Why Barca are 'more than a club'

The business knowledge of the Spanish giants is unbeatable, says Simon Kuper.

Barcelona celebrate winning the Club World Cup in Abu Dhabi earlier this month. It was their sixth trophy of the year.

Most football clubs are bad businesses. Most, in fact, are rather like FC Barcelona was in 2003: a debt estimated at ?186million (Dh985m), and almost all the club's income going straight into the players' pockets. Barça didn't even have much income at the time: the annual revenues of ?123m were smaller than those of 12 other European football clubs, and less than half as much as Manchester United's.

In short, the club were not being brilliantly managed. Less-than-brilliant management is of course the norm in football. "The numbers are eloquent," says Miguel Cardenal Carro, director of the sports law centre at Rey Juan Carlos University in Madrid. "The total deficit of the 42 businesses that belong to the Liga de Fútbol Professional must now be around ?4billion." Today, things at Barça are rather different. Since the "powerpoint generation" of younger business people around president Joan Laporta took over the club in 2003, they have made profits every year: a total of about ?103m in profits. They made profits when Barcelona won the treble, and profits when the team had such a bad season in 2008-09 that Laporta faced a motion of no confidence. In all of European football, only Manchester United can boast a similar record of consistent profit. Barça have now paid off their bank debt. Moreover, when the business advisory firm Deloitte publish their next financial ranking of the world's biggest clubs by their revenues, Barcelona may well have leapfrogged over Real Madrid and United into first place as the world's richest club. Clearly Barça have a remarkable business model. Here are five of their main prongs.

When Laporta's team took charge in 2003, they swallowed hard and made a painful decision: in order to wipe out the club's debt, they would get the first shirt sponsor in Barça's history. They talked to a betting company and to Beijing 2008. The deals didn't seem right. Then they made a momentous decision: instead of finding a sponsor, Barça would pay Unicef to put the organisation's name on the team shirts. "We call it reverse sponsorship," smiles the club's chief executive, Joan Oliver.

The short-term cost was high: other giant clubs got ?20m a year from their shirt sponsor. The primary reason for signing up Unicef was not financial but social: it was the sort of thing that a club calling themselves "more than a club" should do. But in the medium run, the deal actually made Barcelona money, because it strengthened the club's brand. A football club are a brand, and strong brands make you money.

"Normal" companies outside football spend fortunes building their brands. Coca-Cola, for instance, are always advertising, hoping to make consumers feel good about Coke. By "signing" Unicef, Barcelona was following the same strategy. Anyone in the world turning on the TV when Barça were playing saw at a glance that this was more than a club. It mattered that Unicef are a global organisation. Oliver explains: "The strategy has been to build FCB as a world-run, and not as a local team. This strategy has allowed us to be probably one of the top three brands in football in the world. The brand is the real asset we have."

A key pillar of Barça's business model, says Oliver, "is to have one of the best, perhaps the best, team in the world, without having to spend millions on players. The image of that is the final in Rome this year, with a team of seven players from our academy. We are now building some academies abroad, for example in Argentina." Professor Cardenal Carro adds: "Barcelona have developed a successful system to prevent the flight of budding stars. Cases like those of Piqué [Manchester United] or Cesc Fabregas [Arsenal] are more difficult today."

Even so, building a good academy costs money. The Ciutat Esportiva Joan Gamper training ground, which largely serves Barça's youth teams, cost ?42.4m. For that price you could buy two ready-made first-team players. Hardly any of the youngsters invested in will ever make it, and even when one does, it takes years before the money poured into him pays off. And preparing good players isn't enough. You then have to take an untried teenager and send him out into the Nou Camp in a real match. Angel Barajas Alonso, associate professor of finance at the University of Vigo, notes: "I think the key point is that Barça have hired a coach, Pep Guardiola, who has put trust in the homegrown players. Even Real Madrid have very big grassroots, but the problem is that most of the players of Real have to go to other teams in the first division or even abroad in order to play."

