REAL MADRID CLUB DE FUTBOL

Case Study
by Kurt Eschbacher

ABSTRACT

The case study is about one of the best known and best playing soccer
team in the world, Real Madrid.
It tries to backlight the myth of soccer and the tremendous merchandising
system behind soccer. Especially the era of Florentino Prez, who brought
a new dimension in managing and merchandising soccer clubs to Spain,
will be analyzed in detail.
SOCCER THE GAME

What makes a team like Real Madrid so interesting for sponsors and fans
worldwide? What makes soccer so interesting for us?
Soccer is the worlds most popular sport. Nearly every child kicked a
soccer ball once in his live. More than 240 million people play at least once
a week.
Such a big sport needs a big parent organization in its background. This
job is done by the FDRATION INTERNATIONALE DE FOOTBALL
ASSOCIATION (FIFA). The FIFA which was founded 1904 in Paris established
a unified set of rules. This rules are easy to understand and are of course
one of the reasons why soccer is so popular all over the world. Also the
time a soccer game lasts is defined by the FIFA, its two halves of 45
minutes split by a 15 minute brake. In elimination games an overtime of
two times 15 minutes and also a penalty shoot-out at the end of overtime
is possible. This is a big advantage for sponsors and TV broadcasts
compared to other sports like American football or boxing where the time
for a game or fight is nearly unpredictable. You can have 12 rounds of
barn-storming fight or a knockout after 10 seconds. At soccer games they
can calculate and time their spots and broadcasting exactly. There is also
the FIFA World championship which is the second largest worldwide sport
event beside the Olympic Games. In 2002 the FIFA World championship
had a cumulative audience of 28 billion viewers over 25 match days. This
huge audience is another reason why soccer is so interesting for sponsors.
The European soccer is organized by the UEFA and its 52 national
associations. The UEFA Champions League is the mayor seasonal
competition for the best European clubs and the stage for teams like Real
Madrid and Manchester United.
SOCCER THE BUSINESS

In the past gate receipts were the most important income for a soccer
club, also for professionals.

But in the 1990s a change of business model went through the

professional soccer teams in Europe.
In Europe the hosting club of a soccer game receives all the gate receipts.
Another source of income is local sponsorship. But the new merchandize
model targets a worldwide audience. Manchester United for example was
able to allocate 45 million supporters worldwide. Compared to the 6 million
supporters in their own country this was a totally new market with huge
chances. To supply all different target groups of fans they set up sub
brands like Fred the Red for children selling T-shirt, balls etc, MUFC for
teenagers selling products with attributes of rebelliousness friendship.
Red Devil targets adults and give taste of leadership and winning to their
customers in a higher price segment. Another very important platform for
soccer fan is the homepage of their favorite clubs. For example a user
registered to manutd.com will spend about 1500 for games and
promotion products in a lifetime.
ECONOMIC BACKGROUND OF REAL MADRID

In Spain soccer is the most popular sport. There are 620 000 active players
playing in over 10000 soccer clubs. Professional soccer is organized in tree
national leagues. Real Madrid and FC Barcelona are the biggest clubs.
They won nearly two-thirds of the national championships. Soccer is more
than just a game in Spain its a passion and if you support a team you
support it for lifetime. Because of these facts soccer is such a big business
in Spain.
Real Madrid was founded in 1902 by a group of Spanish soccer fans as
Madrid Foot Ball Club. In the 1920s the King of Spain granted the title of
Royal to the club Real Madrid was born. Santiago Bernabeu a former very
famous player became president of Real in 1943 and herald a new era. By
selling fan-bonds he financed a huge stadium for 75000 people, the
Bernabeu Stadium. Bernabeu spent a huge amount of money to bring the
best player in the world to Madrid. The result was a series European Cup
titles. Real became the best known soccer team in the world. After the
dead of Bernabeu in 1978 there was a decline for nearly two decades.
The new club manager Sanz started a kind of a closing sale to raise
capital. He sold players, several core assets like media rights and stadium
exploration rights. He also signed longtime contracts for VIP areas and
sponsorship to really bad conditions.
Another aspect was the Bosman case in 1995 which leaded to a big
change at the European transfer market. Real Madrid still spent nearly
85% of revenue for player salary and transfer-fees. This cost had to be
covered by the different income sources. The 2000 revenue of Real Madrid

