Perez project under scrutiny after Real flop
Reuters - Friday 12 March 2010, 09:32
MADRID - Real Madrid's shock early exit
from the Champions League has raised uncomfortable questions
about the unprecedented spending spree launched by president
Florentino Perez on his return to the club last year.
The Spanish construction magnate spent close to a quarter of
a billion euros to lure players including
Cristiano Ronaldo and Kaka to the Bernabeu, part of a bid to end
Real's five-year Champions League drought and cement their
position as the world's richest club by revenue.
Real's dream of winning a 10th European title at their own
stadium in May was shattered on Wednesday by French side
Olympique Lyon, a club with just over a quarter of the annual
income earned by the La Liga giants.
The latest setback, leaving the domestic league as their
only chance of silverware this season, posed a serious threat to
Perez's strategy to boost income from marketing and merchandise,
in which winning titles was a crucial element, analysts said.
"Champions League success is key because it helps raise the
club's international profile," Antonio Martin, director of the
Masters programme in Sports Management at the IE Business School
in Madrid, told Reuters.
"Although Real's brand remains very strong, this year could
have been an historic one for them if they had played the final
at their own stadium."
REVENUE LOSS
Martin said Real's failure to progress beyond the last 16 of
Europe's elite club competition for a sixth consecutive season
would squeeze income in numerous ways.
The club would miss out on revenue from the competition
itself of around 20 million euros and would earn less from
audiovisual rights, marketing, ticketing and products and
services linked to matches such as catering.
"More than the financial aspects, it will cause
dissatisfaction among the fans and in the squad," he added.
"These concepts don't have a direct economic value but they
can have an impact, for example in supporters deciding not to
consume some of the Real Madrid 'products'".
Perez, who turned 63 on Monday, returned unopposed to the
Real presidency in June and his splurge on players recalled his
purchase of "galacticos" David Beckham, Brazilian striker
Ronaldo, Figo and Zinedine Zidane during his first term.
Last summer, he spent a record 94 million euros on
Portuguese winger Cristiano Ronaldo and another 67 million on
Brazilian playmaker Kaka, adding to the club's debts of around
680 million euros at the end of the 2008/09 season.
He argues that investment in high-profile players will pay
for itself over time and is banking on a major boost to revenues
from sponsorship and audiovisual rights, sales of licensed
merchandise and gate receipts.
INTERNATIONAL STANDING
Real retained top spot in the Deloitte Money League for a
fifth straight year in the 2010 ranking, with income last season
of 401.4 million euros, ahead of European champions Barcelona
with 366 million and Manchester United with 327 million.
However, their elimination from the Champions League
threatens to knock them off the top spot and arch rivals
Barcelona or United could overtake them, according to Jose Maria
Gay, a professor of economics and expert on football finances at
the University of Barcelona.
"It will limit their revenue-earning ability because a club
like Real Madrid grows according to their international standing
and not by winning the Spanish league," Gay told Reuters.
"A club that wins the Champions League can negotiate better
conditions in their commercial contracts, they can earn more
from matchday revenue and their brand.
"Real Madrid will miss out on this extra income. If a club
is not a winner their options for boosting revenue are limited."
Gay said there was even a danger the club could post a loss
as their operating costs of 390 million euros last season would
have increased this term, inflated by higher player salaries and
amortisation of transfer payments.
"If income does not increase their profit-and-loss account
will deteriorate," he said, adding that the club could be forced
to sell assets to make up the shortfall.
Instead of spending huge sums to bring in top players, a
better strategy might be to devote more resources and effort to
bringing players through the youth academy, with whom fans could
identify more easily, Gay said.
"The cost of a squad made up of players coming up through
the club is always much lower than bringing in high-profile
signings, who, let's not pretend, are like mercenaries.
"It's the patriots who win the wars, not the mercenaries."