Barça dare to send out the youngster. Admittedly they have been lucky in recent years: you cannot expect the Masía to produce a Messi or a Xavi. Players like that are acts of god. But Oliver says the model works even in leaner times: "Perhaps you could not get the best player of the world from your academy, but we can get six, seven first-team players." If you do that, you won't simply save money on transfers. As with putting Unicef on your shirt, you will be building your brand. I watched the final in Rome with some European football officials, and afterwards they were reciting the stats about Barcelona's homegrown players with the same glee as Oliver does. Almost everyone in Europe who loves football dreams of going back to the old days, when teams were local, and Celtic or Ajax could win European Cups with players who grew up round the corner from the ground. By replicating that time, Barcelona have touched people. And you can make money out of touching people. Oliver notes: "Our new contract with Nike is the top one with a sports club in the world. Also our TV contract is the biggest in the world for a sports club." Nike are paying Barcelona a reported minimum of ?30m a year, and Mediapro ?150m annually for the TV rights, partly because of Unicef and the Masía.

In both cases, Barcelona gave up short-term gratification. In both cases, this paid off. Incidentally, Manchester United started their run of profits in the mid-1990s when they too assembled a set of homegrown stars: David Beckham, Ryan Giggs, the Neville brothers and Paul Scholes. Like the Barcelona of Messi/Xavi/Iniesta, United found the magic combination: relatively low outgoings on players, but very high income.

The amount that a club spend on transfers bears little relation to their success on the pitch. Stefan Szmanski, economics professor at Cass Business School in London, studied the spending of 40 English clubs between 1978 and 1997 and found that clubs' outlay on transfers explained only 16 per cent of their total variation in league position. By contrast, their spending on salaries explained 92 per cent of that variation. In other words, the more a club pay their players, the higher they finish. But what they pay for players in transfer fees to other clubs does not seem to make much difference, explains Szymanski in his and my new book, Soccernomics.

Barcelona under Laporta have done exactly what our book would advise: spend modestly on transfers. "The problem with the football business is that usually it is managed with very short-term goals," says Oliver. Most football clubs, he explains, "spend irrationally and compulsively on players. And that's very difficult to restrain. You have always the temptation of thinking that if you buy two or three players, perhaps you will reverse the situation". When Barça last hit trouble, in the summer of 2008, they did indeed spend about ?35m on Dani Alves. But they also sold two very big names, Ronaldinho and Deco.

In their 2007 report on the "Football Money League", Deloitte wrote about Barça: "A mainstay of the cost control strategy has been the introduction of performance- related pay throughout the squad, to encourage players and protect the business model against on pitch fluctuations."

In the 2005-06 season, said Deloitte, 18 per cent of the club's wage bill was related to the team's performance: the more the team won, the more players earned. Another 18 per cent related to players' individual performance: the more a guy played, the more he earned. In most clubs, bonuses make up a much smaller proportion of pay. "We have a salary structure that is significantly different," says Oliver. That's not always easy. When Barcelona won the treble last year, he points out, "we had to pay bonuses of nearly ?40m. That's a lot of money." To Oliver, though, the outcome proved again that the business model works in good times as well as bad. Last season Barcelona made profits for the sixth consecutive year.

Football clubs should not kid themselves that they are big businesses. Even Barcelona or Real Madrid are puny companies compared, say, to the 500 American corporations that make up the S&P 500 of Wall Street. Barcelona are not Banco Santander. It's more like the Picasso Museum: a public-spirited organisation who aim to serve the community while remaining reasonably solvent.

Barcelona exist to serve their socios. First of all, that means cheap tickets: in 2006, for instance, Barcelona's most expensive season ticket, at ?900, was cheaper than the cheapest season ticket at Arsenal. In general, it means listening carefully to the socios when making policy. Ferran Soriano, when he was a club vice-president, explained to the International Football Arena conference in Zurich that it was the socios who didn't want a betting company on the shirt. Making profits is merely a means to the end of serving the socios.

If a debt-free Barcelona keep making profits, they could eventually have a different kind of headache: what to do with all that money? One day socios might be offered free champagne and massages at every home game. On the other hand, in football there is always some problem waiting to bite you on the ankle when you aren't expecting it. [e-mail]