The case study is about one of the best-known and best-playing football teams in the world, Real Madrid.
It tries to backlight the myth of football and the tremendous merchandising system behind football. Especially the era of Florentino Pérez, who brought a new dimension to managing and merchandising football clubs in Spain, will be analyzed in detail.
Football the game
What makes the team like Real Madrid so interesting for sponsors and fans worldwide? What makes football so interesting for us?
Football is the world’s most popular sport. Nearly every child kicks a football once in his life. 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 Fédération Internationale de Football Association (FIFA). FIFA, founded in 1904 in Paris, established a unified set of rules. These rules are easy to understand and are, of course, one of the reasons why football is so popular worldwide. Also, the time a football game lasts is defined by FIFA, its two halves of 45 minutes split by a 15-minute break. In elimination games, overtime of two times 15 minutes and 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 fights or a knockout after 10 seconds. At football games, they can calculate and time their spots and broadcast exactly. There is also the FIFA World championship which is the second-largest worldwide sports event besides 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 football is so interesting for sponsors.
European football is organized by the UEFA and its 52 national associations. The UEFA Champions League is the major seasonal competition for the best European clubs and the stage for teams like Real Madrid and Manchester United.
Football the business
In the past, gate receipts were the most important source of income for a football club, also for professionals.
But in the 1990s, a change of business model went through the professional football teams in Europe.
In Europe, the hosting club of a football game receives all the gate receipts. Another source of income is local sponsorship. But the new merchandise 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 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-shirts, balls, etc, and “MUFC” for teenagers selling products with attributes of rebelliousness and friendship. “Red Devil” targets adults and gives a taste of leadership and winning to their customers in a higher price segment. Another important platform for football fans is the homepage of their favorite clubs. For example, a user registered to manutd.com will spend about 1500€ for games and promotional products.
Economic background of Real Madrid
In Spain, football is the most popular sport. Six hundred twenty thousand active players are playing in over 10000 football clubs. Professional football is organized in three national leagues. Real Madrid and FC Barcelona are the biggest clubs. They won nearly two-thirds of the national championships. Football is more than just a game in Spain it’s a passion, and if you support a team, you support it for a lifetime. Because of these facts, football is such a big business in Spain.
Real Madrid was founded in 1902 by a group of Spanish football 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 famous player, became president of Real in 1943 and heralded 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 of European Cup titles. Real became the best-known football team in the world. After the death of Bernabeu in 1978, there was a decline for nearly two decades.
The new club manager Sanz started 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 led to a big change in the European transfer market. Real Madrid still spent nearly 85% of its revenue on player salaries 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 Pérez took over the management from Lorenzo Sanz. The club was competitive in football but financial straits. Perez was the first who 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 football 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 football club in the world.