Real Madrid’s big spending on new players must translate into on-field success or the Spanish powerhouse could face tough economic times.
Madrid has spent around $350 million to buy the likes of Cristiano Ronaldo, Kaka, Karim Benzema and Xabi Alonso in a bid to overturn five years of failure in Europe—especially last season, when archrival Barcelona became the first Spanish club to win three major trophies in one season.
But club president Florentino Perez’s ambitious plans come at a hefty price.
As of June 30, Madrid had debts of $800 million—and that was before the lavish summer spending. Perez is banking the club’s future on a model that cost him the presidency once before.
“It’s the same strategy as he did the last time he was Real Madrid president. He managed great results and not just on the field but also economically,” said Juan Carlos Lazaro, an economics professor at Spain’s Instituto de la Empresa, a Madrid-based business school. “But every loan is a risk, especially in times such as these.”
Spanish building societies Banco Santander and Caja Madrid both issued loans of about $107 million to help finance Perez’s spending spree at a time when banks are tightening loans and Spain’s economy is one of the hardest hit in Europe, with nearly 18 percent of the population unemployed.
“It’s scandalous what Caja Madrid and Banco Santander have done considering the serious problems small businesses and individuals face,” said University of Navarra economics professor Jaume Llopis. “But obviously these banks have received the necessary guarantees from Real Madrid. But from what I can tell, there are no other entities who have lent out money like this.”
Perez, who led the club from 2000-06, is counting on television rights fees, apparel sales, tickets and re-negotiated marketing contracts to fund the world’s most expensive squad.
“It’s a model where great players and players coming from the farm system form a mixture of quality—and Madrid quality—which excites fans all over the world,” Perez said in an interview earlier this summer. “This model also guarantees economic revenues to guarantee we remain independent.”
Although Madrid is regularly considered Spain’s No. 1 team and the one that gets what it wants, the club was unlikely to secure the funds without the 57-year-old construction magnate at the helm.
“It’s a free market and if the banks don’t issue a credit it’s because it’s not deserved. But the banks have seen Real Madrid and Florentino’s project and seen that it has a good chance of turning out well,” Lazaro said. “The money expected to come in should see it meet its obligations. But the key is for the team to work.”
The Santiago Bernabeu stadium will host the Champions League final in May. Although a league title would suffice, winning a record 10th European Cup—and first since 2002—is essential.
“Florentino’s grand objective is to win the Champions at the Bernabeu,” said Llopis, who believed anything less could spell “disaster” since Perez has less capital to bank on this time around.
Perez sold Madrid’s training ground to the city to wipe out debts of $380 million and finance his acquisitions of Zinedine Zidane, David Beckham, Ronaldo and Luis Figo during the first galactico project. Now, all that remains is the 80,000-capacity Bernabeu, which is valued at about $2.85 billion.
“I think the hidden agenda is to convert Real Madrid into a private business,” said Llopis, a former player who is also a Barcelona club member, although he is also critical of the Catalans’ ballooning debt following the $94 million acquisition of Zlatan Ibrahimovic. “We know that the presidential box at Real Madrid is the most important lobby in Spain and he has the necessary contacts to rezone the Bernabeu and construct a new stadium on its training ground site.”
Perez said that wasn’t the case.
“We’re not going to sell any of our assets,” he said. “We’re sure that these great players are going to lead to greater revenues to make this investment profitable.”
Although the exorbitant fees have left the transfer market skewed, Barcelona players even welcomed Perez’s return.
“Madrid’s investment is great for the league, for our competitiveness,” midfielder Xavi Hernandez said. “I think Madrid has strengthened itself in a very good way.”
Madrid fans, who always expect the best product on the Bernabeu field, have high expectations now that Ronaldo and Kaka have finally arrived after three years of teasing.
Former Barcelona player and coach Johan Cruyff warned about expecting miracles from Perez.
“He understands a lot about business but signing the best players doesn’t mean you know football,” the Dutchman said.