Economy Essay No. 4: Real Madrid & Recession

"Real Madrid & Recession"

By Tom Binder.

This article was not in the first place written for an assignment. I like to write about things that I enjoy. In this specific situation that is the beautiful game of football! When I was thinking about a subject for a new blog post, I thought of the recession. This might seem like an obvious choice, as the recession is everywhere! Almost our entire society suffers from the economic crisis. Right?

Than I started daydreaming. While I lost my focus and my thoughts were sailing away to other directions, one of which the Champions League match that I would be watching in a pub later that night, I started thinking of the financial aspects of football. How does the recession affect the world of football? Since that most football clubs are either owned by or sponsored by big companies, the recession must be notable in their financial status. On the other hand, a few clubs are owned and funded by rich foreigners that got their money through oil. Those clubs might have a little less financial difficulties since the price elasticity of the demand of oil is very inelastic.

I continued my daydreaming again. I remembered the absolute bizarre financial status in which the Spanish royal football club Real Madrid has been for the past couple of years. I decided to google some information on their current financial position. The facts I stumbled upon are quite terrifying.

Real Madrid had been wrestling with their financials for the past couple of years. When they sold their entire training complex in 2002, which had a value of an astonishing 500 million Euro (about £ 445 million), the club used all that money to get rid of their debts with the banks. The debt they had with other clubs, for social revenues and for supplies, was still standing. On June 30th 2008, the total debt Real Madrid had, was 511 million Euro. With the arrival of a new club President on June 1st 2009, the debts of Real Madrid became even bigger.

Florentino Perez was responsible for the incredible new signings that Real Madrid would commit later that summer. Another 300 million Euro would be put to use to attract a handful of new players. Even though the real formula will be much more complicated, it does not take a mathematical genius to add those 300 million of debts up to the previously stated 500 million. However, I found one who did. José Maria Gay, Economics teacher at the University of Barcelona, presented a research which concluded that the debts of Real Madrid passed the 800 million Euro. I find this really amazing, especially in these times of recession!

Please note that I am aware of the fact that Real Madrid surely is not the only football / sports club that spends a lot of money in these times (think of Manchester City & Chelsea), but it certainly is a perfect example!

What is it that makes football clubs think they have the right to spend such incredible high amounts of money in these times. Times in which our entire society is in need of money! Especially if the money isn't even their own, but loaned from the banks! Should there be more strict rules when it comes to buying and selling players? Especially rules that state a maximum amount of money that may be spend by a club in a given period of time? In my opinion this would be the perfect way to make an end to these ridiculous transfers! That money could be way better spend by stimulating our economy! (How? That is a completely different subject)

In the past couple of weeks, over 100 - especially smaller - football clubs all over Europe, in cooperation with UEFA, agreed on an act of Financial Fair Play. This act states that all participating clubs are no longer allowed to spend more money than they produce. This would mean no more debts. However, at this moment, Real Madrid has not (yet) participated in this act...

Initiatives like these are the basics for a better world of football and a better economy. In my opinion, these initiatives should be turned into strict rules, in order to prevent such a waste of money by big football clubs.

The recession is not something to think lightly of. I really think that the big football clubs and especially Real Madrid should stop wasting loaned money in the way they do right now!

This money could be put to a way better use...

Sources:

http://www.fanatiek-fcbarcelona.be/nieuws/2455
http://www.guardian.co.uk/football/2009/jun/16/real-madrid-loans-debt
http://en.wikipedia.org/wiki/Real_Madrid_C.F.

http://www.sportweek.nl/voetbal/109245/Real_Madrid_kampt_met_torenhoge_schulden