Friday, June 12, 2009
Funding the galacticos fantasy
In just four days this week recently re-elected president of Real Madrid Florentino Perez sanctioned two deals that in transfer fees alone will cost the club and incredible £139m; or if your prefer $228m or €162.9m.
Hot on the heels of Kaka's £59m world record transfer from AC Milan, Real Madrid then broke their own record by agreeing a £80m fee for Manchester United's Cristiano Ronaldo.
They are mind-boggling sums of money (Ronaldo's fee alone would allow you to buy a Big Mac for everyone in Canada - other burgers are available), but given that both players will be granted blockbuster pay deals, do the numbers stack up?
On Friday, it was reported that Rolando is set to earn £9.5m in his first season, and because his six year contract includes a 2.5% season-on-season increase, in the final year of his deal he'll be taking home £29m, or £557,000-a-week. In total the Portuguese winger will earn £107m.
It's all very exciting but how are Real Madrid going to afford it? Hasn't anybody told Perez there's a recession going on?
In Spain it has been claimed that Banco Santander have provided credit of €70m to be repaid over four years, but what about the rest?
Perez, the architect of the original galacticos era at the turn of the millennium, is a wealthy man, with a fortune which ends in nine zeroes, rather than your bog standard six. But that Perez is a billionaire in his own right is irrelevant because under the rules that govern Real Madrid the president is not allowed to either fund or profit from his time at the helm, he is the custodian not the financier.
That doesn't mean necessarily that he couldn't issue the club with a loan, but it would have to be interest free, and it wouldn't exactly be entirely in-keeping with club statutes.
When quizzed on whether the second galacticos era would saddle the club with dangerous levels of debts Perez was insistent that Real Madrid's finances could handle the outlay, and identified three goals that would ensure that the spending is sustainable: '' Increasing ticket sales, increasing bank loans and increasing the club's economic value.
''Real Madrid takes about €400m-a-year, the fruit of three sources of income - a third from ticket sales, a third from television rights and a third from merchandising.''
Who are we to question Perez and his calculator, but is increasing bank loans a great idea? As for the rest, undoubtedly people will want Kaka and Ronaldo merchandise, and replica shirt sales will spike, but to cover the kind of outlay Real have already committed to - and that's before factoring-in the anticipated arrival of David Villa - almost everyone in the world will need a new Real Madrid shirt.
At a time when the world is struggling with the realities of recession and in Spain particularly, where unemployment is at 18% and 4m people are out of work, Real Madrid's new transfer policy seems more than a little out of step with reality.
And leaving the finances to one side, one is left with a sense of de je vu and the nagging suspicion that no-one has learnt anything from Perez's original galacticos experiment.
The concept of a team of Zidanes y Pavons, as Perez put it, was meant to see Real Madrid create a winning team comprised of superstar signings like Zinedine Zidane and home grown youngsters like Francisco Pavon.
But quite simply, it didn't work as a model for sporting success and one must question whether it will work now. David Beckham was the last of the original galacticos, but when he arrived in 2003 for £25m but it would be another three years until Real Madrid would win another trophy and by then the concept had been largely discredited.
Taking the start of the galacticos era as being Luis Figo's £38.7m arrival in 2000 the club won two league titles and one European Cup; it's a great haul of prestigious trophies but given the expense - which also included Zinedine Zidane for £46m in 2001 and Ronaldo for £26m in 2002 - much more was expected.
The Galacticos might have helped develop the Real Madrid brand and shift a lot of t-shirts, but on the pitch the megastar players failed to gel as a unit and younger players were at once awestruck by their team-mates and incredulous at the disparity in pay within the dressing room. It didn't foster harmony or success.
The arrival of Kaka and Ronaldo guarantees replica shirts will fly off the shelves at the Real Madrid superstore and an increase in television and marketing fees, but those lines of credit aren't endless, especially in the current economic climate. If Perez has done his sums right maybe everything will be fine, but what if he hasn't? What if one of them breaks a leg in pre-season?