Football crazy as United agree world record Ronaldo transfer

Cristiano Ronaldo is on the verge of a £80m transfer to Real Madrid. Where's this money coming from?

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Last Updated: 31 Aug 2010

Football club Manchester United announced this morning that they’ve accepted an ‘unconditional’ offer of £80m – that’s a staggering €93m – from big-spending Spanish giants Real Madrid for their star player Cristiano Ronaldo. If it goes through (and it’s expected to do so before the end of the month), it will set a new world record, even by the ludicrously inflated standards of football transfer fees. Given that Real have just completed the €65m transfer of Kaka from AC Milan, that means they’ve just spent nearly €160m in a week – plus wages – on just two players. At a time when the Spanish economy is in a worse state than ours. What on earth is going on?

In the early part of this decade, Florentino Perez was elected Real president, and instituted the notorious 'Galactico' era – splashing pots of cash on superstars like Zinedine Zidane, Ronaldo (the fat Brazilian, not this one) and David Beckham, to try and boost the worldwide Real brand. And in some ways it worked: revenues have more than doubled since 2002, with commercial income and TV money both soaring above the £100m mark – making Real the world’s richest football club. Admittedly this expensively-assembled team didn’t actually win much, but now Perez is back as President, and he’s trying the same thing all over again.

Admittedly, these two fees alone are equivalent to about 40% of Real's annual revenues. But it seems that when it comes to football – and particularly Real Madrid – normal rules of business and finance just don’t apply. Millionaire Perez doesn’t even fund these deals himself (unlike Roman Abramovich at Chelsea, say); instead, Real just borrows the money off some pliant banks. You’d think that given the recession has been even more painful in Spain than in the UK, this might be tricky – but in Real’s case, the banks just keep racking up the loans, apparently at ludicrously low rates of interest. The club already has enormous debts of nearly €500m, but nobody seems too worried by the prospect of this spiralling upwards.

Indeed, the Spanish authorities have always been ‘friendly’ to Real, which they appear to see as some kind of symbolic national asset (like Fiat has always been in Italy). When Perez was last in charge, he managed to slash the club’s debt by selling Real’s training ground back to the local authorities for a vastly inflated sum, who promptly leased it back to them on the cheap. Handy. Also, Spain taxes foreign players at just 23% - while in England, our top earners are about to start getting fleeced for 50% of their income (and are already starting to agitate for pay rises as a result). So that £100-grand-a-week pay cheque goes almost half as far again in Madrid.

But as the clubs’ debts mount – and these deals will inflate fees and wages across the board, making the problem worse – it’s a bit hard to see how they’re going to keep generating the extra revenue they’ll need to service them (unless they take Man United's route of squeezing zillions out of Real, for a player who was agitating to leave). Not many will be able to rely on such helpful state support – and even Perez will run out of family silver to flog eventually. It looks for all the world like a financial bubble about to burst - but there's nothing new there...

 

In today's bulletin:
The recession is over, says think-tank
Football crazy as United agree world record Ronaldo transfer
Sun shines on Homebase sales figures
Editor's blog: Fat cats who gorged too long?
Monster ray of hope for managers

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