Friday, June 12, 2009

Real Madrid's Secret Printing Press

So Madrid has spent just over €160M over a few days for two players. How much is that?

It's €160M, duh.

But for fun let's do a compairson. Ready? For that same amount of money Real Madrid president Florentino Perez could have paid every MLS teams' salary bills for the next seven season (6.8 seasons actually, and it's assuming no designated players). Wasn't that fun?

Yeah, not really. I'm sure they could have fed half of Mali for that amount as well. Or bought 17 villages in Bhutan the complete 'Homeboys From Outer Space' on DVD. Etc., etc.

It's a mind boggling amount of money. And it's just the transfer costs. Madrid still have to pay Kaka's and Cristiano Ronaldo's wages. So where does all that coin come from? Funny you should ask...

First off, Madrid is a very rich club. Forbes ranks them 2nd behind only Manchester United in its annual list of team valuations. Additionally, they have higher revenue and less debt than the Mancunians.

Two things: First, any list that has Newcastle worth $300M can only be taken so seriously. Second, unless Madrid is planning on unloading a couple hundred million Euro worth of its own players. the club's valuation alone wouldn't explain where all of this money is suddenly coming from.

There are other explanations for that.

Unlike England where the league negotiates its TV rights, in Spain clubs are free to negotiate their own individual rights. Apparently Real Madrid is pretty popular in Spain as they were able to secure a six season deal for €1.1B (or about $1.4B) with Mediapro. For comparison the same folks paid FC Barcelona €600M for five years (somewhat interestingly, Mediapro is a Catalan company).

Assuming straight line payments, that means a little over €157M for Madrid every year in domestic TV money. As another comparison, EPL money gets a team in the neighborhood of €35M.

This comes with a big caveat. First this is for the current contract that runs out next season. So, the number is about to go up. Plus the money isn't evenly distributed, you get more for being a bigger draw. So United, Arsenal, Chelsea, and Liverpool are probably up somewhere closer to €50M. Stoke, eh, they're getting less (and apparently aren't spending it on more pitch real estate).

Point being: Madrid have a lot more money than their Spanish (and English) counterparts.

But media reports have circulated around the Spanish capital of new Real Madrid president Florentino Perez having €300M to spend (over half of which he's already dropped on Kaka and Cristiano Ronaldo). So even if every penny of Real's TV money went to transfer funds, that only covers a little over half the supposed transfer till.

Where does the rest come from? Good question. That one is also a head scratcher for Barca's economic director Xavier Sala i Martin:

I do not know where the €300 million that Florentino Perez thinks he has for signings actually comes from. He says he will recoup it by selling replica shirts and so he will have to sell 30 million of them. That is impossible.... Someone is going to have to give them money and it would be good if he explained it. How can it be that a football club has so much money to spend, bearing in mind the current economic situation in the country and the politics of credit restriction in place in all banks?
Translation: Shenanigans.

Sala i Martin is wrong. Madrid don't need to sell 30 million shirts. They just need to sell one really, really expensive one. In reality, some of the money will come back in merchandise sales as the Daily Mail points out shirt sales jumped 137% during the 4-year stay of David Beckham.

Moreover, as was pointed out by a commenter, Real are a social trust, and as a result aren't necessarily subject to the same laws and pesky regulations that might hamper their stature and status.

So, this whole thing is just who knows who. Then, over here, you have favoritism.

Real Madrid doesn't need to put up collateral or service debt. Their debt is held by local banks or creditors and those banks are often chaired by people allied with the club's interests or, it not, they come under political pressure not to put economic pressure on the club. And if Real Madrid need a line of credit, then apparently, hey, there's €300M available.

And they must need it as Perez believes they have to "do in one year what [they] would normally do in three."

Another bit of peculiarity is that, according to Sid Lowe this time the money is from a Catalan bank, La Caixa (is that Catalan for 'the box'?)

No wonder Sala i Martin is pissed, it's his people (Mediapro, La Caixa) bankrolling his biggest rivals' quest to get the band back together. Maybe someone should remind him that they paid nothing for Andres Iniesta and they have the big ears trophy. Oh, and he lives in Barcelona. That should assuage things for a bit.


Lissette said...

Nice work PR. Something I can watch actually read without falling to sleep.

jape said...

Yeah, seriously big tip of the hat guys. Your coverage of this in the last two days has out-paced anything I have read from any of the "professional" media outlets.

Tremendous stuff.

Ian said...

I see that Spanish banks put loans to Real Madrid into the same bucket as loans to bankrupt real estate speculators on the Costa del Sol. "100% collectable, no risk here, nothing to worry about."

jjf3 said...

Well done, PR. You have the one pieces of the puzzle I hadn't come across before in my various surfing - that a Catalan bank was funding some of Perez's insane transfer kitty. Niiiiice...

The Fan's Attic said...

The big mistake Real Madrid made was signing the new TV contract before starting Galacticos 2.0. They could have made up the transfer costs of Kaka and Ronaldo in the negotiations for broadcast rights. Granted, they probably didn't know they were going to be doing this while in negotiations, but these transfers would have upped the value of the rights.