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Bale out would barely dent Real's huge debt

Sam Wallace

At the very least, Real Madrid need to sell players to get back on a firm financial footing


'Zinedine Zidane has done a fine job of delivering results, but even he seemed uncertain of the future at Real'

'Zinedine Zidane has done a fine job of delivering results, but even he seemed uncertain of the future at Real'


Gareth Bale. Photo: Reuters

Gareth Bale. Photo: Reuters



'Zinedine Zidane has done a fine job of delivering results, but even he seemed uncertain of the future at Real'

Only after the third time the question was asked on Friday night did Zinedine Zidane give anything like a clear answer on his future, replying that he would be Real Madrid manager until "something out of the ordinary happens" which, given the club's history, is no guarantee at all.

Zidane had been riding the crest of Real's post-lockdown surge to the league title but, now eclipsed by Manchester City in the Champions League in the round of 16, there was again more than a hint of the fundamental problems that surround this club. What detail does this inscrutable man know about the perilous finances of the club? Does he know that, for instance, in the last financial results Real released - the latest half-year results are well overdue - they budgeted to reach the last eight of the Champions League as a minimum?

When Real sold highly-rated full-back Achraf Hakimi to Inter Milan for €40 million on June 30, the last day of their financial year, Zidane to his credit did mention in passing that there were financial considerations as well as football ones.

It was the briefest hint at the perfect storm gathering around Real that the Spanish media do their best to ignore. The world's biggest football brand is in huge debt and the next set of accounts will give us an idea by exactly how much.

There is, of course, no owner at Madrid to inject funds to stabilise the club unless you count the ordinary members from whom around €10 million in cumulative fees will be raised again this summer. The €120 will be a sacrifice to some ordinary Madridistas, although not the club's unchallenged president, Florentino Perez. He has all the benefit of ownership with none of the cost and, in recent months, Real, as well as Barcelona, have been lobbying the Spanish Government to change the rules that hold directors of sports clubs liable for losses.

Real like to remind us that the club are owned by their fans, but increasingly what those fans own is the debt piled up by the billionaire elected to run it in a one-horse race. More debt accumulates while, on the pitch, the great allure of the tradition and success is a useful diversion.

All of it is a matter of public record. From the bondholders financing the new Bernabeu development, to the American hedge fund that has provided short-term loans, to the transfer debts owed to clubs that have fuelled Real's hunger for star names.

The €575 million Bernabeu redevelopment continues in what might generously be described as a brave call in the current climate. It will not increase capacity by a single standard seat, instead adding hotel and retail space in a Covid era when neither is in demand. What is sure is that it will saddle the next generation of fans with the debt long after Perez has gone: a fixed €29.5m per year for 26 years from 2023.

The debt repayable next year to the US hedge fund Providence, the short-term loan provider which has helped Real sustain their wage bill since 2017, has been estimated in Spain at around €200m. Providence loaned the money in return for a percentage of the increase in commercial revenue, with some exemptions, which has not materialised. In June, there was a €100 million state-backed loan - made available in the Covid crisis - that was taken by Real and raised their bank debt to €150 million.

Cumulatively, it could place Real's net debt at greater than €1 billion, although that is not a figure that Perez can seriously hope to present to the club's members or even a compliant media. It is curious that in the last budget, the club anticipated profit by including what their accountants described as "long-term assets for sale" - in other words, players to be sold for an agreed price. Few major clubs do this with the exception of Borussia Dortmund and then only in the case of players for whom they have agreed a transfer. In their last accounts, Real recorded assets of €79m in this category, a figure they said they reached by amortising the value of the fees originally paid for the players in question, which totalled €340m.

This means Real must have included their Colombia international James Rodriguez, who has one year left on his deal and for whom there have been no takers, even over the course of an extended loan to Bayern Munich.

Another is Gareth Bale, who, since the publication of those last results, and over his long-term fallout with Zidane, has become Spain's best-paid golfer. Bale is worth nothing to Madrid in terms of a fee. Instead, he represents a draining cost of up to €663,000 per week for another two years.

The cost of Bale, a ruinously expensive blunder between the coaching and recruitment sides of the club, is just a small part of the picture that has been made infinitely worse by Covid-19. There are major losses generated by Real Madrid TV, as well as the professional basketball team who are part of the club. The decision to take their merchandising operation in-house from supplier adidas to boost revenue, following Barcelona's move to do the same with Nike, has also laid greater risk upon the club rather than on their sportswear partner.

While in the past the club have made use of an endless supply of credit, the pandemic and its economic consequences have exposed that risky existence and the methods of Perez, who seeks to have no more financial liability than the average member forced to watch from home.

At the very least, Real must sell players again this summer. Yet the market is hugely depressed, and how many more players of Hakimi's profile - young, with the potential to accrue value - can they spare? Zidane has done a fine job of delivering results but even he seemed uncertain of the future at Real, just three weeks after winning the league title. One can only assume he knows how difficult it could be to repeat the feat.