"A diabolical business"

José Baltasar Plaza describes his job in dramatic terms: "I'm here to clean up an era." The era in question is modern Spanish soccer and Plaza is one of a new breed of club directors - a court-appointed administrative receiver.

Since the introduction of the Bankruptcy Law in 2004, 19 of the 42 clubs in Spain's top two divisions have gone into receivership. The list would be a lot longer taking into account teams that have dropped into the depths of Segunda B. These men in black, called in to stop the rot in the national sport, are in a unique position to talk about a soccer bubble. Like the real estate version that has crippled the economy, football's financial house was built on quicksand.

All of the receivers concur on the root of the problem: for years soccer has been run disastrously, money has been squandered on exorbitant transfers, there is an ocean of extremely dubious commission payments, and the tax office and other authorities have largely allowed clubs to act with impunity. At present, the total debt of Liga clubs with the tax agency stands at 690 million euros.

Alfonso García Cortés didn't know anything about soccer. A lawyer of 51 known for his reliability, he had handled receivership procedures for all manner of clients: real estate firms, biscuit makers, textile factories... In the three years leading up to 2011, he had participated in 75 bankruptcy claims. But he didn't know the difference between a false nine and a wing-back until he was appointed receiver by an Alicante court at Hércules, which had just been relegated to Segunda with debts of 60 million euros.

"The club had 300,000 euros in the bank. Salaries from the previous season had not been paid. There were debts with the tax office, Social Security and suppliers. The electricity and water bills had not been paid in four months." Hércules had 40 judicial proceedings open against it and its assets were not spectacular: a handful of silverware and its players.

Those with any market value were sold. Others left after being told they wouldn't be paid. Some stayed and held on to their contracts, suspecting they wouldn't get a game anywhere else. The administrator did what so many Spanish companies have done since the law was altered to make it easier and cheaper to sack workers: it applied a labor force reduction plan (ERE). The players were offered 20 days' pay for every year they had been at the club. It was a first in a world where players are used to walking away from their contracts with a suitcase full of cash to pop in the boot of their Bentley. The courts sided with the club. "If the ERE had not worked out, we would have had to liquidate the club," says García Cortes.

Cleaning out the stiffs

"We had a very expensive squad being paid first-division salaries. They were mercenaries with no attachment to the town or the team," says Damián Mora Tejada, of Murcia's situation when it was relegated to Segunda in 2008 and entered voluntary administration. Mora has been the club's legal representative since 1966 and never misses a game. Despite his affinity for the team, he says the "best thing that happened to us was getting relegated again to Segunda B." That allowed the club to clear out its squad.

It is not unusual that the Association of Spanish Footballers (AFE) does not view EREs kindly, to put it mildly. "Their professional career is very different to that of a normal worker," explains AFE's legal advisor, Santiago Nebot. "Their contracts are just a few years long, so paying them 20 days per year makes sacking them practically free." The AFE calculates a player's average wage at 1.2 million euros in Primera and 100,000 in Segunda. "The lowest figures in Europe's five biggest leagues."

Levante is one of Spain's success stories. Auditor Vicente Andreu arrived in 2008 after the club had been relegated from Primera with debts of 83 million. A former director at city rival Valencia CF, he was viewed with some suspicion: "They told me, a choto [Valencia fan] has come here to sink us'."

Andreu recalls his first meeting with the players. "I started to explain what receivership was, that they'd be paid from that point on but that the previous debts would be frozen, and that the money had to go to the creditors because if the team was relegated to Segunda B the club would disappear... One of the players, slouching in a chair, asked: 'Haven't you come here to tell us when we'll be paid? I was left cold. They thought everything was guaranteed. Some of them had salaries of over a million and refused to take a cut." Eventually the club carried out an ERE.

A salary cap of 350,000 euros was imposed and the technical staff given free rein as long it didn't pay for transfers or commissions. Middling Liga veterans like Sergio Ballesteros, Juanfran and Valdo arrived, inspiring little optimism. Faced with the prospect of Segunda B, Andreu asked if the sporting director was sure of the signings. "For the price, there's bound to be something wrong with them," he replied.

