James Rodriguez Signing Latest Example of Real Madrid's Wasteful Spending

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James Rodriguez Signing Latest Example of Real Madrid's Wasteful Spending
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They've done it again. Colombian superstar James Rodriguez has officially moved from AS Monaco to Real Madrid, and as reported by SportsCenter, the youngster's $108 million price tag puts him among the top five most expensive players of all time, a list dominated by Los Blancos:

Now, it's important I preface this article by saying I'm a big fan of Rodriguez. I love this transfer from a tactical perspective, and I've been saying he was ready for the spotlight from the moment I first saw him play for FC Porto.

The 23-year-old is the complete package, combining phenomenal vision with great technique and the athletic ability to dominate. Rodriguez is already close to world-class level, and he's just scratching the surface of his potential.

He also fits La Liga's open style of play perfectly, as Sergi Dominguez believes:

That said, this transfer isn't right. In the age of supposed Financial Fair Play, Real Madrid simply shouldn't be allowed to spend such an enormous transfer fee on a single player.

Last year, Spanish economist Jose Maria Gay de Liebana calculated Los Blancos' debt for AS, and his conclusion was very bleak. As he told AS' Marco Ruiz:

Real Madrid effectively have a debt of 541 million euros, which represents 64% of its total liabilities. That's a pretty large debt.

And the club has a problem, which is their level of short term debt, currently at 338 million euros, which is greater than their current or floating assets, which total 239 million euros. So that's a negative working balance of 100 million euros.

It's true that Madrid have a large cash flow, 156 million euros at the end of last season. That's all liquid assets. I presume that it has increased since 30 June with the sale of players, but they should not abuse their balance. If you look at Arsenal or Bayern Munich, the two reference points in terms of financial management, they have positive working balances.

Now, this was last season. It's common knowledge Real are riddled with debt, but it is unclear exactly how much debt the club currently carries. What we do know is that the team's debt has been steadily rising for the past decade, and the excessive spending indicates that trend isn't changing anytime soon.

Real Madrid are owned by its members, and Gay de Liebana believes that could soon change if the club doesn't change its financial policy:

No, the fact that Madrid are already have a substantial debt yet have big plans for their stadium could lead to them ending up to their eyeballs in debt, to the point where they would have to be converted into a PLC and start to provide capital. It then remains to be seen whether Real Madrid members are willing or able to provide money, and if not, then a benefactor will have to.

Via AS English, the club's debts have doubled since the start of the new millennium:

This is no trivial matter, but on some level, you can't knock Florentino Perez for continuing on this path.

UEFA's Financial Fair Play system is yet to intervene, and Spain's top clubs are helped by unfair tax breaks (per The Independent's Sam Wallace) and a monopoly on TV rights the Spanish government is just now trying to break (via Bloomberg's Alex Duff).

Real Madrid and Barcelona have been taking advantage of a system that is broken for a very long time, and as both teams don't realistically have to fear the repercussions, you can't really blame them for doing so.

Pablo Blazquez Dominguez/Getty Images

But the system is (slowly) changing, and it appears Spain's top clubs are failing to account for that. UEFA is trying to push FFP, and Spain is looking into the laws that govern La Liga's TV rights.

The golden age of reckless spending was always going to end, and it's something that Spain's top clubs have to start preparing for. Forget about Real's plans to upgrade the Bernabeu, per Gay de Liebana—Los Blancos need to focus on their debts first and foremost.

Gonzalo Arroyo Moreno/Getty Images

Real are the most valuable sports team in the world, according to Forbes, and their revenue is massive. But it's not big enough to counter the debt, as explained by Gay de Liebana, and the excessive spending will only add to the issue.

Real can buy Rodriguez, and that's the issue. It's not their fault the system is flawed, and no one should judge them for taking advantage of it. But people are changing the system, and Los Blancos are refusing to follow suit.

Sooner or later Real will be left with their mountain of debt and a system that is no longer geared toward giving them an unfair advantage. When that time comes, changes will have to be made. The transfer of Rodriguez shows Perez is not yet willing to face that reality.

 

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