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Is Real Madrid’s €100 million Gareth Bale deal a financial folly?

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2.42K   //    10 Sep 2013, 08:19 IST
MADRID, SPAIN - SEPTEMBER 02:  Gareth Bale (R) poses with Real Madrid's President Florentino Perez during his official presentation as a new Real Madrid player at Estadio Santiago Bernabeu on September 2, 2013 in Madrid, Spain.

MADRID, SPAIN – SEPTEMBER 02: Gareth Bale poses with Real Madrid’s President Florentino Perez during his official presentation as a new Real Madrid player at Estadio Santiago Bernabeu

The Spanish giants have been subject to sustained criticism over the exorbitant transfer fee ever since they announced the long-anticipated signing of the Welsh wonder earlier this month.

Barcelona coach Tata Martino and star midfielder Xavi, Arsenal coach Arsene Wenger and Borussia Dortmund coach Jurgen Klopp are just a few personalities who have publicly lambasted Real Madrid for the transfer.

The most common argument is that spending €100 million (91 million if you believe Real Madrid) on a single football player is morally reprehensible at a time when Spain’s economy is floundering with millions out of work, while Real Madrid is itself heavily in debt.

But while spending nine figures on a player who has never won a trophy in his professional career may be a questionable decision, Real Madrid will argue that they are a private institution free to take financial risks as they please.

Let’s also not forget that the galaxy of stars at Real Madrid and Barcelona represent one of Spain’s most important tourist draws. This writer can attest to that fact, having traveled to Spain last year and shelled out a small fortune to watch Real Madrid play in their iconic Santiago Bernabeu stadium.

Real Madrid is at present the most valuable sports team in the world, recently valued by Forbes magazine at an eye-watering €2.5 billion. And they didn’t get there by throwing money around without a care.

While the club is an estimated €590 million in debt, that figure is deceptive as much of that debt is long-term and carefully managed. In other words, Real Madrid’s ability to consistently reap big returns on their investments helps keep their debt in check.

Indeed the club’s revenue-generating abilities are astonishing, with TV rights deals, sponsorships, gate receipts and merchandise sales contributing to a revenue of €517 million last year, making Real Madrid the only sports team in the world to generate an annual revenue over €450 million.

It is this awesome money-spinning capacity that allows Real Madrid to spend big while still being well within UEFA’s Financial Fair Play regulations, which seek to curtail reckless spending by clubs by using the threat of penalties such as competition bans on clubs that fail to adhere to regulations.
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