Real Madrid Overtakes ManU To Become The Most Valuable Sports Team In The World

Afrik Update

SPORTS

By Forbes

After more than eight years delivering the highest revenues of any soccer club in the world, once again topping the $600 million mark last season, Real Madrid bested ManU to land atop FORBES’ list of most valuable soccer teams this year. With a value we estimate at $3.3 billion–versus $3.17 billion for ManU–Real is also now the most valuable sports franchise in the world.

The club has thrived under the leadership of Florentino Perez, the billionaire construction tycoon who turbocharged the team’s revenue growth during his ten years as president. He seldom speaks to the press and declined to talk to FORBES, but his strategy is well known: Pay a lot of money for top talent, win a lot and expand all lines of business.

                                        The Business of Soccer 2013

When Perez took over in 2000 he found a club on the edge of insolvency. He sold off assets, recruited investors and went on a buying spree. After signing superstars like David Beckham and Zinedine Zidane, Real Madrid saw their income from merchandise explode (despite limited success on the pitch), peaking at 45% of revenues in 2005. 

The so-called Galacticos plan of buying the world’s best players also allowed Madrid to negotiate juicy, and increasingly lucrative, TV broadcasting deals. At the same time, heavy investment in their stadium helped match-day revenues more than double in five years. In 2012 each of these three lines of business contributed roughly a third to revenues.

Even in the face of Spain‘s real estate crisis, Perez’s balanced model continues to perform. A recently signed kit deal with Adidas, worth $50 million through mid-2020, and other sponsorships (including those with Emirates Airlines and 

Spanish banking group BBVA) brought in $240 million last season. Real Madrid’s current shirt deal with online gambling firm Bwin, from which they derive about $20 million per season, expires this year. With the value of shirt-sponsorship deals surging (Manchester United just signed a seven-season, $560 million deal with GM to put the Chevy logo on their jerseys) Madrid can expect a significant windfall in the 2013-14 season.

At home its broadcasting rights amount to $250 million. They split half of the entire league’s $750 million TV take with FC Barcelona (the distribution of Spanish TV rights money is “savage,” in the words of a Barcelona insider). Madrid plans to press its advantage, a top team executive told FORBES, re-signing lucrative local broadcasting deals for more money, expanding Real Madrid TV (the team’s in-house content production arm) and making new forays into smartphones, games and apps.

Even with nationwide unemployment at 26%, Real Madrid’s mythic Santiago Bernabeu stadium continues to fill–and fill up the club’s coffers. Match-day revenues stood at $160 million at the end of last season, the highest of any major team in Europe. Project Bernabeu, Madrid’s $320 million plan to modernize the stadium, could add $60 million in revenues per season when completed sometime before 2018, experts say.

An odd side effect of all this success: Madrid’s relentless pursuit of profit has made it expensive for stars to play there. Back in 2000, to temper a payroll that topped $250 million, Perez hatched a plan that forces players to fork over on average half of their outside sponsorship and endorsement revenue, along with splitting jersey-sales income. Cristiano Ronaldo, the team’s undisputed superstar, who hands over 40% of his endorsements to the club, is said to be mulling a transfer as Madrid’s management pushes for a 50-50 split ahead of any juicy deals before the 2014 World Cup.

There is still room to grow. With 350 million fans outside of the U.K., ManU has more than twice as many overseas followers as Real Madrid does, according to Sport+Markt. But, after years of international marketing, ManU is “peaking overseas,” says Mario Oliveto, a sports marketing expert and former executive at Nike, Adidas and Sport+Markt.

Real Madrid, which derives 65% of revenues from abroad, according to a top club insider, sees opportunity here. Last season the team added $16 million to their top line–as well as a slew of new fans–just by playing friendly matches in the U.S., China, Kuwait and across Europe. They expect new sponsors to follow.

As long as they can keep winning, signing top players and attracting massive audiences, Madrid should stay on top of our list. Says Inner Circle’s Tella: “It’s what we call the virtuous cycle of success.”