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Valencia Financial Situation Getting Worse

Valencia’s admission last week that it may have to sell players to ease its financial woes has highlighted the need for urgent action by the authorities to address the dire economic problems afflicting Spanish soccer.

The business model that Valencia and most of its peers use is clearly flawed and needs a radical overhaul involving compulsory financial controls before Spanish soccer bankrupts itself, analysts said.

In common with many club’s in Spain’s top two divisions that lack the vast earning power of Real Madrid and Barcelona, Valencia has been living beyond its means, racking up debt of more than 400 million euros ($505.7 million).

It has been unable to pay its players, including prize assets David Villa and David Silva, part of their wages and construction has been halted on a new stadium.

Valencia and the 19 other clubs in the Primera Liga have a combined debt of just under 3 billion euros, roughly equal to the money owed to creditors by their English Premier League rivals, according to Jose Maria Gay, a professor of accounting at the University of Barcelona and an expert on soccer finances.

Real and Barca, the world’s richest and third-richest clubs with television and sponsorship contracts worth hundreds of millions of euros, can cope with a high level of debt.

But some of their smaller rivals are teetering on the brink of bankruptcy as Spain slips into its worst recession in at least half a century.

“TV cash was pouring into soccer and clubs were drawn into the sin of over-exuberant spending,” Gay told Reuters. “While the Spanish economy was booming its football was a marvel to behold, the league of stars, but now we are seeing it come crashing to the ground.”

Gay said it was essential that the professional league (LFP), the soccer federation (RFEF) and the government acted to impose financial controls on clubs to ensure their viability.

But he noted that none of the three appeared to be up to the task.

“I have the impression that they are looking the other way to avoid seeing the sad economic and financial spectacle that the league of stars has become.”

Angel Barajas, an expert on soccer finance at the University of Vigo, backed Gay’s call for financial controls and said they would have to be combined with fines to punish transgressors and agreed on a Europe-wide basis.

“Many clubs play in Europe and there will be a distortion of competition if clubs from some countries set salary caps or similar measures and others don’t,” he told Reuters.

At least six clubs, including second-tier sides Real Sociedad, Celta Vigo and Levante, are already in administration and more may follow as they struggle with soaring transfer fees and wage bills and dwindling revenue.