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La Liga Financial Problems

La Liga is viewed as the best league in the world at the moment with Messi, Ronaldo and Kaka all displaying their skills on a weekly basis. But underneath all that glitter is a potential financial crisis that could tear the league apart.

One of the reasons that the Premier League has enjoyed so much success is that television money is evenly distribuited amongst the 20 clubs. Thus newly promoted Blackpool will make as much from the TV deal as Manchester United or Chelsea. This is the same revenue sharing format that the German Bundesliga and France’s Ligue 1 also follow.

That is not the case in Spain. In Spain teams are allowed to negioatte their own TV deals and that gives Barcelona and Real Madrid a huge advantage over their La Liga rivals. Currently Barca and Real Madrid earn about 150 million euros ($188 million) a season from their current TV deals. By comparision, Valencia, Sevilla and Atletico Madrid all earn around 30 million euros or less a season.

The huge discrepancy is one reason why La Liga is in such financial difficulties. The 20 La Liga clubs had combined debt of 3.526 billion euros ($4.41 billion) in 2008/09, up from 3.49 billion the previous season, according to a study published recently by University of Barcelona accounting professor Jose Maria Gay.

Only Real Madrid , Barcelona and relegated Numancia made an operating profit.

Revenue growth for La Liga teams fell to 4% in 2008/09 percent down from 10% in 2007/08 as the global financial crisis hit Spain. With operating costs of 1.704 billion euros, La Liga teams lost a combined 249 million euros in 2008/09.

According to Gay, three teams; Sevilla, Atletico and Valencia all spent more than 120% of their operating income on labour costs, which include amortisation of player purchases, in the 2008/09 season. The most successful teams spend around 50% of their revenue on salaries and player purchases. No businesses can survive for very long if they are spending 120% of revenue on players wages.