Monday Musings: Real Madrid sit on a mountain of cash
Matt’s Monday Musings: a series with no rhyme or reason – just coherent thoughts on all things real Madrid published every Monday. Some weeks can be long, others are just short anecdotal thoughts. Either way, I will be posting reflective content about current, past and future club events:
In a summer when Barcelona sought to implement the retrograde methodology of spending more to get out of debt, Chelsea sacked their manager just days after breaking the transfer record for players specifically requested by the man they fired, and Manchester United massively overpaid for every goal they had – nice to see a well run club. The world may laugh at Florentino Perez for his failed Super League bid, but there’s no doubting his mastery of operating and growing a business. Forget the world of football, Florentino Perez is one of the best in sports economic management in the entire global sports industry. For the third year in a row – despite the many obstacles imposed by the COVID-19 pandemic and the Russian-Ukrainian war, while building a new state-of-the-art stadium – Real Madrid have recorded a profit.
In almost every financial metric, Real Madrid improved last season. The telling numbers are highlighted in the red square above, and here’s what stands out: Real Madrid sit on a mountain of cash reserves with virtually no debt. In fact, excluding stadium renovations, Madrid owe more money than they have to pay. They have a debt to EBITDA ratio of 0.0 which measures the likelihood of a company successfully repaying its debt. This ratio is used by creditors, banks or large investors when assessing the terms of credit to be provided to an entity. The lower the ratio, the better the interest rate and terms of the deal acquired when looking to borrow. Simply put, Real Madrid have access to incredibly cheap capital due to the tight ship they steer.
Net debt to EBITDA ratios above 3 or 4 serve as “red flags” and indicate that the company may be in financial difficulty in the future and unable to repay its loans. For instance, FCBarcelona are well above the 5.0x ratio. Fitch Ratings, a leading provider of credit ratings, commentary and research for global financial markets, said it does not see a significant decline in the 5.0x ratio through 2026. You probably have Heard rumors that many clubs were reluctant to work with Barcelona this summer for fear of not getting their money, this net debt to EBITDA ratio is a major reason for this fear.
Real Madrid’s large influx of cash reserves, €425m, means they have plenty of dry powder on hand for any acquisition that suits them. The club have been slightly cryptic (rightly so) about where the increased cash this year came from, but the deal with Sixth Street as well as ‘spending containment measures’ have bolstered their reservations.
Cash reserves put Real Madrid in a strong position for any future transfer window. The club has shrewdly adopted a position of waiting for the right talent, rather than buying to buy. As Arancha Rodriguez described in a recent Managing Madrid podcast with Kiyan last week, the club will only sign Real Madrid level players. What does it mean? Quite simply, the club will only go to market when they have an asset available with the appropriate market value, the right salary structure and talent capable of improving the squad – much like the valuations made during Rudiger signings and Tchouameni this summer.
Real Madrid fans can rest easy knowing that the club rarely makes rash financial decisions under Florentino Perez. In a world where nearly every Super Club seems to spend frivolously, and for some like FC Barcelona, dangerously, Real Madrid’s good management is a welcome start. Each year the club’s numbers improve, but the real excitement lies in the years to come with the completion of the stadium renovation and the hope that the club will be one of the first to reach €1bn. organic revenue.