#360business: Valencia back on their feet after feeling force of economic collapse

Andy West 06:05 05/01/2015
  • Facebook
  • Twitter
  • Mail
  • Pinterest
  • LinkedIn
  • Facebook
  • Twitter
  • WhatsApp
  • Pinterest
  • LinkedIn
  • World-beaters: Valencia ended Real Madrid's unbeaten run on Sunday night.

    The first major deal of the January transfer window was one to raise some eyebrows as Valencia spent €25 million (Dh110m) to capture Argentine international midfielder Enzo Perez from Benfica last week.

    – #Quiz360: Monday's Teasers – WIN dinner for 2 at Media Rotana, Dubai

    Not so long ago, the Mestalla club were a genuine heavyweight, reaching consecutive Champions League finals in 2000 and 2001 (losing against Real Madrid and Bayern Munich respectively) and winning the Spanish league title in 2002 as well as a La Liga-UEFA Cup double in 2004.

    Gradually, however, the club fell into a deep financial crisis. Although handing out a series of excessively lucrative contracts to moderate players in an attempt to remain competitive certainly didn’t help, the key factor behind Valencia’s fall from grace was their ill-fated attempt to leave Mestalla and build a sparkling new home.

    The process started in November 2006 with the approval of a €300m (Dh.1.3bn) project to construct one of the most eye-catching arenas in the world, prompting president Juan Soler to boast: “We’re going to be the envy of Spain.”

    However, the plan was deeply flawed. Crucially, it was hatched in the middle of a wider Spanish economic heyday, largely founded upon a boom in the construction industry during a period of time when nobody foresaw the extent of the crash which would soon follow.

    Even more importantly, Soler and his board blithely set out upon their expensive path before they had even agreed the sale of the existing stadium, making the complacent assumption that they would be able to hold out for a better deal and recoup the entirety of the new arena’s construction costs at a later date.

    In 2008, the Spanish economy collapsed and, with it, Valencia’s lauded ‘Nou Mestalla’ project immediately stalled. Property developers were no longer interested in buying the site of the old Mestalla, as vice-president Vicente Soriano bitterly admitted:

    “It’s not easy to sell land during the largest real estate crisis in history.”

    The club’s money ran out, forcing work on the new stadium to be stopped in February 2009 and, with more than €150m (Dh661m) already spent on a half-built but now abandoned stadium, Valencia’s debt grew to a peak of nearly €500m (Dh2.2bn) in 2010.

    At first, new president Manuel Llorente was unconcerned, breezily claiming: “You can always sell star players and remain competitive.” And his club did just that, raising around €110m (Dh484m) by selling stars David Villa, David Silva, Juan Mata and Jordi Alba.

    But with those outstanding talents replaced by vastly inferior substitutes, the team entered into a vicious circle of decline and eventually suffered an inevitable departure from the upper echelons of La Liga, failing to qualify for the Champions League following the 2012/13 campaign.

    Two pillars of the club’s financial strategy – repaying bank interest with Champions League TV revenue and managing debt levels by selling stars – had become impossible with a team no longer good enough to reach Europe’s elite club competition. While La Liga’s brutally unequal TV revenue distribution strategy, where Valencia earn just under seven per cent in comparison to Barcelona and Real Madrid’s combined 46 per cent, offered no consolation.

    With creditors increasingly restless the only option was finding a heavy dose of external investment, and the club resolved to follow the course of action which has become commonplace in contemporary top-level sport: seeking a new owner from overseas.
    A series of speculative meetings took place in various destinations all over the world, including several in the UAE, before Valencia finally struck gold nearly a year ago in the form of Peter Lim, a self-made billionaire from Singapore.

    Lim, who made his fortune through a series of wildly successful investments and now has a personal wealth estimated at $2.2bn (Dh8bn), had long been desperate to establish a presence in European football. He failed in an attempt to buy Liverpool in 2010, and has also made an intriguing investment into Salford City, a semi-professional side in the UK, alongside Manchester United’s ‘Class of 92’ including Ryan Giggs and Gary Neville.

    His assumption of power at Valencia was far from straightforward, requiring lengthy negotiations with the club’s main creditor, the Spanish banking organisation Bankia, before a deal could be agreed. Lim eventually purchasing a controlling 70.4 per cent stake in the club for €420m (Dh1.8bn).

    However, the delay in proceedings did not prevent him from making an impact at Mestalla last summer: even before his ownership contract had been finalised, Lim acted from a distance to oversee the hiring of new boss Nuno and also personally signed two players, midfielder Andre Gomes and striker Rodrigo from Benfica, so he could then immediately ‘loan’ them to the club in anticipation of his impending takeover.

    The fact that Nuno, Gomes and Rodrigo (and subsequently Perez) all arrived from Portugal is no surprise, because Lim is being heavily aided by the inevitable figure of Jorge Mendes, the Portuguese super-agent whose influence spreads across European football to a scarcely-believable degree.

    Having masterminded Jose Mourinho’s move from Porto to Chelsea in 2004, Mendes has steadily grown his network to the extent that his fingerprints are all over practically every major deal you could care to mention.

    Valencia fans, though, couldn’t care less about the source of their club’s new-found wealth or the new arrivals to the squad – they are simply overjoyed to be able to glimpse a brighter future.

    Lim’s takeover was finally completed in October, with the Singaporean reputedly investing upwards of €100m to reduce Valencia’s debts and place the club in foreign ownership for the first time in their 95-year history, and he was afforded a hero’s welcome when he attended his new team’s 3-1 victory over Elche at Mestalla.

    Indeed, Lim’s arrival has been universally welcomed. There have been virtually no dissenting voices and captain Dani Parejo summed up the mood of positivity last week, when he said: “It has been the best thing that could have happened to the club. The future was uncertain, we didn’t know what was going to happen, but Peter has arrived and stabilised things.”

    Exactly how far Lim intends to take his new acquisition remains to be seen. His motives are unknown with speculation either he is a benign Roman Abramovich-style benefactor who will treat his new club as an exciting toy or, considering his business acumen, and his relationship with Mendes, it’s more likely he is driven by commercial imperatives: perhaps with an eye on building up the club and then selling it, or maybe by profiting from third-party ownership deals for emerging players.

    He is media-shy and has not given a single interview since taking over, instead appointing the club’s first-ever female chairman in Singaporean Chan Lay Hoon.

    She may be the public face of the new administration, but Lim, without doubt, possesses the power.

    One of his key decisions will be deciding the fate of the still half-built ‘Nou Mestalla’, and he is understood to be cool on the idea of restarting the construction process in the belief that the current stadium’s 55,000 capacity is sufficient for the time being.

    With the re-opening of the transfer window and Perez secured, the next few weeks could prove vital as Lim seeks to give his club the best possible chance of returning to the riches of the Champions League.

    Jorge Mendes’s telephone, one can assume, will be kept busy.