There wasn't. With an unknown coach, Luis García, and a team of veterans and kids, Levante stayed up and the following season was promoted to Primera and this season played in Europe for the first time in the club's history.

Taxing debt

On January 10, Deportivo La Coruña became the latest club to enter receivership with debts of 156 million after years of living beyond its means. In 2003, a company built artificial training pitches for the club. This year, it went to the courts to seek the 365,000 euros still owed for the work. Club president Augusto César Lendoiro paid the firm so that the suit would be withdrawn.

One of Depor's bankruptcy administrators, Francisco Prada Gayoso, has gained extensive knowledge of soccer receivership in his time at Ourense and Celta Vigo, even if he was surprised when got his first call. "I told the judge that there had been a mistake, that I was among the 10 percent in Spain that know nothing about soccer. He said it didn't matter." On how Depor amassed a 40-million-euro debt with the tax agency, Prada says: "In our report we have made it clear that this situation can only have arisen with the complicity of the main creditors."

Prada's report was devastating for Lendoiro's credibility. Deportivo went five straight years without presenting figures to the Mercantile Registry and since the 2006-07 season made "revaluation operations on its shares that contravened the laws and regulations of accounting."

When there was no more room for maneuver, the club simply stopped paying tax and Social Security. All the while, Lendoiro, who has been Deportivo's president since 1988, was collecting an annual salary of 400,000 euros.

Something similar happened at Real Betis. "The tax authorities have given soccer clubs preferential treatment. A normal citizen would love to have received the number of postponed payments that Betis has," says José Antonio Bosch, the club's receiver since 2010. It is not just the tax agency: the Seville city administration has not collected property tax or business rates from Betis in a decade. That has allowed Betis to avoid half of the debt due to the statute of limitations, leaving Seville 500,000 euros out of pocket.

Mysterious fees

Commissions also play a large part in destabilizing a club financially. At Racing Santander, which is currently battling relegation in Segunda División after a decent run in Primera, auditors had to pick carefully through the books to find what they consider to be illegal payments.

"We uncovered odd-looking operations, which were very well disguised," says economist Santiago Ruiz. The report issued by Racing's receivers last November not only exposed the pitiful state of the club's finances after Indian investor Ahsan Ali Syed disappeared, but also "excessive or unjustified costs that have undoubtedly caused financial damage to Racing and are attributable individually and exclusively to president and managing director Francisco Pernía."

Among these is the transfer of just shy of a million euros to a soccer school in Brazil, "of which there is no evidence of its existence." Hundreds of thousands of euros were paid in transfer commissions. In the case of Nikola Zigic's 16.9-million sale to Valencia, 841,000 euros was paid to a firm called Meta Image.

"There is no record at Racing of any contract for this," say the receivers. When Racing bought Mohamed Tchité from Anderlecht, a 337,500-euro commission was paid and a further million for a friendly between the two clubs, a game that never took place.

Ruiz was surprised to find all of this in the books: "Everybody was accustomed to working this way simply because that's the way things are done."

Game with no rules

Luis Manuel Rubí had been a tax inspector for 38 years and in 1999 took the reins of Atlético Madrid through a High Court order. "I had been an administrative receiver in Galicia working on drug trafficking cases. I had embargoed the wine cellars of [convicted drug smuggler Laureano] Oubiña and the turbot farms of the Charlines [drug traffickers who used fishing firms as fronts]," he says in his office, now no longer at the agency.

When he was at Atlético he had bodyguards and could not take up his seat in the VIP area at the Calderón. "I felt more at risk in soccer than in Galician drug trafficking, where at least there are rules."

Rubí was the first receiver let loose at Atlético and although he was only there a few months he easily uncovered illegal commissions. "I found a sub-inspector who was an Atlético fan and he quickly found massive deviations" in the case of players with vastly inflated price tags whose signings allowed "the club's funds to be moved out of Spain."

Jesús Gil, a construction magnate intrinsically linked to urban development corruption in Marbella, was at the helm of the club. Even though it had a strong team, Atlético was relegated at the end of that turbulent 1999-00 season.

