Real Madrid fans have a bit to celebrate these days. In March, the Spanish soccer juggernaut narrowly beat Manchester United, knocking them out of the world’s premier club competition, the UEFA Champions League. And now they’ve beaten them in business as well.
After more than eight years delivering the highest revenues of any soccer club in the world, once again topping the $600 million mark last season, Real Madrid bested ManU to land atop Forbes’ list of most valuable soccer teams this year. With a value we estimate at $3.3 billion—versus $3.17 billion for ManU—Real is also now the most valuable sports franchise in the world.
The club has thrived under the leadership of Florentino Perez, the billionaire construction tycoon who turbocharged the team’s revenue growth during his 10 years as president. He seldom speaks to the press and declined to talk to Forbes, but his strategy is well known: Pay a lot of money for top talent, win a lot and expand all lines of business. Simple? Hardly, especially when you consider the near-collapse of the Spanish economy during his tenure. With dominance in commercial, broadcasting and stadium revenues, “they’re a three-headed monster”, says sports investment banker Nishant Tella of Inner Circle Sports.
When Perez took over in 2000, he found a club on the edge of insolvency. He sold off assets, recruited investors and went on a buying spree. After signing superstars like David Beckham and Zinedine Zidane, Real Madrid saw their income from merchandise explode, peaking at 45 percent of revenues in 2005. The so-called Galácticos plan of buying the world’s best players also allowed Madrid to negotiate juicy, and increasingly lucrative, TV broadcasting deals. At the same time, heavy investment in their stadium helped match- day revenues more than double in ﬁve years. In 2012, each of these three lines of business contributed roughly a third to revenues.
Even in the face of Spain’s real estate crisis, Perez’s balanced model continues to perform. A recently signed kit deal with Adidas, worth $50 million through mid-2020, and other sponsorships brought in $240 million last season. Real Madrid’s current shirt deal with online gambling ﬁrm Bwin, from which they derive about $20 million per season, expires this year. With the value of shirt-sponsorship deals surging (Manchester United just signed a seven-season, $560 million deal with GM), Madrid can expect a signiﬁcant windfall in the 2013–14 season.
At home, its broadcasting rights amount to $250 million. They split half of the entire league’s $750 million TV take with FC Barcelona (the distribution of Spanish TV rights money is “savage”, in the words of a Barcelona insider). Madrid plans to press its advantage, a top team executive told Forbes, re-signing lucrative local broadcasting deals for more money, expanding Real Madrid TV (the team’s in-house content production arm) and making new forays into smartphones, games and apps.
Even with nationwide unemployment at 26 percent, Real’s mythic Santiago Bernabéu stadium continues to ﬁll—and ﬁll up the club’s coffers. Match-day revenues stood at $160 million at the end of last season, the highest of any major team in Europe. Project Bernabéu, Madrid’s $320 million plan to modernise the stadium, could add $60 million in revenues per season when completed sometime before 2018, experts say.
An odd side-effect of all this success: Madrid’s relentless pursuit of proﬁt has made it expensive for stars to play there. Back in 2000, to temper a payroll that topped $250 million, Perez hatched a plan that forces players to fork over on average half of their outside sponsorship and endorsement revenue, along with splitting jersey-sales income. Cristiano Ronaldo, who hands over 40 percent of his endorsements to the club, is said to be mulling a transfer as Madrid’s management pushes for a 50-50 split ahead of any juicy deals before the 2014 World Cup.
There is still room to grow. With 350 million fans outside of the UK, ManU has more than twice as many overseas followers as Real Madrid does, according to Sport+Markt. But, after years of international marketing, ManU is “peaking overseas”, says Mario Oliveto, a former executive at Nike, Adidas and Sport+Markt.
Real Madrid, which derives 65 percent of revenues from abroad, according to a top club insider, sees opportunity here. Last season, the team added $16 million to their top line by playing friendly matches in the US, China, Kuwait and across Europe. They expect new sponsors to follow.
As long as they can keep winning, signing top players and attracting massive audiences, Madrid should stay on top of our list. Says Inner Circle’s Tella: “It’s what we call the virtuous cycle of success.”