SPECIAL REPORT
By Kris Voakes & Ben Hayward
"For the 10th consecutive year, Real Madrid will be the highest earning sports institution in the world. And, for the third year running, Forbes considers us the most valuable club," boasted Florentino Perez in announcing the club's financial figures for 2013-14 in September.
As statements go, it was entirely accurate but in many ways incredibly meaningless. What he failed to mention was that Real Madrid posted a debt of €602 million (£477m), a €61m (£48.5m) increase on the previous year.
Borrowing went up by €41m (£32.6m) to €283m (£225.2m), while all financial liabilities now total €459m (£365.2m) as opposed to €396m (£315.1m) some 12 months earlier. Gains made on accruals, costs to public administration and other provisions did little to eat into the total debt of €541m (£430.5m) in 2012-13, meaning the club continues to lose money.
Perez has regularly claimed that the debt is much lower, citing only the near-€100m (£79.6m) owed to banks. But there are also huge fees against Madrid's name in debits to clubs, sporting institutions, players and public bodies.
Some supporters point to the Forbes-cited debt to value of four per cent - compared to, for example, Manchester United's 19% - as justification for the club's spending, but that doesn't take into account the entire debt, only that owed to banks.
Such figures are not placating all of Madrid's interested parties, with fans groups rightly worried.
"We are concerned that the club cannot meet commitments and future payments which must be met," admitted Carlos Mendoza – the president of Valores del Madridismo, which is made up of club members aiming to preserve the values of Real Madrid.
More pressing still is the short-term debt. Of the €602m in the debit column, €361m (£287.2m) is owed in the next 12 months. In layman's terms, that's Gareth Bale, Cristiano Ronaldo, James Rodriguez, Karim Benzema and Toni Kroos' transfer fees added together.
In reality, it will not take the sale of their five star players to meet the demands of creditors. But the club certainly cannot continue to overspend as they have in recent times. The arrival of Bale from Tottenham played a significant part in the €61m debt growth in 2013-14, while the additions of James and Kroos this summer suggest Perez and the remainder of the board have no issue at all with the club's rising costs.
Madrid currently have working capital of minus €94m (£74.8m) - that is to say the club is owed €267m (£212.4m) but has to produce €361m (£287.2m) from somewhere to pay its immediate debts. That figure will be offset by the sales of Xabi Alonso and Angel Di Maria since the transfer fees paid for James and Kroos will be gradually written off over the course of their contracts, meaning the short-term debt has provided some leeway.
But that does nothing to address the problem over the longer-term, and transfer fees for the likes of Bale, Kroos, James, Isco and Illarramendi are still to be paid. All the while, future earnings are already being traded off.
"The club have two new credit lines, but they've had to use the advertising income and the season ticket sales for the next three or four years as guarantees to the banks, because they don't trust the club... That's not me saying that, it's from the club's annual accounts," Mendoza added to AS.
"They've been pawned basically. Just like when you go to the pawn shop, they give you money and you leave a guarantee, something real. If you don't pay them back, they keep whatever it is you left. Here, if Madrid don't pay back the money, the bank has the right to the money from the advertising income and the season ticket sales.
"Obviously the banks are asking for an extra guarantee from Madrid because they don't trust the club's situation. Under normal circumstances they wouldn't demand it."
The huge debt has been racked up in part due to the club's unparalleled position within sports. Almost nobody else would have been granted a free rein in the market while such large figures remained outstanding. But Real Madrid are Real Madrid, the biggest club in the world with the greatest pulling power, the most incredible strength of brand and countless key contacts across industries outside of football which can help to arrest the tide.
Yet if debt levels continue to rise and the club's future earnings are consistently traded off as capital to allow them to spend beyond their means, the Blancos could be forced to become a PLC rather than a socio-owned club.
