Football | Crisis: Growing debt, elusive success: cracks show at Real Madrid

Ten years ago, foreign correspondents in Spain distinguished Real Madrid president Florentino Perez as the "man of the year."A decade later, however, it seems unlikely that Florentino will get such an award again. In the light of Real Madrid's sporting failure - sealed Wednesday as they were eliminated from the Champions League by Olympique Lyon, in the round of 16 - and of what many experts see as an excessive audacity in his financial management of the Spanish club, Perez stands before a crossroads. If Perez remains loyal to himself, he will show off his power and his money. That is what he did 10 years ago, by signing superstar players and coaches, and it appears to be "in his nature" as a construction tycoon.At 63, Perez is worth 1.9 billion dollars according to Forbes magazine, and he stands 536 in the list of the world's wealthiest people. But Simon Chadwick, professor of Sport Business Strategy and Marketing at Coventry University, thinks Perez should change his ways. "The major criticism of Perez has to be that he has been far too cavalier in the way he runs the club," Chadwick told German Press Agency dpa. In this context, signing another star may not provide solutions after six years of crashing out of the Champions League in the round of 16. "Buying the best players and recruiting the best manager is no guarantee of either playing or commercial success," Chadwick said. The expert highlighted the fact that Real Madrid spent 252 million euros (around 360 million dollars at the time) in signings this season. "The Perez model is not necessarily right or wrong, it's more a case that the club believed they could control something that simply can't be controlled," the expert added. Perez, Chadwick said, "made a very simple and obvious investment decision that many businesses across the world make on a daily basis," namely to spend generously in the hope of achieving "a level of success that generates revenues in excess of the costs incurred.""The significant issue in sport, specifically football, however, is that there is one variable that can't be controlled: game outcome. The beauty of football as a product is that one never actually knows what the outcome of a game will be," Chadwick said. He noted that Real Madrid is now the second-largest debtor in world football, and recalled that the situation would have been worse had Perez not been able to sell off some of the club's real-estate assets during his first mandate at Real Madrid.Elimination from the Champions League cost Real Madrid up to 82 million dollars in prize money, marketing income and other business opportunities this year. With unemployment at almost 20 per cent in Spain, with the country in its worst recession in six decades, the average attendance at the Santiago Bernabeu stadium fell from 73,157 to 67,461 this season, according to Sportbusiness magazine. The sale of official club shirts also dropped. The "Florentino model," Chadwick said, is leading Real Madrid and European football in general down a dead-end. "He has essentially locked the club, both commercially and in playing terms, into a model that requires the constant and ongoing acquisition of high-value playing talent," the expert noted. "The club would appear to be overly exposed to ongoing financial pressures, especially given the inflationary pressures that Perez himself injected into the transfer market with his signing of (Cristiano) Ronaldo," he said.According to Chadwick, Perez constantly makes short-term decisions. "Real seem to be in a constant firefighting battle: get a better manager, get better players, try to become successful, etc," he said. "This imposes costs on the club, never allows the organisation to fully realise its commercial potential, and engenders a sense of instability that never fosters a strong team or organisational culture."The solution, for this academic, lies in the Bundesliga. "Germany clubs are not excessively dominated by the political pressures evident at clubs like Real Madrid and Barcelona, but nor are they dominated by the ownership pressures facing clubs like Manchester United and Chelsea," Chadwick said. "German clubs appear to be run on the basis of an implied consensus involving fans rather than political or commercial whim."   [Via]