joy of Cesc"

Arsenal’s interims told a similar story, though revenue from the football segment only grew by £1.8m (less than 2%) with property development being responsible for almost all of the club’s £40m reported increase in turnover. Again, this was more than off-set by the £10.1m cost growth to £101.4m, largely due to the £8.6m rise in player wages, despite the departure of Emmanuel Adebayor and Kolo Toure, who were on pretty high salaries, which reflected the re-signing of 17 first-team players on improved long-term contracts.

Although Barcelona’s revenue is significantly higher than Arsenal’s, so is their cost base. Their annual expenses of £307.7m are a full £113.4m more than Arsenal’s £194.3m. As always, the wage bill takes up the largest slice of the pie at both clubs: £104m at Arsenal and a jaw-dropping £171.5m (over €200m) at Barcelona. This still gives a respectable wages to turnover ratio of 55%, although not as low as Arsenal’s 46%, which admittedly is exceptionally good for a football club. Much of Barcelona’s huge staff costs is due to high variable costs of nearly £50m for bonuses payable for winning the treble, which was £28m more than the previous season when they did not win anything (third, in La Liga, semi-finalists in the Champions League and Copa del Rey).

Even so, Barcelona has eight players in the list of the top 50 footballers’ salaries with Ibrahimovic £10.4m and Lionel Messi £9.1m being the best paid. Next in the list is Thierry Henry, so if he departs for the MLS, as expected, some £6.5m will be cut from the payroll. Arsenal only has one player on this list, Andrei Arshavin in 47th position with £4.1m, though Fabregas’ reported increase to £110,000 a week would result in an annual salary of £5.7m, taking him into the top 20.

"Pep talk"

Clubs in La Liga have been helped by the so-called “Beckham law”, which allows foreigners in the top tax bracket to only pay 23% tax for their first five years in the country. In comparison, players in England now pay 50%. This means that clubs in Spain can either pay lower gross salaries to produce the same net salary as in England or pay the same salaries, leaving the players with a higher net package. It has been reported that this law is under review, but I don’t think that it has been revoked yet.

The other meaningful operating expense is player amortisation, which reflects how much money has been spent on buying new players. The accounting treatment here is to write-off the costs associated with buying players over the length of their contracts, based on the (prudent) assumption that a player has no value after his contract expires, since he can then leave on a “free”. Barcelona’s amortisation of £46.4m is considerably higher than Arsenal’s £23.9m, but this is more due to Arsenal’s very low transfer spend than any profligacy on Barcelona’s part. As a comparison, Barcelona’s amortisation is quite similar to the other “Big Four” English clubs: Chelsea £49m, Liverpool £45.9m and Manchester United £37.6m. However, given last summer’s spending spree, I would expect it to be a fair bit higher next year.

It would be a bit harsh to overly criticise Barcelona’s big money transfers, as the majority of their first team have emerged from the club’s youth system, including great players like Xavi, Andres Iniesta, Victor Valdes, Gerard Pique and Carlos Puyol. Indeed, many have described Arsenal’s own “youth project” as an attempt to emulate the Catalan system. Barcelona’s strategy is in marked contrast to Real Madrid with Laporta memorably boasting, “We create Ballon d’Or winners, while others have to buy them. One is the model of a youth system and the other one, that of Madrid, is of a wallet.”

"Project Youth at its best"

Barcelona are not afraid to splash the cash, but they also recoup some of that outlay via player sales, which earned them £15.1m in 2009 (after £20.4m the year before). Of course, Arsene Wenger is also renowned for his ability to generate revenue from the transfers of players that he has developed. In particular, last year’s accounts include a profit of £23m from the sale of player registrations and that did not include the £42m received last summer for Adebayor and Toure from the City slickers.

This is all very well, but what about all this debt that Barcelona is supposed to have? Strange – the accounts show that Barcelona’s net interest payable of £11.6m is actually lower than Arsenal’s £14.4m. Both of these are considerably lower than the annual interest payments at clubs with a genuine debt mountain like Liverpool’s £40m and Manchester United’s eye-watering £68m. We know that the solid progress on property sales has enabled Arsenal to reduce net debt by circa £160m in the last twelve months to around £175m with the property developments now being essentially debt-free, but what about Barcelona?