You can read there full report here :
https://sg.sports.yahoo.com/news/debt-power-real-madrid-away-being-475m-red-093700171--spt.html
By Kris Voakes & Ben Hayward
"For the 10th consecutive year, Real Madrid will be the highest earning sports institution in the world. And, for the third year running, Forbes considers us the most valuable club," boasted Florentino Perez in announcing the club's financial figures for 2013-14 in September.
As statements go, it was entirely accurate but in many ways incredibly meaningless. What he failed to mention was that Real Madrid posted a debt of €602 million (£477m), a €61m (£48.5m) increase on the previous year.
Borrowing went up by €41m (£32.6m) to €283m (£225.2m), while all financial liabilities now total €459m (£365.2m) as opposed to €396m (£315.1m) some 12 months earlier. Gains made on accruals, costs to public administration and other provisions did little to eat into the total debt of €541m (£430.5m) in 2012-13, meaning the club continues to lose money.
Perez has regularly claimed that the debt is much lower, citing only the near-€100m (£79.6m) owed to banks. But there are also huge fees against Madrid's name in debits to clubs, sporting institutions, players and public bodies.
Some supporters point to the Forbes-cited debt to value of four per cent - compared to, for example, Manchester United's 19% - as justification for the club's spending, but that doesn't take into account the entire debt, only that owed to banks.
Such figures are not placating all of Madrid's interested parties, with fans groups rightly worried.
"We are concerned that the club cannot meet commitments and future payments which must be met," admitted Carlos Mendoza – the president of Valores del Madridismo, which is made up of club members aiming to preserve the values of Real Madrid.
More pressing still is the short-term debt. Of the €602m in the debit column, €361m (£287.2m) is owed in the next 12 months. In layman's terms, that's Gareth Bale, Cristiano Ronaldo, James Rodriguez, Karim Benzema and Toni Kroos' transfer fees added together.
In reality, it will not take the sale of their five star players to meet the demands of creditors. But the club certainly cannot continue to overspend as they have in recent times. The arrival of Bale from Tottenham played a significant part in the €61m debt growth in 2013-14, while the additions of James and Kroos this summer suggest Perez and the remainder of the board have no issue at all with the club's rising costs.
Madrid currently have working capital of minus €94m (£74.8m) - that is to say the club is owed €267m (£212.4m) but has to produce €361m (£287.2m) from somewhere to pay its immediate debts. That figure will be offset by the sales of Xabi Alonso and Angel Di Maria since the transfer fees paid for James and Kroos will be gradually written off over the course of their contracts, meaning the short-term debt has provided some leeway.
But that does nothing to address the problem over the longer-term, and transfer fees for the likes of Bale, Kroos, James, Isco and Illarramendi are still to be paid. All the while, future earnings are already being traded off.
"The club have two new credit lines, but they've had to use the advertising income and the season ticket sales for the next three or four years as guarantees to the banks, because they don't trust the club... That's not me saying that, it's from the club's annual accounts," Mendoza added to AS.
"They've been pawned basically. Just like when you go to the pawn shop, they give you money and you leave a guarantee, something real. If you don't pay them back, they keep whatever it is you left. Here, if Madrid don't pay back the money, the bank has the right to the money from the advertising income and the season ticket sales.
"Obviously the banks are asking for an extra guarantee from Madrid because they don't trust the club's situation. Under normal circumstances they wouldn't demand it."
The huge debt has been racked up in part due to the club's unparalleled position within sports. Almost nobody else would have been granted a free rein in the market while such large figures remained outstanding. But Real Madrid are Real Madrid, the biggest club in the world with the greatest pulling power, the most incredible strength of brand and countless key contacts across industries outside of football which can help to arrest the tide.
Yet if debt levels continue to rise and the club's future earnings are consistently traded off as capital to allow them to spend beyond their means, the Blancos could be forced to become a PLC rather than a socio-owned club.
You can read there full report here :
https://sg.sports.yahoo.com/news/debt-power-real-madrid-away-being-475m-red-093700171--spt.html
