Financial Tiki-Taka: Ugly Side of the ‘Beautiful Game’ in Spain

By Don Quijones, Raging Bull-Shit.

On the surface and on the pitch, Spanish football has never been better. Thanks to tiki-taka — the style of play characterised by short passing and movement pioneered at Barcelona’s talent academy, La Massia — Spain’s national team of once-perpetual underachievers has won two back-to-back European Championships and one World Cup in the last six years, a feat unmatched by any other European nation.

At the club level, Spain also punches well above its weight. In Real Madrid and Barcelona, the country boasts the two richest clubs in the world — at least in terms of estimated squad value, with Barcelona weighing in at €774 million (a remarkable €439 million more than it cost to assemble) and Real Madrid, €512 million (worth just less than Real paid). These days each contest between the two sides, traditionally dubbed El Clasico, draws more viewers than any other club football match in the world, with the exception of the Champions League final.

But as with so much in post-crisis Spain, first appearances can be very misleading. Scratch just a little below the surface of the country’s juego bonito and what you find is a sport and industry rife with scandal and abuse, and buttressed by a vast edifice of crumbling debt.

Pop Goes The Bubble

When Vincent Andreu arrived for his first day as the new auditor of middling-sized first-division Spanish football club Levante a couple of years ago, what he encountered was a business precariously close to collapse. The accounts had been embargoed and the club had less than 300,000 euros to its name; months’ worth of salaries were unpaid and huge debts were owed to Social Security and the Spanish tax office.

The end of the bubble in Spanish football had begun. For years clubs had operated far beyond their means — all of it made possible by the generous spigot of easy bank credit. According to José Antonio Bosch, a lawyer and administrator for the Seville-based side Betis, a “culture of plunder” had reigned at the club for years, with irregular payments being made to top management, including juicy commissions for each new football signing.

At Racing Santander, a 965,000 euro payment to a seemingly non-existent school in Brazil was just one of a number of anomalies administrators discovered in the club’s accounts. Such irregularities were, and probably still are, par for the course in Spain’s football industry. According to Luis Manuel Rubi Blanc, one of Spain’s foremost experts on the prevention of money laundering, tax evasion is rife in the world of football, and during the boom years at Spanish football club Atletico Madrid there were probably more risks being taken than in the dark world of Galician smuggling (a topic I previously covered here). At least in smuggling, he said, there are “rules of some kind”.

But as with all boom/bust tales, when the party ends, the hangover soon begins. Since the easy money dried up in the wake of Spain’s bricks-and-mortar crisis, the list of bankruptcies just keeps growing longer and longer. In January 2013, the now-second division Galician side Deportivo La Coruña became the eighth club to go into receivership and restructure its debts.

Just like any normal business restructuring, bankruptcy is swiftly followed by rampant fire sales of the clubs’ most valuable assets. Hence, La Liga has gone from being the second biggest net spender in Europe in 2007, just behind the English Premiership, to one of the biggest net sellers in 2013. Indeed, spending on new players in the last six years — excluding, of course, Real Madrid and FC Barcelona, which receive the lion’s share of La Liga’s sponsorship and TV rights money and, as such, occupy an entirely separate sporting and business universe — has plummeted by a staggering 63 percent.

Bailouts Galore

However, no matter how many players the clubs offload, it won’t be nearly enough to fill the gaping holes and cracks in their accounts. In terms of state taxes alone, they owe well in excess of 600 million euros — and that figure doesn’t even include the millions of euros owed by the four clubs operating as non-profit organizations: Barcelona, Real Madrid, Athletic de Bilbao and Osasuna. In total, it is estimated that La Liga’s outstanding debt is worth over 4 billion euros.

Clearly, more radical measures are needed to keep La Liga’s teetering edifice from toppling. The solution, it appears, is two-fold: first, to generously restructure the clubs’ debts [something that is completely unthinkable for most of Spain’s cash-strapped SMEs, as I reported here], giving them more time and leeway to pay their taxes, social security and other debt obligations; and second, if point one isn’t enough to steady the ship, to use public money to keep the clubs afloat. That’s right: regional governments in Spain are, it seems, bailing out, whether overtly or covertly, many of the country’s richest football clubs.

In Valencia, the bailouts could not be more blatant. As The Times of India reports, the state-owned Institute of Finance has issued loans that were used to finance three Valencia clubs — Valencia CF, Hercules CF and Elche CF — while those clubs were seemingly undergoing financial difficulties.

