DBRS Morningstar Confirms Ratings of Futbol Club Barcelona at BBB with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Secured Notes (the Notes) rating of Futbol Club Barcelona (FCB or the Club) at BBB with Stable trends. The confirmation reflects the strengthening of the Club’s earnings and financial profiles in the 2022–23 season and the completion of the Espai Barça financing on terms in line with DBRS Morningstar’s expectations. The ratings continue to be based on the Club’s iconic brand strength, diversified sources of predictable revenue, the favourable market and geographic trends in Barcelona, and the future benefits from FCB’s investment in its stadium renovation project. The ratings also consider the importance of on-field performance, the increasing costs and investment to remain competitive, project execution risk, and the Club's relatively high degree of financial leverage. The Notes are secured by a first-priority interest in FCB’s media rights revenues and the bank account into which the media revenues are deposited. The Notes also have recourse to the Club on an unsecured basis.

FCB is one of the most popular franchises in the world’s most popular sport. Founded in 1899, the Club has won a total of 83 national and international trophies, including 27 LaLiga titles and five Union of European Football Associations (UEFA) Champions League (CL) titles. This success has led to a large and passionate global fan base with more than 140,000 members (socios) and more than 400 million social media followers worldwide. The Club plays its home matches at Spotify Camp Nou (Camp Nou or the Stadium), the largest stadium in Europe with a capacity of 99,354.

FCB had a successful 2022–23 season on the pitch, winning the LaLiga title. Despite not advancing past the group stage in the UEFA CL, operating revenues, excluding one-time capital gain and financial income, are expected to be more than the budgeted EUR 773 million, up from EUR 640 million in F2022, because of a recovery in matchday attendance to pre-pandemic levels, increase in sponsorship revenues, including those from the new agreement signed with Spotify, and management initiatives to increase revenues from merchandise and concessions. DBRS Morningstar expects the club to report a significant positive net income in F2023 resulting from the one-time capital gain of EUR 400 million from the sale of 15% of its media rights, financial income of EUR 193 million from divestment of 49% ownership in Barca Studios, and management’s focus on cost control.

In the 2023–24 season, Camp Nou will undergo renovation, and the Club will play its home games at the Olympic Stadium. DBRS Morningstar expects revenues to decrease because of Olympic Stadium’s smaller capacity. However, based on cost controls in the first-team squad, including the departure of some high-cost players, and other corporate expense initiatives, net income is forecast to remain positive. Revenue and operating income should recover significantly in 2024–25 when the Club moves back into the renovated Camp Nou.

ESPAI BARÇA
In a separate transaction, FCB is undertaking a major stadium renovation (the Project). In April and May of 2023, the Club — through Espai Barça, Fondo de Titulización (Espai Barca), a Spanish securitization vehicle specifically established to finance the stadium renovation — raised EUR 1.478 billion through a combination of notes and construction loans (the Project Financing), which will be used to upgrade Camp Nou and the surrounding campus over the next two years and pay certain financing costs. The Project Financing is ring fenced from the Club and the lenders under the Project have recourse only to the new stadium revenues that were sold by the Club to Espai Barca under a Purchase and Sale agreement (PSA), including premium seating and sponsorship revenues. The lenders to the Project are not secured by a mortgage on Camp Nou.

The Project will expand the Stadium’s capacity to 105,000; include a double VIP ring between the second and third seating tiers; add a new roof; and feature improved food and beverage options, among other developments on campus. The Project will significantly increase the Club’s revenues from new stadium sponsorships, including the naming rights agreement with Spotify, as well as additional premium seating, restaurants, and museum admissions. Despite the Project’s ring-fenced structure, DBRS Morningstar has taken the Project Financing into account in its analysis of the Club because the Club is incentivized to cure any defaults at the Project. As such, DBRS Morningstar uses F2026 as the basis for its financial risk assessment, when the revenue and cash flow from this investment begin to materialize.

OUTLOOK
DBRS Morningstar expects that FCB’s earnings profile will strengthen following the completion of the Stadium renovation and be supportive of the current ratings. DBRS Morningstar forecasts that revenues will increase to more than EUR 1.0 billion in F2026, driven by matchday revenue growth associated with the Project, rising broadcasting contracts from LaLiga and UEFA, and new sponsorship agreements. DBRS Morningstar’s revenue forecasts assume that the Club qualifies for the CL every year and reaches the quarterfinal stage. DBRS Morningstar expects that FCB’s player costs will continue to remain at a more sustainable level at approximately EUR 500 million in F2024 and then grow in line with revenues thereafter. As a result, DBRS Morningstar believes that EBITDA, excluding gains on player transfers, will grow to more than EUR 200 million in F2026.

In its consolidated debt assumption, DBRS Morningstar includes the Notes, EUR 1.478 billion Project-related debt, and approximately EUR 133 million of revolving credit facilities at the Club. On a consolidated basis, DBRS Morningstar expects debt-to-EBITDA to be approximately 8.5 times (x) in F2026 (2.6x excluding Project debt) and improve steadily thereafter because of growth in EBITDA as well as principal amortization on the Notes and Project debt. While debt-to-EBITDA is high relative to peers in a similar rating category, DBRS Morningstar believes that FCB’s low degree of debt relative to its franchise value, which Forbes estimates to be USD 5.5 billion (up from USD 5 billion a year ago), mitigates this risk.

The rating on the Senior Secured Notes applies to the following Private Place Numbers: E5444# AD6, E5444# AE4, E5444# AF1, E5444# AG9, E5444# AH7, and E5444# AJ3.

RATING DRIVERS
If credit metrics become stressed because of weaker-than-expected operating income or increased debt from cost overruns or schedule delays in connection with the Project Financing, or debt-financed player transfers, DBRS Morningstar may consider a negative rating action. Once the stadium renovation is complete, and the Club has repaid some of the principal on the Notes and Project debt, DBRS Morningstar may consider a positive rating action.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023; https://www.dbrsmorningstar.com/research/416784).

Notes:
All figures are in euros unless otherwise noted.

DBRS Morningstar applied the following principal methodology: Global Methodology for Rating Sports Franchises, Leagues and Stadium Financings (February 28, 2023; https://www.dbrsmorningstar.com/research/410378.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Michael Goldberg, Senior Vice President. Fundamental Credit
Rating Committee Chair: Arthi Sambasivan, Managing Director, Fundamental Credit
Initial Rating Date: August 10, 2022

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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