July 1,09
Ronaldo was unveiled as a Real Madrid Player which ended the longest transfer saga and made it the biggest transfer in football history. Unites were payed 80mil pounds and Ronaldo's an
nual salary will be around 11mil. When I put up the status in gmail/fb/orkut and other networking sites about roanldo leaving and how happy i was he leaving united(because now other players like rooney, fletcher, park can play freely) my cricket frenzy friends asked me a question "Where does Real Madrid get so much money to invest? They must be in so much debt? "
It made me ponder over the question as to how do they manage to get so much money out even in the economic crisis breaking all transfer records and spending around 183 mil pounds on transferring players to their club. And Why do Real manage to get
the players while SAF and other managers have to work so hard to get a big signing? I came up with the following reasons that majorly affect the decision
1. United have to operate in a high taxation country with a 50% top rate of tax for high earners. European players prefer to negotiate their contracts ‘netto’ – tax is the clubs problem. So United would have to smash their pay structure to match Real 'netto', which they can't.
2. European players and clubs will want to negotiate in their familiar currency: Euros. United's income base is Sterling, and much weaker to Euros than a couple of years ago. So European deals now costs United much more. Real use the Euro so weak currency exchange doesn't hit them when they negotiate for players in Europe.
3. It’s been mentioned time and again in these forums, but Real play by different rules. The banks in Spain treat Real as an institution. No bank would impose too high interest rates, or deny Real financial flexibility which would not be offered to other businesses. When a bank works with Real it's good for the bank’s image.
4. Even before the more favourable financial working conditions, Real generate more revenue than United because they handle their own TV rights. United have just as potentially large global TV audience, but United’s TV rights and income are shared as a package with other Premiership clubs.
Real then give their players ‘commercial rights’ for a proportion of shirt sales and merchandise, so top players can get around 40-50% of the commercial sales as part of their contract.
So, four-nil to Real on financial advantages.
5. Britain is set apart geographically and culturally. This may not be a factor if United were competing for a player’s signature against a lesser club than Real, but when a player is choosing between two of the biggest clubs, then issues like this add to their quality of life for them and their families. France (Benzema), Portugal (Ronaldo) are a few hours drive from Spain. No airports, flights, delays, passport controls, and hassle. Mainland Europe really is ‘sans frontiers’ – without boarders – nowadays.
6. The glamour factor. United may be the biggest club in terms of global fan base, but how many United fans turn up to see a major new signing presented? When Ronaldo was presented,
80,000 people came - 80,000! Would any employer in Spain fire an employee for taking the day off work to join those fans? Unlikely, the boss is probably a season ticket holder too. David Putnam the film director commented that not even a star like Tom Cruise could dream of attracting such a crowd as Real’s new signings can get. What player would not be attracted at the prospect of the welcome and adulation which signing for Real can deliver?
Now comes the big question as to how really does Real manage to get so much money ?
Many people keep saying that Real Madrid is economically supported by Spanish government, which is totally untrue. Spanish government DOES NOT support Real Madrid in any way. Real Madrid can economically sustain by itself as an INSTITUION that belongs to its associates. The club is supported ONLY by associates, TV revenues, ticket sales, sponsors and Player Marketing (shirt sales and the like).Back in his previous galactico era when Perez signed the likes of Ronaldo, Figo, Zidane and Beckham, Real paid royal prices for these players but they were never in financial trouble despite outlaying the sums. This was because Perez made successful brand
s out of them, especially Beckham. At Real, the galacticos are encouraged to promote themselves as brands, rather than just football players. This helps in their merchandise sales, especially shirt sales. Also, Perez had no qualms in letting his galacticos embark on personal marketing activities which can indirectly increase Real Madrid's exposure to the world and boost their income through sponsorship and business partnerships.
I think for next season, Perez will be doing the same with the likes of Ronaldo, Benzema and Kaka. From business point of view, the model that he had in place is certainly a great one as the legacy that these players left behind can still be felt even when they decided to leave. The money which they help to generate not only covers for the transfer fees and salaries but also boost
Real's transfer kitty for the next galacticos.
The case of Manchester United is quite different. OUR fans and associates don't support team in other way than buying shirts, tickets and merchandise. The team is owned by a rich american family (the Glazers) so basically we
could say Manchester United is more like a company. So, while United pays for signings from the pockets of owners or the profits, all the Madrid signings have been financed by bank loans.Now, as far as mney generation is concerned here is a small stat to give a feel as to how real gets its money, Industry publications believe the 360 tour by U2 could earn Bono & co. as much as $400 million, while Real president Florentino Perez is banking on Ronaldo and fellow new signing Kaka shifting enough shirts and other merchandise to maintain the club’s place at the top of the rich list by earning far more. No doubt they will be back next summer with their huge transfer kitty.To get it short nd imple Real Madrid is the biggest brand in the game, maybe in all of sports. And it knows how to exploit that fact.
I just happened to stumble upon the tax scheme that the players in Spain njoy which is a major reason for them to shift to Spain."Since the year 2004 that was approved by the Spanish government a special tax scheme for workers abroad, called the "Law Bechkam" (for the match when the Real Madrid player contracted), Spain has become a tax for the soccer players. This scheme provides that foreign workers with tax residence in the country, benefit from a decrease in the rate on their income of, normal 43% to only 24% over a period of 6 years."
Through this tax incentive, any player who plays in Spain and abroad that the country benefits from the income tax much less than other European countries in practice, to disadvantage the other European leagues regarding the hiring and payment of salaries to competitive players.
Country Rate Monthly Annual
England 40% (a) € 375,000 € 4,500,000
Spain 24% (b) € 475,000 € 5,700,000
Italy 43% € 356,000 € 4,275,000
Germany 45% € 343,000 € 4,125,000
France 40% € 375,000 € 4,500,000
Portugal 42% € 362,000 € 4,350,000
Netherlands 52% (c) € 300,000 € 3,600,0
Notes:
(a) The rate in England rose this month from 40% to 50%, largely due to the discomfort of the government in relation to the high salaries of players.
(b) In Spain redisentes foreigners enjoy a reduced rate of 42% to 24% during the first 6 years of residence.
(c) In the Netherlands there is an exemption from tax on 30% of total income in the first 10 years for all citizens.
All this just gives an idea of how the players have an added monetary advantage to play in Spain and the reason why Real Madrid with the use of its Brand, History has been able to create a trust and hence get money to lure the Best Players in the world of their generation to play for them. There is just one glitch .... The Galactico Policy has never worked for Real and moreover the loans Perez is able to generate through his contacts have to be paid back and after the disastrous Perez era Madrid had to sell off their Training Ground to the Madrid Council in return of the debts they had created even though they had just spent 23mil on Beckham and he generated a lot of cash for them.
So it will be interesting to see how Perez era part -2 goes and will it be a bigger disastor that the earlier one ? Will it be the turn of Bernabeau this time? or will he turn it around and get some success which in my opinion is very very tough !!!
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