Most egregious of all, Valencia was granted a stay of financial execution when, in 2011, just months before its historic bail out, Bankia negotiated a deal with Valencia CF to complete the construction of the Nou Mestalla stadium. The club’s old Mestalla property was transferred to the bank, and the club’s debts, which had reached close to 600 million euros, were reduced to around 100 million.

However, if recent allegations are true, by far the biggest and most controversial bailout in Spanish football history took place long before the financial crisis even hit. And the recipient? Why, the world’s largest football club by revenue, Real Madrid.

The man at the center of this almost dead-and-buried scandal was Real Madrid’s then and now current president, Fiorentino Perez, who also happens to be the president of ACS, one of Spain’s largest (yeah, you guessed it…) construction companies.

When Perez took over the club in 2000, Real Madrid had a total outstanding debt of some 270 million euros. Little more than a year later, after Perez had executed some sublime financial tiki-taka, not only had the club completely wiped out its debt, but it suddenly found itself hundreds of millions of euros in the black. To pull off this neat financial footwork, Perez took advantage of an ambitious urban redesign programme being spearheaded by the Madrid city government. Through his close connections with city authorities, he was able to get an enormous plot of land donated to the club by the city in 1960 reclassified as land available for building.

Once that was done, it was just a simple matter of waiting for bids. And they soon came flooding in, not only from private developers but also, it seems, from the city council itself [The reason I use the word “seems” is that so opaque was the eventual deal that, on two occasions, the European Commission has requested clarification of whom exactly the land was sold to. And while, to this day, the council denies any public involvement in the purchase, the sale remains shrouded in secrecy and the subject of an ongoing European Commission investigation.]

One thing that is clear is that Real Madrid made a staggering 500 million-euro profit from the operation — enough money not only to wipe out its debt and embark on a madcap shopping spree for new Galacticos (including football’s then-most cashable brand David Beckham), but also to buy up and redevelop a new plot of urban land for its sporting and business needs — much of it (if allegations are to be believed) paid for by Madrid residents, including, of course, Atletico Madrid fans!

More incredible still is the allegation (made by that, of the four skyscrapers built on the land sold by the club, two were built by Perez’s own construction firm, ACS — I mean, talk about win-fucking-win!

But Real Madrid wasn’t the only club to take advantage of Spain’s housing boom to reclassify and sell off its land. As a 2006 special report by El País alleges, almost all of La Liga’s biggest clubs were at it — though none came remotely close to replicating Perez’s sale of the century. Six La Liga clubs — Real Madrid, Barcelona, Athletic Bilbao, Valencia, Elche and Osasuna — and one second-tier club — Hercules — are now under investigation by the European Commission for receiving state aid.

As Joaquín Almunia, the Commission vice-president in charge of competition policy, said: “Professional football clubs should finance their running costs and investments with sound financial management rather than at the expense of the taxpayer.”

Not only does it seem that certain privileged clubs are receiving covert public support, to the obvious detriment of those that don’t, they are doing so at a time of acute scarcity of public funds; at a time when Spaniards are being told that there simply isn’t enough money in the state’s kitty for many basic, essential public services, including healthcare, education and disability allowances.

The Show Must Go On

Whatever happens in the coming years, one thing on which you can safely bet your bottom dollar is that there will be more scandals coming out of La Liga. Already accusations of match-fixing are beginning to surface, as are allegations of players receiving extra, undeclared inducements from sponsors, as well as laundering Columbian drug money. Among the accused (though charges have since been dropped) was Barca’s Lionel Messi, the most expensive player in the world.

Of course, economic instability and financial scandals are not unique to Spanish clubs, and UEFA’s Financial Fair Play regulations should start to curb clubs who spend beyond their means — although it could be just yet another example of “too little, too late”. For while the rampant professionalisation and commodification of football may have inspired a notable improvement in footballing excellence — the juego bonito has never been quite so beautiful — the price the sport has paid is the loss of its very soul.

For so long the primary preserve of global working class communities, football is now a multi-billion dollar business, and the plaything of some of the world’s richest and often least savory billionaires and corporations. And while some of the best players have made a packet along the way, many of the small-to-middling clubs — once the lifeblood of the game — are now effectively bankrupt.

However, football has also become one of the people’s preferred opiates of choice, amassing huge social support in the process. In Spain the highest-selling daily newspaper is La Marca, a publication almost exclusively devoted to football. And as the post-crisis reality continues to bite, more and more people will seek solace, escape and diversion in the game of football. And for that reason alone, the show must go on — even if it means bailing out some of the world’s biggest football clubs with increasingly scarce public funds.By Don Quijones, Raging Bull-Shit.


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