Real’s Tickets Flop After $300 Million Spending Spree (Update1)
March 10 (Bloomberg) -- Real Madrid said building its team by spending a record $300 million on players such as Cristiano Ronaldo and Kaka was like making a blockbuster movie. So far, it hasn’t been a hit for the world’s richest club.
While Real leads the Spanish league, it is selling fewer jerseys than Chelsea and Liverpool, according to uniform supplier Adidas AG. Attendance at the club’s Santiago Bernabeu stadium has fallen 7.8 percent from last season, as Spain suffers its worst recession in 60 years.
It may get worse. Real must come back from a 1-0 deficit against Lyon tonight to reach the quarterfinals of Europe’s Champions League. Being eliminated may mean losing as much as $82 million in prize money, sponsorships and other revenue, according to Simon Chadwick, a professor of sports business strategy and marketing at Coventry University Business School in England.
“Many people would have legitimate concerns the club will be unable to generate an acceptable return on their player- investment strategy,” Chadwick said. It “would seriously undermine Real Madrid’s business model.”
Real Madrid President Florentino Perez, seeking to kick- start a team that hasn’t reached the Champions League quarterfinals since 2004, borrowed 151.5 million euros ($207 million) from Banco Santander SA and Caja Madrid to finance the signings of Ronaldo and Kaka, according to club accounts. It also acquired Karim Benzema and Xabi Alonso during the offseason.
Loan Repayment
It will pay back the loans at a rate linked to the Euribor, the euro area’s interbank offered rate, through June 2015, according to the accounts published in September.
The investment in players swelled the team’s debt beyond the 510 million euros it already owed, club accounts show.
“The movie promises to be a blockbuster,” Real Madrid general director Jorge Valdano said at a televised news conference on May 19, days before Real Madrid embarked on its spending spree.
Kaka was the 2007 FIFA World Player of the Year after he helped AC Milan win the Champions League and Club World Cup. Ronaldo, whose 80 million-pound ($120 million) sale by Manchester United is a record, was voted world player of the year in 2008, after winning the English Premier League and Champions League with the Red Devils.
‘Los Galacticos’
A recession in Spain, whose 19.5 percent unemployment rate is the highest in the euro region, is hurting Real’s plan. Average attendances at Madrid’s Bernabeu stadium declined to 67,461 from 73,157 since last season, according to data collated on ESPN’s Soccernet Web site. Real Madrid’s jersey sales trail Chelsea and Liverpool’s partly because English fans are more likely to wear their favorite team’s uniform than Spanish counterparts for cultural reasons, Adidas spokeswoman Katja Schreiber said. She declined to provide sales figures.
Real Madrid has a history of success on the field. It has won a record nine European Cups, and the team collected a group of star players known as “Los Galacticos” in Perez’s earlier stint as president.
Real Madrid declined to comment for this story. The club, which is owned by its members, said in an e-mail it doesn’t discuss financial matters other than in its annual report, which is compiled after each fiscal year.
Television Contract
“Real Madrid has a lot resting on its role in the Champions League,” said Jose Maria Gay, a Barcelona University professor who specializes in soccer finance. “Its costs have soared and it’s under pressure to increase its income by about 20 percent to balance its accounts.”
An exit now may mean Real Madrid misses out on performance- related bonuses from sponsors, said Michael Stirling, managing director of London-based Global Sponsors Ltd. The team’s partners include online bookmaker Bwin Interactive Entertainment AG.
Real Madrid gets some protection from a 1.1 billion-euro television contract with Barcelona-based Mediapro that runs from 2006 to 2013. That helps make up more than one-third of the 421.7 million euros income it expects in the 12 months through June 30 this year, club accounts show.
Coach Manuel Pellegrini said he is optimistic, based on the team’s Spanish league play. Real Madrid has 67 goals in 25 games, a better scoring ratio than any other club in Europe’s five biggest championships.
“The numbers we are producing support the club’s project,” Pellegrini said at a Feb. 20 news conference, adding that the data is better than that of Real Madrid’s Champions League-winning teams of 1998, 2000 and 2002.
Still, losing to Lyon would set back Real Madrid’s brand against rivals from the Premier League, the richest domestic league, and end its chances of contesting the final in its own Bernabeu stadium, Gay said.
“Real Madrid lacks that extra something on an international stage,” Gay said. “It’s got a great team but we’re waiting for the results.”
To contact the reporter on this story: Alex Duff in Madrid at at
aduff4@bloomberg.net
Last Updated: March 10, 2010 11:57 EST