was about 138 million and resulted from 42 million match day income,
45 broadcast and pay-TV fees, 39 million marketing income and about
19 million from international competition.
On the opposite side there had been costs of 161 million. The result was
a loss of 23 million.
THE ERA PEREZ

In 2000 Florentino Prez took over the management from Lorenzo Sanz.
The club was competitive in soccer but in financial straits. Perez was the
first who really recognized the potential of Reals popularity all over the
globe. But the marketing and operational strategy did not match the
reputation in sports. Mr Albornoz the managing director of finances and
legal affairs mentioned a missing mission for the club as one of the
problems in managing REAL. The goal was to manage the soccer club like
a professional organization and make decisions based on facts and not on
emotions. Perez restructured Real Madrid based on his experiences in
running a huge Construction Company. The mission statement was defined
as being the best soccer club in the world.
The four brand drivers are:

Size of audience
Frequency which the audience engaging with the brand as a
measure of commitment
Sociodemographic characteristics of the audience
Bridges that could be built to link the brand and the audience.

Illustration 1

The challenge of Perez and his team is to give REAL the finical flexibility to
acquire talented player and expand the range of the brand. They have to
assemble a team top player and increase the value of the brand.
To afford such a financial flexibility, Perezs set up a tree step program. The
first step was the disposal of REAL sold training pitches to private

investors and to the government. This measure added 500 million over 3
years to the clubs budget. Second was the buyback of exploration rights.
His parent signed a ten year contract for 100 VIP boxes for a very low
yearly fee. Perez bought them back for 16 million and doubled them to
200 boxes. The yearly income from renting these VIP boxes is
16million/year.
The setup of a stand-alone legal entity called Sociedad Mixta to manage
all REAL rights except the audiovisual ones was another step to allocate
money. The Sociedad Mixta was managed by the clubs marketing division.
A percentage of the income was directly paid to Real Madrid. Shares of
Sociedad Mixta were sold to important companies in Spanish media
business and increased the income.

TEAM GALAGTICOS

Now Perez was able to neglect his promise. Before the election Perez
promised to bring Luis Figo from Barcelona to Real. This was the beginning
of team Galagticos. The target was to buy at least one world-class player
per year. One of the biggest deals in history was the transfer of David
Beckham from Manchester United to Real. This was the biggest TV event
in Spain beside the funeral of Princess Diana. More than 1000 journalists
took place at the press conference. Real sold 8000 Beckham shirts for 70/
piece the first day. Real started a promotion tour through Asia and profited
from the popularity of Beckham there. The tour netted more than 8million
and was also part of the new marketing strategy.
Real Madrid also set up its own TV station and redesigned the clubs
homepage RealMadrid.com. With 1.4 million visits each month in 2004 it
was the biggest fan platform in the internet and a step closer to the target
getting a one on one relation with fans.
Also the target to reduce staff costs to 70% of revenue was reached.

Illustration 2

The marketing department also set up contracts with sponsors like

telefonica and Addidas. The focus was to find big, but not too big, partners
to avoid the domination of a single partner.

Illustration 3 Perez

Perez turned Real Madrid into a well structured modern company without
losing the focus of being the best team in the world. He increased
Marketing income from 39 million in 2000 to 142 million in 2004 and
earnings before tax from a loss of 23 million to a gain of 71 million.
He retired 2006 and Ramon Calderon became new president. Real again
went into trouble and sold well known player. Also their success in sport
decreased.
But real Real Fans will always support their club.