The precise figure for their debt is actually quite confusing with the amounts reported ranging from €30m to €489m (see table above), but the explanation is quite straightforward. The only genuine bank debt that Barcelona has is a €29m loan from La Caixa that was taken out in February 2009 (repayable February 2010) and that is the debt the club mentioned at the AGM. At the same time a club spokesman referred to net debt of €202m, which is also the figure quoted in the annual accounts, which represents the bank loan plus provisions and accruals. The Guardian quoted a net debt of €350m, which appears to be calculated from the total current liabilities of €360m, i.e. including €247m of trade creditors, less the cash at bank of €10m. Finally, one of the Barcelona presidential candidates, Sandro Rosell, argued yesterday that the debt was €489m, which is simply the sum of all the club’s liabilities (current and non-current). As Mark Twain almost said, “the reports of my debt have been greatly exaggerated.”

So which figure is correct? In their own way, all of them. The definition of debt is “amounts owed to people or organisations for funds borrowed”, but this can be broadly interpreted. At the narrowest extreme, we have just the bank debt; at the broadest extreme, we can take total liabilities (“all financial obligations, debts, claims and potential losses”). It all depends on your purpose. The club clearly wishes to under-play their debt level, while a presidential candidate would obviously want to use the highest possible figure – which is exactly what they have done. Barcelona’s view is, “We have kept the level of debt stable and we hope to carry on lowering it”. Even after the costly purchases last July, they claimed that “the ultimate proof that Barca has a solid economic base is that we didn’t have to make any new debts when signing new players this summer.” As we have seen earlier, they are not unwilling to sell players, which would reduce any debt, though I’m not sure that they would want to make money on Messi (for example).

"Sandro Rosell - he would say that, wouldn't he?"

But do the provisions include anything that might be a sting in the tail? Yes, they do – a couple of nasty surprises, in fact. First, the club has provided €36m for a payment to the Spanish tax authorities following irregularities in the late 1990s, having already paid out €25m over the same issue for earlier years. Second, they have provided €16m against a claim made by TV company Sogecable. Trade creditors are normally just the cost of doing business, so personally I would not include them within debt, but even these include some “funnies”. For example, Barcelona owe nearly €50m to other football clubs on transfer purchases, ironically including €16m to Arsenal (€12m for Thierry Henry and €4m for Alex Hleb). These “disputes” don’t quite tie in with the club’s “holier than thou” image.

There are many things to admire about Barcelona. Not just the way the team plays the beautiful game, but also the way that the club is structured, so that the executive is accountable to the club’s members with the president being elected every four years. Alfons Godall, another presidential candidate, said, “I believe ours is the best model, an example to England. We are free. We do not depend on a Mr. Abramovich. We want to be successful, but also to have meaning, social values.” It all sounds a little too good to be true and indeed there are some who consider Barcelona to be the football equivalent of Coldplay: a bit self-righteous, adored by the masses and just a little too free with their opinions. Their image would be rather more convincing if they didn’t spend so much time unsettling other clubs’ players, or if there weren’t so many empty seats at the Camp Nou.

"On your bike"

In fact, Spanish domestic football is far from healthy. Only this week, the Guardian revealed that La Liga’s debt of £3 bln was even higher than the Premier League’s £2.9 bln. The individual TV rights may be wonderful for Barcelona and Real Madrid, but every other club in Spain suffers, highlighted by Real Mallorca announcing that they would file for voluntary administration, even though they narrowly missed out on qualifying for the Champions League. In a thinly veiled message to Fabregas, Arsene Wenger said, “I can't see anyone who has a competitive edge going to Spain. They have two good teams, but the third team is 21 points behind and this week the players threatened to go on strike because they are not paid. It's a league that is in complete disarray. If you are competitive you stay in England, that's where the competition is and that's where the best players want to be.”

We don’t know what is happening behind the scenes with Arsenal’s captain, but if Fabregas does not end up at Barcelona, I don’t think it will be for financial reasons. The Catalans generate a huge amount of revenue, which they clearly budget to spend on improving their squad. Thanks to their productive youth scheme, they only need to make a few “marquee” signings every season, so they can afford to allocate a lot of money to one or two individual transfers. I don’t think that their debt levels would prevent them from making a bid, as the majority is derived from normal operations (trade creditors, provisions and accruals) and their bank debt is tiny. In any case, we have seen that Spanish banks are more than willing to lend to Barcelona and Real Madrid. Whether Barcelona would be willing to spend as much as £80m is another question, as every buyer has his limit, beyond which he will not go. Let’s hope that this is a case of an irresistible force meeting an immovable object.