FC Barcelona and Neymar: The Financial Breakdown and Liabilities

 

It has been quite an eventful 31 days for FC Barcelona since it was revealed by ESPN’s Dermot Corrigan that the Catalan club would be investigated by a Spanish judge regarding the transfer of Neymar Jr. from Brazilian side Santos to Barcelona this past summer.  Specifically, as it has been reported by multiple outlets, the investigation is into the existence of different contracts regarding the transfer as per the amount of money paid, to whom it was paid, and taxes paid, beyond the reported €57.1 million ($77 million USD*) transfer fee.

This investigation recently led to formal indictments of tax fraud against FC Barcelona as well as the resignation of Club President Sandro Rosell due to added pressure from one of the club’s socios.  Rosell and everyone at the club have stated explicitly that everything about the deal was above-board and in line with legal legislation but clearly Spanish authorities are not taking their word for it.

Many outlets have published figures that were initially confidential and then released by Neymar Sr.’s consent and it is rather confusing at times to keep the numbers straight.  Part of what makes them appear less than transparent has to do with what numbers are being used. In some cases what is being reported is the total cost to the club including wages over the length of Neymar’s contract without sufficient clarity or explanation given to what numbers might be speculative.  To get down to the details of what is being investigated by Spanish authorities it is important to understand the individual components of payments that are being referenced.

The numbers fundamentally come from FC Barcelona, per Neymar Sr. revoking a personally requested confidentiality agreement, and they are illustrated below from an official Barcelona release.

Total Cost of Neymar Jr. - Courtesy of Fc Barcelona

Total Cost of Neymar Jr. – Courtesy of FC Barcelona

The right side represents what Spanish publication El Mundo Deportivo claims to be the total cost, while the left side constitutes a response and explanation by FC Barcelona.  The first figure explains why despite releasing this information, the total transfer cost continues to be repeated as €57.1 million.

Of that cost, the breakdown is €40 million to Neymar Sr.’s company N&N who held the economic rights to Neymar Jr., €17.1 million to Santos as payment for the player still being under contract and a further potential €2 million to Santos should Neymar find himself in the final three of contention for the upcoming Balon D’or.  It is in this section where the only real discrepancy between the two accounts occur: El Mundo values two friendly matches agreed between FC Barcelona and Neymar at €9 million while FC Barcelona considers them free.

Beyond that transfer cost explanation there is an additional salary breakdown of €56.7 million total.  The breakdown includes a €10 million signing bonus, €44 million in guaranteed salary over 5 years (€8.8 million a year), and €2.7 million in the agent’s commission, who happens to be Neymar’s father.

Beyond this is €4 million over 4 years in marketing payments to Neymar Sr. for seeking out sponsorships, €2.5 million to Neymar Jr.’s charity, The Neymar Foundation, €7.9 million for what El Mundo claims are future options on Santos players but is technically according to Barcelona, a collaboration, and a further €2 million to Neymar Sr.’s N&N for scouting purposes.

These all total up to €86.2 million ($118 million USD*), €9 million short of El Mundo’s figures which constitutes the value of the pre-arranged friendly matches.  To say that this is the transfer cost of the player is a stretch of the definition to be fair since transfer fees typically refer to the cost to buy-out or tear up an established contract between a player and club. Additionally this figure takes into account future remuneration for Neymar Jr.’s playing services to FC Barcelona.

Regardless of that fact though, there is merit to the argument that the explicit division of these various contracts is somewhat suspicious.

Furthermore there are two other figures that are being cited regularly and they are more obviously contentious in nature.  According to Bloomberg,  Jose Perals, a Madrid prosecutor filed documents in Madrid’s National Court claiming that FC Barcelona had made two separate payments of €10 million ($13.7 million USD**) in 2011 and €27.9 million ($38.4 million USD*) in 2013 to Neymar Sr.’s N&N as incentives for the player to join Barcelona.

Having established what appears to be all the various figures being cited in regards to the controversy surrounding Neymar Sr., Neymar Jr., and FC Barcelona, the next step is looking at the €13.6 million ($18.7 million USD**) that FC Barcelona recently paid to Spanish tax authorities to cover a potential insufficiency in tax payments  in case of “a possible divergent interpretation of the exact amount of tax responsibility.”  Despite this payment the club does expect to get their money back.

This leads to the question(s) of what exactly is potentially illegal about this situation that warrants this investigation.

Based on statements from Judge Pablo Ruz in Madrid’s National Court, the judge requested information on Neymar Jr.’s status as either a taxpayer in Spain or Brazil in 2013. Additionally he requested tax returns for 2011-2013 for FC Barcelona from tax authorities and also asked tax authorities to provide tax details on Neymar Jr.’s May 2013 transfer so as to assess the extent, if any, of defrauding of the tax system.

In asking for 2011-2013 tax return records it appears as though the judge is investigating the two payments to N&N in conjunction with taxes paid on the transfer in 2013 to asses deficiencies between tax obligation and payment.

According to Spanish law, 24% of the payments should have been withheld in the form of a tax on non-residents, equating to €9.1 million.  This would explain why the judge is exploring the tax status of Neymar Jr. in 2013 as well as Neymar Sr.’s recent claims that all payments made to N&N should be taxed in Brazil as that is where the company is filed and where he resides.

Technically players are only to negotiate with rival teams when only 6 months remain on their contract or after a club has given permission.  This means that for the €10 million to be above-board, there had to have been permission from Santos for talks with FC Barcelona to happen.  Santos acknowledges that permission was given but they allege that they knew nothing of the €10 million payment in 2011, nor the agreement on the further €30 million to be paid in 2013.

As a quick side note, the connection hasn’t really been explicitly made in many discussions that the contentious 2011 and 2013 payments may actually constitute the €40 million paid to Neymar Sr.’s N&N referenced in FC Barcelona’s assessment of Neymar Jr.’s overall cost.

Another topic of discussion as a basis for potential investigation is whether or not the “financial engineering”, by FC Barcelona was actually to compensate Neymar Jr. beyond his agreed guaranteed compensation.  If this were true, it would show FC Barcelona guilty of attempting to circumvent paying salary tax on a large portion of Neymar’s compensation.  This is significantly harder to prove but could have dramatic impacts.

With that said, a further liability potentially exists beyond the tax implications in that of Neymar’s stakeholders in Santos at the point of transfer.  While the payment of €17.1 million was made to Santos, that amount was divided up among other Brazilian partners as Santos did not own 100% of Neymar’s player rights.  Should a degree of deception be found in Santos’ allowing of negotiations to occur without sharing the knowledge that up to €40 million in compensation was given to N&N in facilitating that ability then it is possible that both Santos and their other Brazilian partners could have grounds for loss and damages.

The fact remains that FC Barcelona have essentially made a deposit on potential tax charges by Spanish tax authorities which does not assume the resolution of the case.  Since the case is not yet resolved there is still the possibility of further developments in the timeline and explanation of the events. The Catalan giants are not yet out of the woods in regards to this case and in the face of this recent payment, the developments of this case should still be followed closely.

While the figures here come from reliable sources, it remains that any conjectures, assumptions and speculations made all share a lack of explicit corroboration and they remain the opinion and assessment of the writer.

*USD references based on figures used and referenced by NBC ProSoccerTalk

**USD references based on figures used and referenced byBloomberg

 

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Reporting on the business side of the world's game.