It is not a good time for the fans of Real Madrid seeing their team sinking. This situation calls for many steps that need to be taken immediately to stop further down-slide and start on a path that takes them again to European success.
Stop Playing Politics
It is very unfortunate that such a great soccer club has become marred by internal politics. Incumbent Presidents or aspiring candidates promise outlandish plans to do this and that and buy this or that player only to win the presidency or accomplish their personal agendas. They poke their noses where they have no business and interfere in the affairs of other officials, specifically the coach.
It has got to be the first step that presidents stick to their job description and do not play politics or meddle where they do not belong.
Now that Florentino Perez has announced his bid for the presidency there are rumors that he will bring back his famous Galacticos Policy of singing big stars, at least one, every year. While this may win some fans and seem like a good marketing ploy it is no guarantee of securing results and team cohesion. Conversely presence of big names with big egos can diminish the team's ability to perform well.
Buying Galacticos on exorbitant prices also damages the finances of the club.
Such measures will be detrimental to the finances of the club in prevailing financial situation.
Rebuild the Team
There are both short term and long term steps to rebuild. To begin with, sell players that are not performing or are past their prime like Raul, Guti, Heinze, Salgado, Cannavaro. Saviola should be sold because he is not being used. Couple of young players who are talented but are underperforming can be loaned out so they get some experience and develop their skills. Faubert was also a useless signing.
Club needs to buy a playmaker who can make things happen and create opportunities in the field. Franck Ribery can be a good choice in that. To shore up the leaking defense players like Raul Abiol, Phillip Lahm or Vidic should be considered. Loaned out players like Ezequiel Garay, Esteban Granero and Alvaro Negredo should be brought back instead of signing expensive players.
Youth system of the club must be developed to develop new talent. There hasn't been much efforts going into that. It will save club large sums of money which otherwise would be spent on expensive signings.
Powers of the Head Coach
This is one hot-seat job. Presidents hire and fire coaches in rapid succession which destabilizes the team in turn affecting its performance. Coaches must be appointed for the long haul and given powers and freedom to purchase and field players of their choice. In the end they are the first one to take the fall if team performs badly.
Because of this I do not think any renowned coach like Arsene Wenger, Carlo Ancelotti or Jose Mourinho would be interested in or willing to accept the job of coach. And rightly.
This is the buzzword. Such instability is not seen happening at any other big club. Changes happen all too frequently and abruptly at the club. Politics destroys the club from within. Enough powers are not delegated to the appropriate person namely coach.
Plan a future strategy and continue with it. Do not overreact to any bumps along the way.