Transfer window: The spendthrift world of Real Madrid

With the Spanish economy a basketcase to rival that of Greece, youth unemployment creeping towards 60 per cent and the country’s crazy property bubble well and truly burst, how on earth are Real Madrid able to afford to pay ¤100 million for Gareth Bale, let alone the £105m Spurs chairman Daniel Levy is said to be demanding?

The Spanish club may have broken the world transfer record four times in a row within nine years – for Luis Figo, Zinedine Zidane, Kaka and then by paying £80m for Cristiano Ronaldo from Manchester United in 2009 – but surely the days of such extravagance are over?

The answer to that is clearly “no”, with the reason to be found in the club’s remarkably rude financial health. With an estimated value of ¤3.3bn and a turnover last year of ¤513m, Real Madrid is the richest sports club in the world, eclipsing even fellow giants Barcelona, Manchester United, AC Milan and Paris St German.

It was such remarkable wealth which allowed the Bernabeu club to splash out on so-called Galactico signings such as Figo, Zidane, Roberto Carlos and David Beckham under president Florentino Perez from 2000-2006. However, counter intuitively, while Perez’s Galactico policy was never a runaway success in terms of silverware, yielding just La Liga titles in 2001-2002 plus the Champions League and Intercontinental Cup in 2002, but no more silverware for the next three years, it was a financial success.

In 2000 Perez inherited a balance sheet that was ¤270m in the red, but he managed to wipe out the club’s debt when he not only persuaded the city council to re-zone Real’s training ground as suitable for housing, but also got the city to team up with four corporations to buy the training ground for what the EU, who investigated the matter, thought was an inflated and anti-competitive price. That deal not only wiped out Real’s debt and provided a transfer war chest, it also reinforced the perception in the minds of Madrid’s supporters that their club had official sanction, and that no matter how dire the financial situation became, they would never be allowed to go to the wall. As Phil Ball says in his excellent book White Storm, both Real and Barcelona supporters believed that the normal rules simply don’t apply to Los Meringues, and it made Perez’s Real formidably bullish.

The Perez era laid the ground for the club’s current ability to spend relentlessly. The £57m they have already spent this summer – on Isco from Malaga for £23m and Asier Illarramendi from Real Sociedad for £34m – barely raised an eyebrow. The Los Galacticos plan may have been at best a qualified success on the pitch, but off the pitch Real’s profile and income have soared as the millions of kids around the world whose imaginations were captured by marquee signings have grown up.

In the four years after Perez first resigned in 2006, Real made a profit of ¤190m, and this despite the fact that they broke the world transfer record twice in 2009 after Perez’s return to the presidency of the club. Some of that came from ticket sales, with the club breaking more records when it took ¤150m through the turnstiles and season tickets in 2009-10, while selling 1.5 million replica shirts each year (again, the highest number in the world) keeps the tills ringing over, So, too, does television revenue because Spanish football is alone in not negotiating collectively, meaning that Real earn a whopping ¤156m a year in domestic television rights (the deal for the whole of La Liga is ¤640m), plus what they earn from their own channel and overseas rights.

Those figures explain why Real are able to spend so lavishly, and not just on bringing in new players, but on keeping the ones they have, as news of the offer of a five-year ¤155m contract to Cristiano Ronaldo proves. It is the combination of record transfer fees and stellar salaries which provoked Arsene Wenger to proclaim that the signing of Bale would make a “joke” of UEFA’s Financial Fair Play regulations. That, however, may just be wishful thinking: although Real’s wage bill in 2011 was ¤169m, which is second only to Barcelona, it was only 43 per cent of turnover, the best of Europe’s leading clubs and better than Manchester United at 46 per cent and Wenger’s own club, Arsenal, at 50 per cent.

Yet what happens on the pitch and in the accountant’s ledger is only a part of what makes Real tick. Its structure as a club also has a huge bearing on how it behaves in the transfer market, especially as – contra to Wenger’s assertion – Real has no sugar daddy and is constitutionally only allowed to spend what it earns or can support in debt. Unlike most British clubs, Real has no shareholders and, like Barcelona, Athletic Bilbao and Osasuna, is instead owned and run by its 60,000 members or Socios.

Just how much the club can spend depends in large part how much those Socios crave success, because they are the ones who finance it through season ticket prices, shirt sales and the like. And with Barcelona ruling the roost, their appetite for buying success has never been higher despite Spain’s straitened finances. That much was signalled in 2009 when Perez was re-elected as president in May 2009. The man who was elected in 2000 specifically because he promised to spend whatever it took to buy Figo from Barcelona, was re-elected because he promised to spend until success returned, and he has been true to his word. As well as world record transfer fees for Kaka and Ronaldo in 2009, he immediately bought Raul Albiol from Valencia for ¤15m, Karim Benzema from Marseille for £35m, and Xabi Alonso from Liverpool for £30m.

Yet although the spending has continued, Perez has managed the neat financial conjuring trick of simultaneously managing to bring the debt down from ¤336m on his election to ¤170m by the end of the 2011 season, primarily by raiding the supporters’ piggy banks. If Perez, who was overwhelmingly re-elected in early June, is to succeed in making Bale a latter-day Galactico, he will need to rely on their largesse one more time. But then, with Barcelona looking more vulnerable than ever before, history suggests the Socios will be happy to dig deep once again.