Real Madrid’s Galactico Business Model

Over the last 40 years, sports has evolved: it has gone from amateur to professional and it has become more commercialized. Sport now belongs to some extent to the field of economics and business.

As a result, sporting success as the primary goal of sports organizations is coupled with other goals, goals like profit. This applies to sport in general but particularly to football.

In Europe, football is the most popular sport. Real Madrid, Barcelona, Bayern Munich and as well Manchester United are top names when we are talking about the European football. But no other football club comes anywhere near Real Madrid in terms of fanbase, audience and revenues.

The purchase of Cristiano Ronaldo for 80 million pound from Manchester United is portrayed, in some quarters, as meglomaniacal madness.“,  according to Gideon Rachman’s blog.

In fact, this controversial purchase is part of a carefully thought-out and rather clever business strategy.

It was just under Florentino Perez’ presidency (2000-2006) that Real Madrid started its ambition of becoming the word’s richest professional football club. Perez, the first president of Real Madrid, built the first team of Real international Superstars, including Zidane of France, Luis Figo of Portugal, Ronaldo of Brazil and Beckham of England.

Here are some other notable members of Real Madrid:

  • Alfredo Di Stéfano (Argentina/Spain)
  • Raúl (Spain)
  • Iker Casillas (Spain)
  • Robinho (Brazil)
  • Pepe (Portugal)
  • Mesut Özil (Germany)

The football club was critized and denounced as a team of show boaters-the harlem globetrotters of football.

Why? Well, first because Real as a football team never won very much. Also Perez had sanctioned the sale of a key member of the team, defensive midfielder Claude Makelele-Real’s fortunes declined shortly afterwards.

But the critics missed the point: The galacticos were part of a commercial strategy that hugely enhance Real’s income through guest appearances, the sale of merchandise and television rights.

Real’s commercial director just compared football to the movie industry:

Real was a content provider – just like a Hollywood studio. So just as it was rational for a film studio to pay millions to get a box-office star like Tom Cruise in their movie, so it was rational for Real to pay huge amounts to sign Beckham or Zidane.

Even though Real Madrid won no trophies, it was crowned as the richest club in the world. The table above shows the total revenues of 2010/2011 of the top 20 football clubs in the world (source: Fan Power report of Deloitte Football Money League (DFML)).With a difference of 30 million euros between FC Barcelona, Real Madrid is the richest club in the world in terms of annual revenue. Furthermore, it is expected that in 2012 Real will earn revenues of 500 million euros.

A 9 % increase in revenues to 480 million euros sees real madrid maintain its position at the top of the money league for seventh consecutive season.

Revenue sources of Real Madrid are

  • Commercial Revenue (36% of total revenues)
  • Matchday Revenue (26% of total revenues)
  • Broadcasting (38% of total revenues)

Another interesting fact is how the clubs financial strategy relates to their staff costs. The table below shows that 4 of the 10 highest paid football players in the world played with Real Madrid.

Football player earnings in 2012

1. Lionel Messi (£27.5m)

2. David Beckham (£26.2m)

3. Cristiano Ronaldo (£24.3m)

4. Samuel Eto’o (£19.4m)

5. Wayne Rooney (£17.2m)

6. Sergio Aguero (£15.7m)

7. Yaya Toure ( £14.7m)

8. Fernando Torres ( £13.9m)

9. Kaka (£12.9m)

10. Philipp Lahm ( £11.9m)

Real Madrid’s business model “Galacticos” is about buying the best players in the world in order to increase fanbase, audience and profit. Astonishing that the success of a football club is not only defined by winning or loosing a game anymore. Originally the term football club (FC) was commonly used for a sports club which is an organised body with a president, a committee and a set of rules responsible for ensuring the continued playing existence of one or more teams which are selected for regular competition. I don’t think that nowadays this definition is still up-to-date, since football clubs, such as Real Madrid, do have their own business models and are looking for profit rather than for trophies. In the days of commercialisation, this is just one example, of how sports, which is actually not looking for profit, can even turn into a profit-orientated business.