Real buys backed by booming revenue
In a time of general economic crisis and with the football authorities trying to crack down on reckless spending, Real Madrid’s incredible outlay of a reported €101 million for Gareth Bale to many seems absurd.
Arsenal manager Arsene Wenger described the bid as a “joke”, while new Barcelona boss Gerardo Martino claimed it showed “a lack of respect” given the current economic climate.
However, Bale’s signing is merely the latest in a string of “galactico” signings Real president Florentino Perez has made during two spells in charge of the club aimed at simultaneously boosting Madrid’s success on the field and commercial revenue off it.
Deloitte’s latest Money League report showed that Real had become the first football club to generate more than €500 million a year, while Forbes ranked Los Blancos as the most valuable sports team in the world last month with an estimated value of $3.3 billion.
Indeed in 2011/12 Madrid’s income rose by seven percent to €512.6 million with commercial revenue – the sector to benefit most by big name signings – growing by nine percent.
That figure will rise significantly again in the financial results for the next two seasons as new and improved shirt sponsorship and kit supply deals with Fly Emirates and Addidas worth €29 and 31 million a year respectively take effect.
Real have now topped the charts when it comes to club earnings for eight consecutive years and age old rivals on the field Barcelona have become their closest competition as the Catalans’ own commercial revenue boom has seen them occupy second place for the past four years.
Barca’s revenue for 2011/12 was €483 million, but what is striking is just how far ahead the Spanish duo are from their competition on the continent.
English champions Manchester United come closest (395.9 million) but are more than €100 million behind Real, while Champions League holders Bayern Munich are nearly €150 million.
Madrid and Barca’s advantage comes from the fact that they are able to sell their domestic television rights individually, rather than the collective selling of rights that is the norm in England, Italy or Germany.
As a result the duo receive around €140 million each, nearly half of the overall rights received by Spanish clubs and explains why while Real and Barca possess the top two places, there is no other Spanish team named in the Deloitte’s top 20 compared to England with seven, Italy five and Germany four.
Unlike the Bundesliga, La Liga is also not particularly fan-friendly when it comes to ticket prices. However, while other Spanish clubs have understandably noted a dip in attendances during the financial crisis, the significant tourist traffic Real and Barca attract have allowed them to continue selling out while charging top dollar prices for individual games.
And due to their revenue, Real are unlikely to be put off future transfers like Bale due to Uefa’s Financial Fair Play (FFP) regulations.
Rather than the established order of big clubs with huge revenue streams, FFP is likely to be more of a challenge for nouveau riche clubs such as Manchester City who posted a record breaking €237 million loss in 2010/11.
“It doesn’t bother me as long as the club that is buying has the money to pay for it. If Real Madrid had bought three players for €30 million no one would have said anything,” Uefa president Michel Platini told French newspaper L’Equipe last week of Bale’s transfer.
Worryingly from a competitive point of view on the field, FFP is therefore likely to allow the rich to get richer and prevent those further down the chain from competing.
Each of the last six Champions League finals have contained one of Barca, United or Bayern, while Barca have reached six consecutive semifinals and Madrid the same stage in each of the last three years.
Perez is hoping Bale can be the final piece to finally get Real over the line to their 10th European Cup.
Should he do so the Welshman will have gone a long way to repaying the club’s faith in him and will also help Madrid’s money making machine continue to surge ahead of the rest.