54 percent. In addition, international and friendly games now make up 9 percent of revenues.
Figure 2.3: Operating Revenue Percentage Breakdown 1999–2000 and 2014–15
The trend shows two very important and fast-growing segments: broadcasting and marketing rights. The growth of these areas illustrates that professional European soccer is a global entertainment business, in which Real Madrid has been a leader. Real Madrid executives—realizing that the club’s games and best players captivated live, global audiences—sold broadcasts from which they generated marketing activities, sponsorships, and licenses.
Another key metric captures Real Madrid’s success: wages-to-turnover ratio—the salaries and wages paid for all employees divided by total business revenues. The lower the ratio (the lower the percentage of revenues going to pay salaries), the more financial flexibility a team has to make other investments. The maximum threshold recommended by the UEFA’s European Club Association is 70 percent.38 After a transition period from 2000–01 to 2002–03, Real Madrid’s wages-to-turnover ratio has been below 50 percent, one of, if not the, lowest in European professional soccer.39
Figure 2.4: Real Madrid Wages-to-Turnover Ratio
Because of Real Madrid’s community values-centric approach in its sustainable economic-sport model, the club generates so much revenue that despite paying among the highest players’ salaries in European soccer, those salaries are actually among the lowest when expressed as a percentage of revenues.
Lastly, the financial results demonstrate a sustainable economic model. “Sustainable” means that the model funds itself and doesn’t constantly need equity injections or excessive borrowings to continue. In fiscal year 2015, which ended in June 2015, Real Madrid’s revenues were €578 million ($641 million). Their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a simple proxy for cash flow, was €203 million ($221 million). Real Madrid has €96 million ($106 million) in net debt (total debt minus total cash). Net debt to EBITDA ratio is usually a very reliable indicator of the financial strength of a company. The net debt of €96 million divided by €203 million EBITDA equals 0.47. This is more favorable than the average balance sheets of the large companies in the S&P 500 (excluding financial institutions), which have an average ratio of 1.36.40 Loan covenants for a typical corporate loan from a bank (“protections for the bank”) usually stipulate that the debt-to-EBITDA ratio can’t go above 4 or 5.
Table 2.2: Fiscal Year-End 2015 Real Madrid Financial Information
Moneyball vs. Organizational Culture
Moneyball. Sabermetrics. Big Data. These new ideas have revolutionized and modernized strategic thinking and decision-making—not just in sports management but more generally in organizational management. Managers have now been trained that success depends on “new school” thinking that involves sophisticated statistical analysis. Organizations and sports teams now have entire departments staffed with data scientists and analysts. The MIT Sloan Sports Analytics Conference, held in March every year in Boston, is the largest student-run conference in the world, attracting students from over 170 different schools and representatives from over 80 sports teams. Data analysts and data analytics providers have come up with increasingly sophisticated ways of monitoring and capturing ever-growing volumes of data in the search for better performance. It has become conventional wisdom that computer-generated analysis helps those charged with evaluating and selecting talent or making other important decisions to avoid succumbing to the tricky, subtle biases or instincts that clutter human perception in order to lead the organization to extraordinary success.
The 2011 film Moneyball (and the Michael Lewis book it was based on) did such a good job of highlighting the concept of data analytics that the word “moneyball” has become a catchall term for data analytics. In reality, moneyball strategies are only a subset of analytics, but regardless, the concept is so well established in public consciousness that no one would dare question the importance of data analytics in winning. Well, almost no one.
In February 2015, eleven-time NBA All-Star Charles Barkley took issue with the conventional wisdom in an episode of TNT’s Inside the NBA. Barkley ranted about analytics, “Just because you got good stats doesn’t mean you got a good team . . . analytics is crap . . . all these guys who run these organizations who talk about analytics, they have one thing in common: they’re a bunch of guys who ain’t never played the game [and] they never got the girls in high school.” Known for speaking his mind, Barkley also authoritatively declared his opinion that winning in the NBA is about talent and coaching staffs: “What analytics did the Chicago Bulls have? [Referring to the six-time NBA champions Chicago Bulls with star players Michael Jordan and Scottie Pippen and coach Phil Jackson.] What analytics do the Spurs have? [Referring to the five-time NBA champions San Antonio Spurs with star players David Robinson and Tim Duncan and coach Gregg Popovich.] They have the best players, coaching staffs who make players better . . . The NBA is about talent.”
Money or talent or data analytics. Which is the most important ingredient for winning a championship? There is a long list of rich teams with big payrolls and numerous superstars that don’t win championships and an equally long list of teams that now rely primarily on data analytics to make decisions, and even have several superstars, but don’t win either.42
Why has Real Madrid been able to win? Money, certainly. Talented players, of course. Data analytics, without a doubt. But these are only elements of the Real Madrid way. Real Madrid’s executives believe that, in the end, it is a team’s culture that has the greatest impact on performance on and off the field. To them, culture means everyone working around a common mission in a selfless way and everyone knowing the goals and how to achieve them in a collaborative way. What makes Real Madrid such a fascinating case of organizational management is that their entire strategy both on and off the field is based in the adherence to the values and expectations of their community members—the community dictates the culture.
Real Madrid embraces data analytics. In fact, they utilize very sophisticated data collection and analysis tools both on the field and in business. It is hard to imagine what is not tracked. The club even has unique twists on the use of data that fit its culture. For example, more than evaluating players, Real Madrid employs data analytics to help examine and explain relevant and compelling questions, from in-game performance to front-office management. In contrast to most teams’ data analysts and executives protecting their data and analysis like it was the Holy Grail of competitive advantages, Real Madrid seeks to make their data and data analytics available to their community. The club exposes and disperses information—possibly providing others a competitive informational advantage—to the community because the community passionately demands and consumes it and expects transparency. Real Madrid believes their community desires data and analysis for active and frequent updates, sharing, learning, understanding, clarifying, collaborating, storytelling, and infotainment. Serving the community’s needs is Real Madrid’s primary strategy. The club’s management sees themselves as “community’s values first.” The club’s leadership believes culture is the glue that holds a complex organization together, and when culture is drawn from shared values of their community it can forge extraordinary loyalty, inspiration, strength, passion, and identity.
Management consulting firm McKinsey & Company has highlighted the importance
