The Generalist - The Business of Barcelona

Hey friends,
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Unfortunately, I came down with covid last week. That meant I had to delay working on this latest edition. Though it was definitely helpful to get some rest and have time to recover, I really missed sharing a piece with you all.

It’s great to be back, especially with today’s edition, as I think it’s one of the most interesting business case studies in the world right now. For those that are less familiar with the sport, F.C. Barcelona is one of the largest football (soccer) teams in the world and the first to ever surpass $1 billion in revenue for a given year.

It is also in the midst of a crisis.
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This summer, club President Joan Laporta has embarked on a high-risk strategy to try and minimize Barcelona’s more than $1 billion debt and make the team competitive again. It’s proven to be a fascinating insight into the value of broadcasting rights, the globalization of sport, and the potential some are seeing in web3. To learn more, jump straight in!

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The Business of Barcelona

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about F.C. Barcelona.

• A highwire act. Barcelona has spent €168.9 million on new players this year, even though the club began the summer more than €1 billion in debt. President Joan Laporta is attempting a high-risk strategy, selling club assets while he continues to spend.
• Four levers. To try and alleviate Barcelona’s financial stress, Laporta has pulled four “levers.” These include selling stakes in broadcasting rights and giving up 49% equity in Barça Studios, an in-house media operation.
• The economics of genius. A year ago, Barcelona parted company with Lionel Messi. As well as being arguably the greatest player of all time, the Argentine forward was a source of considerable revenue, driving as much as €200 million per year by some estimates. He was also a significant cost, receiving ​​€139 million per year in wages.
• Betting on web3. One of Barça Studios’ newest owners is Socios.com. The crypto platform previously partnered with Barcelona to release a fan token. Its new arrangement suggests Barcelona is embracing the revenue potential of web3.

***

“You know why the Yankees always win, Frank?”

The question comes from Christopher Walken in the 2002 con-man caper Catch Me if You Can. It’s directed at his son, Frank Abagnale Jr., played by Leonardo Di Caprio.

“Because they have Mickey Mantle?” the younger Abagnale offers.

“No,” senior says. “It’s because the other teams can’t stop staring at those damn pinstripes.”

If one football team has evoked the same mixture of fear and reverence in recent years as Abagnale’s Yankees, it is F.C. Barcelona. For more than a decade, the famed maroon and blue stripes have not only conveyed sporting excellence but a kind of total, exhaustive dominance. Competitively, aesthetically, and commercially, Barcelona spent much of this spell at the sport’s zenith: stacking titles, playing with era-defining panache, and becoming the world’s richest club. Even morally, Barcelona has seemingly had the upper hand. The team eschewed paid shirt sponsors until 2010 and favored developing homegrown to purchasing highly-paid mercenaries. Barcelona’s motto is “more than a club” – for a period, it truly seemed to be.

Today, Barcelona is an organization in turmoil, battling major debts, a steep wage bill, and an underperforming team. To try and reverse the club’s fortunes, President Juan Laporta has overseen a summer of frenzied activity. On the sporting side, Barcelona has spent richly on new players like Robert Lewandowski, Raphinha, and Jules Koundé. To offset those outgoings, Laporta has activated four “levers,” selling decades' worth of media rights and auctioning off portions of an in-house “studio.” It is an unusual, high-risk strategy that gives Barcelona capital today at the expense of future earnings. Laporta’s approach represents a fascinating case study that illuminates the business of sport and the challenges of maintaining a dynasty.

In today’s piece, we’ll discuss:

• The business of football. How do football teams make money? We’ll discuss where revenue comes from for the world’s biggest clubs, how that mix has changed over time, and the impact of the pandemic.
• The rise of Barcelona. Though more than a hundred years old, Barcelona’s status as one of the best clubs in the world is relatively recent. A golden generation of homegrown talent has spurred its contemporary glory.
• Empires fall. Poor transfers, escalating wages, and mounting debt stressed Barcelona’s finances – the pandemic shattered them. Lost revenue forced the club to ask players for pay cuts and salary deferrals.
• Laporta’s levers. President Joan Laporta may have the trickiest job in professional sports management. Not only does he need to renovate a team struggling to live up to expectations, he must balance Barcelona’s disastrous books.

In a meme

​​​​​​​​For the pictorially inclined, here's the whole piece — all 7,100 words of it — in a single meme.

Puzzler

​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

David S was the first to unravel our previous puzzler. He was soon joined by Jason F, Greg K, Jim W, Gauri T, Joshua K, Thomas K, Rune W, Monica V, Krishna N, Reilly D, Michael O, Neil P, William M, Chani B, Ally W, William B, Shashwat N, Tord N, Jonathan D, Kelly O, Michael W, Ankit J, Calvin L, Nate M, John G, Matthew H, Jithamithra T, Ryan P, Thomas K, Aila O, Toby O, Xavier L, Manas E, Eli K, and Lorenzo Z. All figured out this tricky bit of wordplay:

The answer? A grudge. Well played to all of you.
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Wishing everyone a lovely rest of the day, wherever you are in the world.

Until next time,

Mario

PS – Because of Labor Day in the U.S., we’ll be back in action the week of September 5. We’ve got an amazing autumn and winter line-up coming together. I can’t wait to share it with you all!