Betis' administrators and the Civil Guard uncovered a system whereby money paid out in commissions worked its way back in to the pockets of club directors. In its report to the judge, the Civil Guard said it had found evidence of at least three deals they consider fraudulent. The 354,000-euro commission paid for the transfer of Mehmet Aurelio in 2010 was paid to Bastogne Corporación, a company without employees and without a license to act as a sports agent that is headquartered in a building housing several companies belonging to the club president at the time, Luis Oliver. The sale of Sergio García to Zaragoza carried a 580,000 commission to a facilitating company, which then paid 489,000 to Bastogne, which appears to have only been involved in these two transfers during its existence.

Volatility as the norm

On April 10, the receivers presented a report to a mercantile court in Seville laying the blame for Betis' bankruptcy at the feet of Oliver and Manuel Ruiz de Lopera, president of the club from 2006 to 2009, who sold his majority stake to Oliver in 2010.

Ruiz de Lopera faces a fine of 20 million euros, and Oliver five million.

The receivers have done their job. Betis is riding high in fourth in La Liga, with the succulent promise of European competition next season and the economic benefits that represents.

"We ended the financial year with 2.5 million in profits and we paid 19 million to the tax agency, five of which were arrears," says Bosch.

"I doubt there are many companies in Seville that have paid these amounts." Bosch says stability is one of the key elements and believes coaches should not be sacked with such frequency.

"No company asks for results in such a short space of time. I don't understand soccer but Alex Ferguson has been at Manchester United for 27 years and it works. I don't see why it can't be like that. What can't be allowed to happen is that a company with turnover of 47 million euros starts every year from zero."

Antonio González Bustos, a lawyer who has been at Sporting Gijón since 2005, agrees: "It amazes me that the most basic criteria of business management are not applied. Shareholders want the team to win; they are not interested at all in the economic results."

Prada Gayoso says that the problem is manifest in the boardroom as well. "You have to ask whether Deportivo's 20,000 shareholders are worried about results or the accounts. A club director once told me that at meetings all the talk was about what happens on the field. When the financial material was produced many board members got up and left because they had other things to do."

The first thing a receiver tackles is to bring down the costs of playing staff. Rayo Vallecano, battling for the European places in Primera this season, was intervened in the summer of 2011.

Against all the odds the small club from the southern Madrid suburb had been promoted but the players had not been paid in 10 months. José María Ruiz-Mateos, doyen of the failed Rumasa business empire, left the club with debts of 60 million euros.

"There were different types of contract: A, B, C and D and very high salaries," says José Baltasar Plaza. Rayo even had a priest who was paid win bonuses when the team picked up three points.

Plaza and his team went about bringing down the wage bill. Rayo's captain at the time, José María Movilla, was on 900,000 euros a year. The administrators won a court appeal to reduce his salary to 325,000 euros due to his age: 36.

Now Rayo's wage bill is six million euros annually, about half of Cristiano Ronaldo's salary. Like Valencia, the economic strategy is based on selling the club's best players; Michu, Coke, and probably this year Lass and Leo Baptistão. If the fans don't like it, tough. "We can't afford to act on whims," says Plaza.

"When we got here there was a clash because the players thought they were untouchable. Now they see that they get paid every month and that we are serious. With the lowest wage bill in Primera we are going to turn a profit this year. The Bankruptcy Law is doing soccer a world of good."

A simple solution

One of the things that most surprises administrative receivers is that soccer is a simple business. "I have managed companies in all sectors and there is always an element of doubt. When you plan any budget there are risks; you don't know how much you will sell or how the competition will evolve, or how much your raw materials will cost.

"However, in soccer from day one you know with 90-percent certainty what your income will be: television revenues, ticket sales, season tickets, money from the [state lottery] quiniela... This is fixed income - all you have to do is balance your costs," says Prada.

"Soccer has a solution: there is huge demand in Spain, people who are willing to invest time and money in the sport. The problem is getting into excessive costs. It has turned into a diabolical, impossible business. Everybody buys expensive players to win but by definition only four or five can achieve this," Depor's receiver adds.