and having too much debt, threatened the financial viability of almost every club. With uncertainty about who was accountable in the event of default of debt by a club (many members thought a local government entity would bail out their club), in 1990, the Spanish government intervened and created Sports Law 10/1990 to regulate the legal structures of the clubs. The regulation required all clubs that could not prove they were financially viable, with a positive balance in their accounts during the 1985–86 season, to convert into a what is called a Sociedad Anónima Deportiva (SAD), which is like a limited liability company (LLC), to increase financial accountability. The SAD structure still did not prevent the clubs from being financially irresponsible and borrowing too much money, but now most people recognize that it is the SAD entity that is accountable. Initially, the ownership of the SADs was very diverse, but over time ownership became concentrated, so that today most SADs are controlled by high-net-worth individuals. Of the forty-two professional clubs in Spain, only Real Madrid, Barcelona, Athletic Bilbao, and Osasuna were able to prove they were financially viable and stay member-owned clubs.32, 33 Member-owned clubs are not-for-profit organizations and do not provide financial distributions to members. The profits, if any, are reinvested for the benefit of the members and provide for internal financing to sustain and grow the organization.34
This divergence of structure among clubs has created financial advantage for some and challenges for others. For example, billionaires buying Chelsea and Manchester City made them contenders overnight and significantly increased the competition and cost for talent, which affects teams like Real Madrid. Recently, Wanda Group, a large conglomerate owned by Chinese billionaire Wang Jianlin, acquired a 20 percent stake in Atlético Madrid for €45 million, giving Wanda a seat on the board of directors. Now Atlético has access to more resources to buy talent.
Member-owned clubs such as Real Madrid and Barcelona do not have a billionaire owner or corporation or a wealthy investment owner to absorb losses or provide increases of capital, etc. Therefore, the clubs owned by members are at a competitive financial disadvantage, which forces them to seek a sustainable economic-sport model. In addition, with elections by club members for the president and board, it’s more difficult for the club to seek long-term financing as the lenders don’t know who will be running the club in the future and what their strategies may be. The election is also similar to a political election in that candidates may make promises that are good in the short term but disastrous in the long term. Or an incumbent may take actions to make the finances look better than they are, hiding problems, or sacrifice the financial future to win in the present.
On the other hand, having community membership invokes the opportunity for clubs to have a closer relationship with local residents and fans. It really is their team. They have a say and vote. The structure of Real Madrid ensures a high level of fan involvement and engagement. This could lead to an ability to generate greater passion and loyalty. It may be difficult for a billionaire owner to turn over how the team is run to their community. Another advantage worth noting is that member-owned clubs have consistency in ownership. Many sports teams are bought and sold over the years, and the owners can have different priorities and values. Real Madrid has had its socios ownership from the beginning, so it may be easier to draw values from them. When the elected presidents of Real Madrid have drifted from the values, the socios have taken action, including voting out an incumbent president.
Too much debt can also impact strategic decisions and ownership structure. Manchester United was purchased in a leveraged buyout. To help pay down debt, Manchester United went public on the New York Stock Exchange in 2012 by selling shares to investors. Now Manchester United also has to answer to financial investors who may have different values and priorities than the fan community. Before going public to raise equity to pay down debt, Manchester United sold Cristiano Ronaldo to Real Madrid in 2009 and gained financial flexibility. In contrast, since Real Madrid cannot sell shares and strives to be economically responsible, it has to find innovative ways to fund operations and develop a sustainable economic-sport model.
Billionaire owners and investment groups are starting to buy or invest in sports properties in other cities or sports to generate synergies. For example, Manchester City and the New York Yankees purchased a majority of a Major League Soccer franchise in New York for an estimated $100 million.35 This may be more difficult for nonprofit, member-owned clubs to replicate and place them at a competitive disadvantage.
The NFL’s Green Bay Packers is the only nonprofit, community-owned major league professional sports team based in the United States.36 While the Packers are the smallest market team in the NFL, they—like Real Madrid—sell the most jerseys in their league. In addition, while differences exist between the Packers and Real Madrid,37 their league-leading jersey sales may suggest that community-owned teams share characteristics that are more appealing even beyond their local communities, which can lead to more commercial success.
Table 2.1: Ownership of Selected European Professional Soccer Teams
After Florentino and his executives allowed community values to drive decisions, operating revenues have grown on average by 12 percent annually. Today, marketing, which includes sponsorship deals with twenty-five global firms such as Emirates Airlines, Adidas, Audi, and Microsoft, plus the sales of jerseys, is the largest contributor to revenues (in 2000, the largest contributors to revenues were from membership fees and stadium tickets).
Figure 2.2: Real Madrid’s Operating Revenues 1999–2000 to 2014–15
This growth highlights the effectiveness of the Real Madrid community’s values-centric approach in generating extraordinary loyalty and passion—with community members buying merchandise and global sponsors paying to get access to and association with the community members. As an example of how much the passion, loyalty, and community has increased exponentially, in 1997 Real Madrid had a contract with Adidas for ten years, which paid out in total €100 million ($111 million), of which €95 million ($105 million) was paid out in the last three years. The average number of jerseys sold per year was around 150,000, most of which were sold in Spain. The current Adidas contract with Real Madrid, which lasts until 2020, was estimated to produce income of around €70 million ($92 million) per year, with 3.7 million garments sold per year (1.3 million in Spain and 2.4 million in the rest of the world), of which the number of jerseys sold between 2007–12 was estimated at 1.4 million per year, according to Sports Intelligence Report. By contrast, Real Madrid reported that in 2015 the number of Real Madrid Adidas garments sold increased to over 5.1 million, of which 2.6 million were jerseys.
The community values driving decisions at Real Madrid, as seen through growth in broadcasting revenue, are global. As the community expands, broadcasters are eager to deliver the games to this loyal, passionate, and very large community. International and friendly game revenues have grown as the community grows around the world and loyally supports the team when Real Madrid physically appears in their area. The awareness of brand and community values increases with the international exposure.
In 2000, membership dues and ticketing represented 32 percent and broadcasting represented 33 percent, and were the two largest components of revenues with combined 65 percent. In the 2000–01 season, income due to ticket sales to the general public was €14 million ($13 million), which represented 10 percent of the total income (€138 million, $126 million). Total income generated by the stadium (general public tickets, club members’ season tickets, VIP seats and boxes, conferences, museum, and tours) was €42 million ($38 million, 30 percent of total income). By the 2013–14 season, income due to ticket sales to the general public represented only 5 percent of total income. As can be seen in the figure on the next page, in 2015, members and ticketing represented 26 percent of revenues. The largest revenue generator was marketing, which includes sponsorships, at 37 percent,
