Why Real Madrid Is So Rich

When Real Madrid’s new President Florentino Pérez announced his massive summer spending spree, the first thought I had was: How can Real Madrid afford to sign superstars like Kaka and Ronaldo? They are not owned by a Russian oligarch or Arab sheikh, so where does Real find the money to outspend everyone?

The reason is Real’s massive revenue stream. Deloitte has named them the richest team in the word for the last four seasons (Manchester United is second) with revenues of €366m (£290m). One large source of revenue is gate receipts. Real have the third-highest average attendance in Europe.

Another huge revenue stream is Real’s TV contract. In 2006, Madrid they signed a seven-year deal with MediaPro guaranteeing €1.1 billion for their domestic league TV rights. That works out at about £135 million a season from their domestic league rights, which is more than twice what United receive.

Another advantage that Madrid has over its European competitors are the tax laws in Spain. Spain’s tax laws mean foreign players pay tax at about 23 percent for the first five years that they are in the country. So if Real wants to pay Kaka £8 million after tax, it would cost them about £10 million a year, whereas it would cost Manchester United £16 million (thanks to the new 50 percent top marginal rate in England).

Over five years, that’s a difference of £30 million on just one player. Multiply that  £30 million by three or four players and it is easy to see why Real can afford the salaries they can.

Finally, there’s Real’s status as, effectively, a non-profit social trust. This means they do not need to generate £30 million a year just to service their debt (like United). Most of Madrid’s dent is held with local banks, many of whom are under political and social pressure not to tighten the screws. Real are too big and too important to fail or to come under the kind of debt pressures that affect traditional clubs. The club’s social, political, and economic significance dwarfs that of any other club in the world.

In that sense, they play by a different set of rules.

Add in Real’s history as being one of the most glamorous teams in the world, and it is easy to see why superstars continue to flock to the Bernabeu.