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Why Real Madrid can afford Kaka and Ronaldo

This is an article that recently appeared on Soccer Tickets Online but I thought it was worth repeating here.

There was an interesting article in the Times by Gabriele Marcotti on Why Real Madrid’s finances outstrip Manchester United. Marcotti went into some of the details as to why Madrid are so rich and Soccer Tickets Online reader Ariff Ridzuan provided a lot more details on where Madrid’s money comes from.

When Real Madrid’s new President Florentino Pérez announced his massive summer spending spree, the first thought I had was, how can Real Madrid afford to sign superstars like Kaka and Ronaldo? They are not owned by a Russian oligarch or Arab sheikh, so where does Real find the money to outspend everyone?

The reason is Real’s massive revenue stream. We have reported previously here and here that Deloitte has named Real the richest team in the word for the last four seasons (Manchester United is 2nd) with revenues of €366m (£290m).

So where does Real Madrid get all that money? As you might expect Madrid has several different revenue streams.

TV Rights
Unlike Premier League teams, Real Madrid (and Barcelona) are able to allowed to negotiate their own contracts. Real Madrid signed a five-year deal with Mediapro that kicks in with the 2009/2010 season. According to The Football Economy this deal is worth an estimated €1.1bn to Real Madrid. So that translates into just over €200 million in annual revenue for Madrid, which is about three times what Manchester United earn from the Premier Leagues current TV deal.

Real Madrid is not set up like English football clubs. It is a member’s sports club or sports co-operative that pays pay to belong too. According to Ariff:
To be a member of Real Madrid, and everything it entails, you have to pay something like $500 a year – for a standard membership. Now you have to see that Real Madrid has something like 150’000 members at the minute. And not all of them are standard members. Elite members pay tens of thousands of dollars a year to have that status. I believe the president has to pay something like $80 million a year for his membership – to be president! Hence the fact that most of their board, and presidents, are basically billionaires. As they are the only guys that can afford to be in office. So let’s just do the sums. 150’000 members paying $500 dollars a year. Even with that conservative estimate, they make $75 million a year in membership fees alone. Add in the elite members, and board members, and you’re maybe talking about $200-300 million dollars a season, in membership fees alone!

The Bernabeu Stadium is huge and Real Madrid have the third-highest average attendance in Europe,

Image Rights
When Real Madrid sign a player they retain a significant portion of that players image rights. Those rights allow Madrid to able to make millions in advertising deals. It is believed that when David Beckham signed from Manchester United that Madrid was able to recoup the whole cost of his transfer as a result of new advertising and short deals, it was able to sign as a result of Beckham joining the team.

The tax rate in Spain for foreign players is much lower than it is in the U.K. for example. That means that it is cheaper for Real Madrid to sign top players than it is for someone like Manchester United. For example when Ronaldo signed for Madrid, his reported salary will be around €8m net (£6.8m). With Spain’s non-domicile tax rate of 25%, the cost to Madrid is around €10m a year. If Manchester United had wanted to match Madrid’s salary offer to Ronaldo, it would have cost them €8m due to the 50% marginal tax rate in England. Over the length of Ronaldo’s contract, Madrid will pay around €30m less for him than Manchester United will. That is the equivalent of being able to sign a new superstar every year.