AT first glance, Real Madrid’s 2019-20 financials do not appear to be too troublesome, but with a major redevelopment plan for the Bernabéu Stadium in progress and a higher level of net debt, a 6% drop in revenues to € 715 million is arguably the start of the club’s near-term challenges. With expenses at a massive € 680 million, the club made a modest net profit of € 300,000 versus € 38 million in 2019.
Real Madrid have already implemented significant spending controls to try and reduce the risk of unsustainable debt, including a cut in players wages. In 2019-20, despite agreed reductions, Real’s football wages still rose by 5% to € 378 million, which amounts to 53% of income.
Real Madrid’s management, hinted at their Ordinary General Assembly (OGA) that some difficult times were ahead for the game: “The pandemic has changed life as we know it”, said club president Florentino Pérez. “We’re faced with an unprecedented situation which would have been impossible to imagine and which has had a serious impact on every facet of society and of course, the world of football.”
Interestingly, Pérez called for a reform of European football to make it more competitive and exciting. It was clear he was referring to the much-discussed and controversial super league.
Pérez also claimed there is an element of bias against Real around TV coverage and punditry, a comment which drew criticism from La Liga President Javier Tebas. “I think the president of Real Madrid is getting very distracted by the matter of the European Super League, they should inform him better,” he responded.
The current global crisis comes at a time when Real’s squad needs reinforcements with a number of key players at the veteran stage of their career. This is a problem Real knew was coming a long time ago: Luka Modric, Sergio Ramos, Toni Kroos, Nacho, Marcelo and Karim Benzema are all over 30 and although younger players are now being introduced, these players have limited upside and are undoubtedly expensive.
Ramos looks bound for Paris Saint-Germain and Modric has had a year added to his contract, but other members of the “old guard” have at least a year on their contracts to run.
Although Real’s January window activity might be forcibly muted, there is still talk of them trying to lure Kylian Mbappé and Erling Haaland to Madrid in the summer. With these two young strikers valued at up to € 400 million between them, Real will need to source the funding of such lavish acquisitions. Their net spend in 2019-20 was € 184 million, some € 60 million more than 2018-19. It is likely to be lower in 2020-21, which means players will have to be sold to fund any headline-making purchase. In both of the last two seasons, they made over € 100 million on player sales. Ramos and Isco look like being the first players to leave.
Real’s spending limits, like their rivals Barcelona, have been cut significantly, a drop of 27% to € 555 million (Barca is down 43% to € 454 million). Barca’s net debt position is far worse.
Real’s income was obviously compromised by the ban on fans on matchdays, resulting in the revenue stream dropping by 20% to € 116 million. Broadcasting, too, suffered, falling by 11% to € 231 million. Real’s strength – boosted by their 230 million global fans – was in their commercial income, which rose by 4% to € 369 million. This now contributes over half of the club’s total revenues.
Financing will bring the overall cost of the Bernabéu transformation to around € 800 million. During the pandemic, Real have been playing their home games at their training complex. Investment in the project has so far totalled € 113 million, with € 100 million drawn from the loans.
The club has no shortage of people wanting to lend them money and they have secured long-term financing that includes four loans totalling € 155 million with a maturity of five years and € 50 million over five years. Cash has come from five Spanish banks. Net debt at the club has risen by almost € 200 million to € 118 million. For the past four years, Real have been in a negative net debt position which meant they were able to pay-off debts and spend more freely in the market.
Real said at their OGA that the club has solid liquidity with a net worth of € 533 million and a treasury of € 125 million (as of June 30).
They have already forecast revenues will drop again in 2020-21 to around € 617 million, which would be € 300 million higher if not for covid-19. Of course, if the fans return, that could all change, but they are already bracing themselves for a € 90 million-plus loss.
In the meantime, Real are defending the La Liga title they won in 2019-20. They are currently chasing a resurgent Atlético Madrid but are well ahead of troubled Barcelona. They are still in the UEFA Champions League and will face Atlanta in the round of 16.
As for coach Zinedine Zidane, there have been rumours he is feeling the pressure of the immense work load. Like so many high-profile coaches, Zidane’s role is discussed on a weekly basis, game-by-game and the narrative changes all the time. He has an uncanny knack of producing job-saving results just at the right time.
Just before Christmas he was, allegedly on the brink of being sacked but in the past fortnight, he is refusing to commit himself over his future. Ultimately, it won’t be Zidane who decides if and when he leaves the Bernabéu.
Pérez offered a cautious note about the year ahead at the club’s OGA: “We’re heading into a difficult reality, the consequences of which are still unknown at this stage. We all know we’ll have to travel a long path full of obstacles, facing up to this adversity, but we’re a unique club, one that never gives in.”
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