This week Real Madrid paid a world record £86 million transfer fee, alongside a reported salary of £8 million for former Tottenham Hotspur player Gareth Bale to join Real Madrid. For the duration of his 6 year contract, Real Madrid will spend £134 million on the player.
With Real Madrid speculated to be in approximately £500 million debt, it begs the question whether spending such a huge sum on a player will provide a good business return.
UEFA’s definition of debt provides a different interpretation. In 2011-2012, Real Madrid had bank debts of £125 million, with cash at the bank of approximately £84 million. With this leaving a debt of £41 million, and transfer liabilities bringing this figure to £106 million, can the purchase of Gareth Bale be seen as a worthy investment, and will he be able to boost their ability to generate such large revenues?
Real Madrid are the biggest club in the world according to Deloitte’s Annual Review of football
finance, and have maintained this title for four years running. Discounting the purchase of Bale, the club is expected to post an extra £80 million in revenue by the end of next season.
The manager of Real Madrid believes that big signings such as Bale will eventually pay their own way in merchandising sales. For instance, following the purchase of Ronaldo from Manchester United in 2009, the club announced they had made nearly £90 million primarily from shirt sales. David Beckham also contributed to a 67% rise in the sales of merchandise after joining the club.
Despite not having any guarantee that a players time at the club will be successful, Real Madrid’s record proves that all big money transfers have eventually provided them with a substantial return.
So has anyone lost out?
When Southampton sold Bale to Tottenham in 2007 for £7 million, a sell on clause was placed in his contract meaning the team would benefit from 25% of the transfer fee if he was ever sold on by Tottenham. When Southampton got into financial difficulty, they allowed Tottenham to buy out the sell on clause for £3 million and goalkeeper Tommy Forecast. In hindsight a bad decision, given that contractually Southampton would have been entitled to £20 million if they’d not sold the buy- back clause.
While Southampton clearly could not have ‘Forecast’ the scenario of events that have now played out, the situation with Real is sure to have caused a few ‘real’ headaches on the south coast!
If you have any contractual or investment legal queries, get in touch with our commercial team today on 01206 835230 or at [email protected]
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