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Real Madrid – 1st Case Assignment
The following answers are based on the case materials “Real Madrid Club de Futbol”, “Real Madrid Club de Futbol in 2007: Beyond the Galacticos” and the links in the footnotes.
1. What differentiates Real Madrid from other Soccer clubs?
One thing that differentiates Real Madrid from other top soccer clubs is that Real Madrid is owned by its members while most other top club is owned by shareholders (investors). Another difference is that Real Madrid were quite early to realize the importance to serve as a marketing vehicle all over the world rather than just a soccer club compared many other soccer clubs. This was especially under the management of Perez Real Madrid as a brand and business got in focus. This meant that Real Madrid became a real business and that the management managed Real Madrid as a business rather than just a soccer club. The performance of Real Madrid as a soccer club is still key to the performance of the business though.
2. What provides the revenue stream from which the club benefits?
About one fourth of the income in most top clubs is generated on match-day from such things as sponsorships, television rights and merchandising revenues. Revenue depends largely of the clubs participation and performance in major competitive events such as the European Champions League for instance. Below are listed four types of revenues the club generates and what it basically consists of: * Match-day: Gate receipts are an important, but declining source of revenue. * Merchandising: Includes sales of branded goods such as soccer jerseys, mugs, caps, and watches. Merchandising income ranges from 5-20% of total revenues for a typical national league team. * Sponsorship: Sponsorship form major corporations could account for up to 15% of a top club’s revenue. These sponsorships comes from major corporations such as Nike, Vodafone. Current sponsor of Real Madrid is Emirates. Sometimes top players also receive sponsorships which the club might get a cut of ass well. For instance Real Madrid received 50% of Beckhams sponsorship. * TV rights: Back in 1990s TV rights displaced gate receipts as the single largest source of revenue for many clubs.
3. Explain the governing body of Soccer, how is different from the US sports leagues?
One major difference between soccer and the US sports leagues is that the playing time of the game is quite predictable and shorter than for instance American Football. American Football games can last up towards three hours and the exact game time can be hard to predict the same for American Baseball. A soccer game typically lasts two times 45 minutes so it is both shorter and easier to predict the game time.
Another major difference between especially the European soccer league and the US sport leagues is that the European soccer leagues competes under terms similar to the free market principles – which means that the clubs earnings and performance benefits only the club itself. This is way different than in the US where the model is characterized by some redistribution of economic resources and player talent to maintain competitive balance.
4. What constitutes expenses for a Soccer club and what are the problems for most clubs related to these expenses?
Professional soccer clubs has to cover fixed costs and finance talent acquisition and retention. These costs consist of among other things the following: * Build and maintenance of own stadium or rental fee for stadium leasing plus a cut of the gate receipts * Player fees 125% of revenue in Italy, 85% in Spain, and 75% in England
It is of course a problem when expenses exceeds revenues as for the Italien clubs, where we see that player fess is 125% of revenue which isn’t durable in the long term.

5. Explain transfer fees and its impact on the public share offers of clubs.
A transfer fee is a fee paid to the club which has a contract with a player that has not expired. The fee is paid to make this player play for the “fee paying” team instead. When a contract is expired a player can be turned into a free agent and the club has no rights to receive a transfer fee.
When the soccer clubs got public and received money from its shareholders the clubs didn’t focused on creating value for its shareholders as investors expected. Instead they used money received from investors and potential earnings to pay transfer fee and salary to good players that could strengthen their team and secure the club good league standings. Furthermore clubs could also sell a player for a transfer fee that could be reinvested in the team.
6. Describe the phenomenon called Galacticos and the impact it has on the bottom line.
“Los galacticos” refers to the galaxy of international and Spanish talents at Real Madrid in the 2000’s that included Zidane, Beckham, Figo, Ronaldo, Raul, Roberto Carlos and Iker Casillas. All galacticos players had the same annual salary.
The world class players that “los galacticos” consisted both benefited the level of soccer Real Madrid was able to play but also the bottom line, as these world class players attracted lots of attention from fans and media. Furthermore these players were able to attrached large sponsorship all by themselves, which Real Madrid got a 50% cut of.
7. Branding, content and market positioning are not often associated with soccer clubs, particularly International clubs. What is the importance of these terms to the Real Madrid franchise?
Under the management of Perez one of his first moves were to buy back everything that was related to the Real Madrid brand as Real Madrid wanted to control all its content all the way from selling to distributing it.
This meant that Real Madrid got its own TV station, website etc. Furthermore Real Madrid wanted to turn its fans into Real Madrid customers. One of the ways this was done was by offering Real Madrid fans different types of memberships and member cards that gives the members several benefits and discounts. Real Madrid managers believed that these initiatives strengthened the Real Madrid brand, which in turn increased the value of Real Madrid “content”.
8. Why is International expansion important to Real Madrid? What are their plans to implement these goals?
It is key to continued growth and the Asian and U.S. market has great growth potentials, for instance has Real Madrid’s marketing department estimated that the U.S. market could be worth as much as 45% of global sports merchandise returns.
Real Madrid’s strategy to enter the U.S. was four-pronged and consisted of the following steps: 1. Take advantage of the club’s increased global brand equity 2. Capitalize on the club’s assets by generating returns in the U.S. market 3. Create a virtuous cycle in which economic returns strengthen the brand in the US and vice versa 4. Deploy assets in such a manner that the club establishes a foundation at the grass-roots level
Furthermore a U.S. tour was planned for August 2004 similar to the Asian tour
9. Discuss recent UEFA Financial Fair Play Regulations and how has Real Madrid's player strategy evolved throughout the past decade since the case. What does the future look like for them and the other major international soccer clubs? (Barcelona, Man U, Arsenal, etc.)
UEFA Financial Fair Play Regulations is about improving the overall financial health of European club football. With these regulations UEFA tries to make sure that European soccer clubs don’t spend a lot more than they earn and issues too much debt.
When Ramon Calderon was elected for president for Real Madrid the strategy of Real Madrid changed in that sense that Calderon didn’t only want to buy star players. He wanted younger players that could benefit the team for at longer period of time and besides this his model focused less on individualism, and more on the team. The players would now be up to 10 years younger when they were bought compared to the age of the players bought under the management of Perez.
This strategy has been a great success and Real Madrid has after the case won several big titles such as the European Champions League in 2013-14, the Fifa World Cup in 2014, the European Super Cup in 2014 and La Liga (national league) in 2011-12.
The future for European soccer looks bright – there is an increasing interest in the sport both in Asia and the US which is a great income potential for the sport and might bring to sport to an even higher level.

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[ 2 ]. http://www.emirates.com/english/about/emirates-sponsorships/football/real-madrid/real-madrid.aspx
[ 3 ]. http://www.uefa.com/community/news/newsid=2064391.html
[ 4 ]. http://www.realmadrid.com/en/about-real-madrid/honours/football