How could Real Madrid afford to pay so much for Gareth Bale? Part of the answer is that they are one of the few global brands in football and purchasing Bale at what many thought was an excessive price was a way of asserting that status. Remember that Real Madrid were the first sports club to achieve annual revenues of more than €500m.
How could Real Madrid afford to pay so much for Gareth Bale? Part of the answer is that they are one of the few global brands in football and purchasing Bale at what many thought was an excessive price was a way of asserting that status. Remember that Real Madrid were the first sports club to achieve annual revenues of more than €500m.
Real Madrid have also had a close working relationship with financial and government institutions in the Spanish capital. So much so as far as government is concerned that they have attracted the interest of the European Commission’s competition investigators. They are probing whether its tax status and a favourable land agreement with the Madrid city council amounted to unfair state aid within the terms of the European treaties.
Last season the club increased revenues by 1.3 per cent to a record €520.9m. The club made an operating profit of €55.7m and net profit of €36.9m. Net debt was cut by 27.4 per cent to €90.6m and the ratio of staff costs to income rose to 47.2 per cent. However, a figure of under 50 per cent is generally regarded as acceptable and Premiership clubs would be delighted to get their staff costs down to that level.
The club is able to command high prices for television rights and commercial deals. Real’s new five year shirt deal with airline Emirates is worth about €30m a year and is among the best in Europe.
However, there are a few clouds on the horizon apart from the European Commission investigation. These tend to be protracted given that they are necessarily legalistic and can end in a negotiated settlement or be taken to appeal if necessary.
There is no doubt that the purchase of Bale was a big commitment compared to last summer’s subdued player trading. The club’s total outlay this summer was around €180m and they have recouped just under two-thirds of this in player sales. In addition, the free transfer of Kaká to AC Milan gets the Brazilian’s high wages off the books.
Moreover, before the financial crisis hit Spain the club enjoyed easy access to financial credit. However, the bursting of the bubble brought down large parts of the banking sector, including the savings bank Caja Madrid that had helped to finance the club.
Nevertheless, Real Madrid unquestionably ranks as one of the top clubs in the world. There is no reason why success should not continue to lead to success. This should compensate for the city’s failure to win the Olympics.