Red flags that have not yet appeared in Real Madrid’s reports… and the “little lever” to mask them | Relief

The Real Madrid Assembly lasts several hours, during which speeches, requests and votes are made, but the central point, as in any other company, is the approval of reports. In the last decade, Florentino Perez, who controls the organization with an iron fist, has been able to present enviable budgets and results, even praised by La Liga as exemplary, despite the poor relationship between him and Javier Tebas. However, this year the curves are setting in and the numbers are being stretched to balance out.. No one doubts that the Assembly will give its approval, but the figures deserve a more detailed analysis. Accounting is sometimes more magic than science.

The result is positive, 16 million profitbut to reach this amount, it was necessary to go through a thorny path, including extraordinary income that could not be reproduced over time (more on this in a moment), without which the result could have been negative. The latter is explained by Hector Moedano, a football-loving economist known on Twitter for his analysis of the balance sheets of certain clubs.

“You cannot adjust for gross profit and say that if I had taken these millions of euros, Real Madrid would have earned less or would have suffered the same losses because perhaps some type of sales would have been activated or some other type of mechanism, otherwise some impairments would not have been made to try to maintain the exercise. What is certain is that this income distorts the reality of what we observe.“, explains the Valencian economist living in Austria.

The figures presented by Real Madrid explain that for the first time the turnover of a sports organization exceeds one billion euros, an almost mythical amount that is explained by a significant increase in revenues, but it has a counterpart, and expenses have increased sharply. especially in the non-sports part.

You see how from year to year supplies grow from 44 to 65.7 million, sports personnel from 69.3 million to 83.5, there are other non-operating expenses that increase by one hundred million, from 262 to 362 without much explanation and depreciation of non-sports assets increases from 15 to 17 million. This means that in just one year the number of these concepts increased by 35%.

Sources from the football world look at these figures with some surprise. They believe that the club’s financial statements are not as optimistic as in previous years and that if these expenses are repeated, Real Madrid may be forced to seek some kind of extraordinary income, such as the sale of an important player or some kind of deal with assets.

Awards

Possible explanations for this growth, usually multifactorial, include premiums. Because Madrid won the Champions League and the Champions League and that has great benefits in the future, but the present makes it difficult. “The bonus part kind of makes it harder. I mean, I think with the structure fees What Real Madrid has, the fact of winning the Champions League, purely in monetary terms, is somewhat insufficient. Although obviously this is ultimately very positive because they can probably make it profitable elsewhere. Yeah you win more titles because you may have to pay more premiums in that particular year, but then you can make it profitable through other places: ticket sales, sponsors, VIP areas…“explains Mohedano.

Income is also growing rapidly, and Florentino can boast about this, although he has an important asterisk. All areas of the business are growing except for television revenue, which Moedano partly attributes to the fact that Madrid does not host some of the television events that La Liga subsidizes and is therefore losing a bit on that side.

Marketing revenue is increasing significantly, thanks in large part to the HP logo patch he has been wearing on his sleeve since this season. The game that really takes the leap is the stadium game, where the score goes from 151.8 to 306.9. A brutal increase, especially if you take into account, as the documents themselves explain, that work is not yet at full capacity.

The operation that changes everything

But here a nuance arises: the leverage is 76 million. Or whatever you want, because the terminology may not be entirely accurate. Real Madrid launched a new product on the market this year called “licenses for personal use.” which will give a series of rights for the next thirty years to those who subscribe to it.

In its report, the club explains it this way: “The holder of these licenses receives the right to annually purchase a season ticket for a specific seat for a period of 30 years and, in addition, has the right to purchase certain additional services that can be used at the Santiago Bernabeu Stadium“.

Therefore, this figure cannot be reproduced: Real Madrid cannot sell the same product again next season, so it is a one-time income.

Moedano first explains the terminology: “It all depends on the reader’s point of view. Leverage is not a pejorative term, as it was Barcelona who came up with it to simplify a number of corporate transactions. What it was used for is another matter. .from, let’s say, the opposition press trying to belittle him. We must understand that every company is in its own context, and I believe that any company, especially in Spain, when it needs financing, seeks it in every possible way.“, he says.

