Real Madrid Needs a New Goal
Via cash and glamour, Florentino Pérez made his soccer club a sensation. Now on a losing streak, can it get income kicking again?
Over the past two decades, Florentino Pérez has succeeded at transforming ailing Catalan building company ACS into the undisputed leader of Spain’s booming construction industry. The company (formerly known as Construccines Padrós) boasts 107,000 employees and annual revenues of 11 billion euros. But his performance over the past five years as president of the Real Madrid soccer club isn’t as impressive.
Just days after his election as president in 2000, Pérez began snapping up some of the world’s best players at prices that took the soccer world by surprise. By 2003, Pérez had converted Real Madrid into a team of international stars and one of the strongest brand names in the sports world. Fans from Yugoslavia to Argentina bought shirts and other team merchandise.
That wasn’t all: Pérez also made his mark on the financial front, eliminating the club’s 270 million euro ($327 million) debt and boosting revenues to record levels.
A “FIASCO.” But in the last two years, Real Madrid has failed to win a single title. It has lost key games to mediocre rivals. Its now-aging stars often look slow and lackluster on the field. Fans have grown depressed, and three trainers have abandoned the club in a year, raising serious doubts about the Pérez model of paying big money for big names.
Is the Real Madrid brand strong enough to save the club from oblivion even if the team doesn’t win?
Revenues in European soccer traditionally correspond to a club’s record. “With the budget they have and the players they’ve bought, the fact that they haven’t won anything is a real fiasco,” says Luis Beneyto, a 39-year-old Spaniard and a Madrid member since he was 18 months old. (Real Madrid is owned by its 85,000 members, who pay annual dues and elect the club’s president once every four years.)
Pérez’ first high-profile purchase was Portuguese midfielder Luis Figo, for $56 million. Before he became president, Pérez had pledged to sign up Figo, promising to reimburse season-ticket holders some $8.5 million if he failed. Pérez won the election, Figo went to Madrid, and the squad won the league title in 2001 for the first time in four years.
BAGGING BECKHAM. Soon after, Real Madrid signed up French star Zinedine Zidane from Juventus of Italy for a record $66 million. Madrid beat out Bayer Leverkusen to win the Champions League in 2002. Later that year, the team signed Ronaldo, the Brazilian superstar from Inter Milan, for $44 million, before going on to win the European Supercup and the World Club Cup in 2002.
In 2003, Pérez made his most spectacular move: He signed 28-year-old international sports and fashion icon David Beckham for $41 million. The day of Beckham’s formal introduction to the press, the club sold 8,000 of his jerseys for 62 euros to 78 euros a shot, and Real Madrid suddenly founds itself in the limelight the world over. Thanks to Beckham, Real Madrid conquered the Asian market on a 17-day 2003 tour through China, Hong Kong, Thailand, and Japan, playing to sold-out crowds everywhere. In Japan, the club sold $210,000 worth of jerseys during just one of the club’s training sessions.
DEBT ERASED. “Each of the big players brought his own fan base,” says Jose Luis Nueno, a professor at IESE business school in Madrid. Nueno points out that Beckham was big in Asia, Britain, and to a lesser degree, the U.S., while Zidane had popularity in France and North Africa, and Ronaldo was a hero in the Latin American market. But the victories in the stadium were only part of the story. Off the field, too, Pérez was scoring some top goals. In 2001, the construction magnate reached a complicated deal with Madrid city officials to sell the team’s training grounds — 120,000 square meters located on a prime site in the city center — for around 500 million euros, more than enough to pay off the club’s 270 million euro debt. Some land was donated to the regional and city governments for a public park and sports pavilion for 20,000 spectators.
Under Pérez, Real Madrid created an independent legal entity to own and manage most of the rights to team merchandising, sponsorships, online business, videos, and international development.
Shares of the new company, which pay a percentage of its income to Real Madrid, were sold to leading Spanish companies.
NEEDS NEW TALENT. From there, Pérez began an unprecedented marketing blitz. The squad traveled the world over, and its players turned into household names. The money they made from sponsorships and ad contracts far exceeded their income from soccer. Real Madrid sold thousands of jerseys worldwide, and the club’s revenues shot up to an estimated 233 million euros ($282 million) in the 2003-04 season, from 138 million euros ($167 million) three years earlier. Analysts say revenues are expected to exceed 300 million euros ($363 million) in 2005.
But many fans worry that Pérez is now more concerned with marketing than with the team and its needs. To resume its winning streak, the club will have to sign on talented younger players hungry to win. “With their big, long-term contracts, the Real stars have no incentive to play,” says Jose Luis Izquierdo, a former physiotherapist with the club. “The team needs new blood.”
But no matter how disappointing the club’s recent performance, its fans aren’t likely to jump ship.
“Real Madrid is special,” says club member Beneyto. “No member is going to abandon the team just because it doesn’t win.”
José Luis Nueno opinion citation in Carlta Vizthum’s article published in BusinessWeek, June 27th, 2005
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