Real Madrid has spent more money than any other football club in the world to build what Steve McManaman, a British player for the team, says is “arguably the best side of all time.” But it has bled euros to get there–by some estimates as much as 500 million euros since 2000. “I get the feeling there’s no financial strategy except buying players,” says Tim Crow of Karen Earl Sponsorship, a London sports consultancy. Even in the Champions League, a bastion of capitalism amid the welfare states of Europe, Real is a rare spendthrift. Three of Europe’s 10 highest-paid footballers play for Real, earning a total of nearly 20 million euros a year. In fiscal year 2002, Real spent 117.2 million euros on salaries–a whopping 77 percent of its total operating revenue. By contrast, Man U, which pays Beckham the highest footballing salary of all (6.6 million euros), limited wages to 48 percent of turnover.
The spending spree has brought two Champions League titles since 2000, and Real is heavily favored to win a third later this month, but at a dangerous price. “You’re not managing the business realistically if your wages are over 60 percent,” says Andrew Lee of Dresdner Kleinwort Wasserstein in London. Real celebrated its centenary last year, but as a modern business it reminds Stefan Szymanski, a football economist at Imperial College in London, of a recent phenomenon: the dot-com bubble. “What I see is a huge amount of expenditure and, with that, huge amounts of success on the pitch,” he says. The bad news, he says, is that it all “seems likely to burst at some point.”
Rivals tell another story. They argue that Real’s success rests on a foundation of government protectionism. Back in 2000, construction mogul and former Madrid politician Florentino Perez was elected club president by Real’s 80,000 dues-paying members, including season-ticket holders. He won by promising to lure Portuguese forward Figo from rival Barcelona, and fulfilled his pledge at a cost of almost 62 million euros before chasing after other stars (all so famous they go by one name). Zidane arrived from Juventus of Turin for about 75 million euros, making him the most expensive player in football history. Ronaldo of Brazil arrived for 45 million euros. By then some Real supporters were waxing nostalgic for the days when football was more sport than business, but the deals were done.
To climb his way out of debt, Perez, who declined to be interviewed by NEWSWEEK, turned to Madrid’s municipal government. In 2001, the city rezoned Real’s training ground, Ciudad Deportiva, allowing the club to sell it. This brought in 374 million euros in fiscal year 2002 alone. (Real is one of just four Spanish clubs that remain private associations rather than public companies, so its bookkeeping is not as transparent as it might be otherwise.) “It’s hard to keep up with Real Madrid,” Manchester United manager Sir Alex Ferguson told reporters last month after losing to Real in Champions League competition. He added, acidly: “They don’t worry about debt, for a start.”
They do now. After all, as Szymanski says, selling your training ground is “a trick you can pull off once.” As player salaries rise, TV revenues are threatening to decline. The Spanish television industry is consolidating, which means less competition for broadcast rights. Last year Perez was president of the G-14, an organization of elite European club owners, when it resolved to limit expenditures on wages to no more than 70 percent of revenue. Rogan Taylor of the University of Liverpool jokes that the nonbinding resolution is “a Freudian expression of wish-desire” that will not stop teams from spending “loony money” on players.
Enter the Beckham sweepstakes. Perez has created the most powerful global brand among football teams, according to a 2002 survey by brand consultants Landor Associates. But Man U has the greatest number of supporters: 50 million worldwide, including 20 million in the Asia-Pacific region. Real would love to steal some of those customers away, says Taylor, and “the battering ram is Beckham.” Let the richest team win.
