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How Real Madrid Trumped Every Sports Club in the Money Game

How Real Madrid bucked Spain’s meltdown to become the world’s most valuable sports franchise

Published: May 18, 2013 07:39:24 AM IST
Updated: May 15, 2013 01:52:56 PM IST
How Real Madrid Trumped Every Sports Club in the Money Game
Image: Imago Sportfotodienst / Newscom
Real Madrid—and its superstar Cristiano Ronaldo—are flying high against ManU and everyone else

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.”

How Real Madrid Trumped Every Sports Club in the Money Game

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(This story appears in the 31 May, 2013 issue of Forbes India. To visit our Archives, click here.)

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  • Steve

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    on Aug 14, 2013
  • Jay

    All these money bags need to follow the arsenal model of success. Yes it\'s been a barren 8 yrs since last trophy was won and rather than recruiting the world cls talents arsenal were deemed a selling club probably a training ground to groom for future stars who would ply their trade at a different club. However when the need for a bigger and better stadium was identified all of them in power knew the road ahead wouldn\'t be smooth and there would be call for the heads. Now 8 yrs later u have a world class stadium at Emirates with people from far and across ready to invest.Not a surprise that Usmanov is bitching for lack of oppurtunity in the board because he knows whatever he invest now will be returned with huge profits.The lucrative deals are being reworked in all major categories with the Stadium and Shirt deal with Emirates and Puma already in bag. The next season beholds and Arsenal are ready to raise as a phoenix. All these wouldn\'t have been possible but for one man Professor Wenger, no doubt why perez , Abramovich and other clubs want him to take over and clean the mess. 16 consecutive years in Champions league - Take a bow Mr. Wenger. In Arsene we trust..

    on May 21, 2013
  • Shravan

    How they triumphed? Because of Spain\'s ludicrous TV money distribution and the fact that they are bank-rolled by the Spanish state. The majority of Spanish football clubs are in a financial mess. Valencia built half (!) of their stadium when the going was good and now have no money to complete it. Malaga, in spite of being owned by a Sheikh, haven\'t paid their players and will be penalised by UEFA. It was clever marketing to cash in on the Galacticos but without external help theirs is not a sustainable model at all.

    on May 18, 2013