Now the features of Madrid. “If we think of leverage as the sale of rights associated with an extraordinary gain that saves your accounts or improves your operating image, we can define it as this, but if you consider that this is, as it were, the promotion of future rights that are associated with operational activities, then this is completely new and, therefore, will not be considered leverage,” he says.

To explain the main difference between both operations, Barcelona’s leverage, such as BLM or Barça Studios sales, do provide future income since it is an advance on what they are estimated to earn in future years. This money will be taken from what these businesses generate in the future and will be pocketed by the companies that have used these levers. In the case of Madrid this is not the case, it only gives the right to extend those VIP seats for which you will also have to pay, so it is clear that in the future there will be no loss of income for this concept.

. In any case, it is a new operation and a very handy manna for a club that has found itself with greater needs this season than in previous years.

Among the possible explanations for why the operation is intensifying this year is the club’s debt structure. Maturities of €92 million are envisaged in 2025, which is much higher than what is currently envisaged for the following years.

Madrid has a number of lines of credit available to it and Moedano believes its ability to meet incoming payments is very robust.

“Like all companies, Madrid is careful about liquidity windows and obviously if you can refinance on better terms than what you had before, you will not hesitate to do so. The club resorted to another series of levers, call it Sixth Street or Providence (the two main agreements for understanding the club’s economics) to solve treasury problems, as well as liquidity problems, mainly within a year. Clubs have two important moments when. they pay the salary because they don’t pay it monthly, they pay it in two installments: mid-year and at the end of the year, and obviously it’s complicated because you have to pay out many millions of euros plus the associated taxes. I think it’s important to look at it not from a short-term perspective, but to look at it more from a medium to long-term perspective, which is solvency. In this case, I believe that you do not have any problems with refinancing or financing.. In some year, for example in 2025, this figure will increase, but there is no problem with refinancing them, accepting them in the future or renegotiating them to be able to solve this problem,” says Moedano.

Stadium

True, in addition to this extraordinary income, income from the stadium has increased significantly, which gives reason to consider the work economically successful even without the possibility of holding concerts. Actually, The white budget for next season does not reflect a single euro in this concept, as if it were taken for granted that La Castellana will have to wait to see international artists tour again..

“This year the number of events and concerts amounted to eight million, which was not much and, nevertheless, The stadium tour and Real Madrid Experience brought in 30 million.

In this regard, I believe there is already significant growth,” says an economist consulted by Relevo, who understands that this difference, if maintained, would be enough to cover the stadium loans.

This, of course, does not mean that the issue of concerts is not important. When Madrid explained the work, they cited this part as one of the reasons for the costly renovation, namely the fact that the stadium can be used every day of the year, not just on match days.

“One of the purposes of this work is that undertaking events of this nature should not be looked at in terms of what is coming in now, but rather in terms of potential ongoing income. What they say is that Real Madrid don’t care… I would say they should care.Moreover, everything presupposes the diversification of sources of income, and this was powerful, obviously having a fairly high growth potential,” the economist believes.

Because it is important to consider the context in which Real Madrid operates and the reasons why the work was carried out. Moreover, Florentino Perez has repeatedly stated this. The most powerful English clubs have funding opportunities through their owners, capital increases and so on, which the white club does not have due to its current configuration. Nobody knows, for example, that Barcelona would not have faced any of the problems that have plagued it in recent years if it had had the opportunity to increase capital, and the same thing happens with Madrid, since it is a sports club . . excludes a number of financial transactions from which you can earn a lot of money.

It was the need for money to continue to fight the clubs that have the opportunity, including state clubs that receive salaries, that prompted Florentino to take on the job. There is no indication that the Prime Minister’s money will decrease in the futureIn contrast, internal warfare within the English league could even lead to certain sponsorships being allowed that have hitherto been prohibited because they were thought to distort the economics of the championship. If this happens, the demand for concerts in Madrid will become even greater, which is known to be a problem that currently has no easy solution.

All this is, of course, as long as the club maintains its current configuration, which can be questioned since last year Florentino announced in the Assembly that they were considering options to change the social form of Madrid and move it towards a model similar to the German one. If this happens, the conversation will change radically.

Madrid did not replace Kroos or Rudi Fernandez. Despite the problems facing its two classic professional teams outside of women’s football, the club has been reluctant to enter the market and sign players. Because there are arguments to add a flower to the accounts, but there is also data that does not allow for so much optimism.