It's all about Amelioration

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Making Sense of it all…

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Thank you for the memories

Alas! The club that I have been supporting since 12 has finally sold their biggest star. No, I am not the least worried about the future of my club. Stars have come and gone, but we are still successful because of our very strong fundamental values that is eminent from top to bottom. Clear direction, immaculate management.

However, what I cannot fathom is the money involved in the transaction. 80 million pounds is staggering. How is it possible that in a time of crisis,  with an unprecedented 3 million people unemployed in Spain, can a club like Real Madrid fork out such exorbitant amount of money? Not to mention, they just paid like 65 million pounds for a Brazilian mastero a week back.  Kinda puzzling, don’t you think? It kinda makes me reflect back to the years of 2005 – 2007, where banking shenanigans were playing around with that sort of money. Does the football world function like our economy? Will there be hyperinflation? Is there sort of a monetary or fiscal tool to balance the market?  To answer that, I explored how Real Madrid as a football club operates.

First and foremost, unlike the majority of European football clubs, Real Madrid are owned by its thousands of members, known as “socios”, who elect the president. That leaves it free of all the ramifications for takeovers and potential debt issues that being a listed company could involve. Plain simple, it’s a rich man’s playground, no shareholders to answer, just ensuring that it’s one  hell of a profitable machine that attempts to quench the insatiable thirst of the supporters. Then we look at the figures:

REAL MADRID REVENUES 2007/08

Increased by 4% to £290m
Driven by increased commercial revenues
Commercial revenues accounted for 35% of income – this includes sponsorship deals, merchandise revenue etc.
Broadcasting income accounted for 37%
Matchday accounted for 28%
Source: Deloitte

Furthermore, the club also believes that  in emerging markets, where people are more inclined to support star players rather than clubs, capturing top talent is key priority in taking Real Madrid’s brand to countries like China and India where soccer face stiff competition from other sports like basketball or cricket. These players are somewhat like brand ambassadors, building brand equity or affiliation around the world.
Coming back to the real world, is this a club that has gone way above its capacity, creating a financial bubble that might might pop one day? My conclusion is no. Basically, what Real Madrid is achieving is basically building brand equity. You don’t have to look further than Apple or Ikea to know that branding is the most intangible but a strong pillar that a company evolves around. The structure of the club  and the never ending cash flow allows it to function in such a way that only makes it stronger. There are no shareholders to vote or answer to. Forget about the annual financial reports or a plunge in the share price. Number one priority is to keep the supporters happy and to enhance the Real Madrid brand. In fact, sourcing from Bloomberg, Stefan Szymanski, an economics professor at the Cass Business School in London, thinks that such a high risk strategy that Real Madrid is adopting is actually a form of insurance. I quote, “Real’s really too big to disappear, whatever debt they can incur,” he said. “No bank would ever be allowed to be the bank that sank Real Madrid.”
It’s such unbalance of finances that caused UEFA President, Michel Platini to sweat over fair play. The elite clubs are basically creating a bigger gap from those below them. Not just in terms of spending power, but the talent they attract.Where is the joy in watching all the best players in the world playing at the same club? Or, would a league be as attractive if a certain club were to dominate most of the time?
Another issue is the inflation of transfer fees. In just 3 weeks, Real Madrid has burst the records for the world’s most expensive player by 80%. Its a dangerous path, especially in a time of a financial crisis. Most clubs who will be entering the transfer market soon would be faced with massive inflation, and its gonna be a potential pitfall especially those that are already in debt. One classic example is Leeds United in the 90’s. The club’s pockets were not deep enough to sustain their ambition. Many stars were bought, but when the team underperformed, it became a downward spiral which sent the club to oblivion…. division three to be exact.
It will be interesting to see how the soccer governing boards plan to bring the balance back into the game. With all these takeover talks by oil sheikhs and billionaire businessmen, its a matter of sooner rather than later.
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Written by Nabs

June 15, 2009 at 3:10 pm

Posted in MIND, Ramblings

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