Hala Madrid: Managing Real Madrid Club de Futbol, The Team of the Century Case Solution
Question.1. how would you define the financial situation when Florentino Perez and his board arrived at Real Madrid?
The financial situation of Real Madrid was extremely unfortunate despite Real Madrid being one of the wealthiest soccer clubs in the world. However, due to the poor performance of the team in season 2003-04, it lost five games continuously in a row during the national competition and it was also eliminated from the European champion league. This created a bitter feeling among the fans allover the world. Previously, when the new management took over the club command, it was nearly bankrupt.
However, the crisis during 1990s led to the growth of revenuewhereas, it required investing in the private personal soccer clubs, and the Bosman law also contributed to the financial situation of the Real Madrid, which made soccer players into to the free-agent market. On the other hand, after the season 2003-04, the team’s poor performance negatively affected its image.
Therefore, Florentino had to hire some mega star players in the team to increase the company’s revenues. However, the situation was that Real Madrid needed huge amount of funds to support that idea of hiring the super strikers from other clubs, against the transfer fees, and annual salary to the player. Nonetheless, Real Madrid had already sold most of its future TV rights and sponsorships, as well as it has the net debt which was eight times of the club’s equity. Thus, it was very difficult for Real Madrid to hire the players, but if it was so, then the club had to identify the other revenue sources to continue with the idea, tag the season with name of real Madrid.
Question.2 Why do you think Real Madrid reached that situation?
Real Madrid was not just a team, but it was a brand around the world, and it was also considered a one of wealthiest football club. However, in contrast the name of the brand was not properly utilized under the leadership before Mr.Florentino Perez arrived, who changed the way things were done, even he also looked ahead of to predict the future that what does its club looks like, and how did it is presented in the market, and what could be possible sources of the revenues to improve the financial standing of Real Madrid.
Similarly, the club was considered a global leader, but in contrast, it did not have proper marketing strategy to discover more, and get advantage of the name of club around the world. Moreover, previously, the club had limited marketing activities with mainly Spanish companies such as Teka, otaysa. It also had the sponsorship contracts with Kelme, and Adidas.However, in contrast these revenue sources could also have been expanded, and that expansion was highly important to support the club’s expanses, which had increased from the crisis which took place in the 1990s.
Question 3. Explain, from a financial point of view, the big changes introduced by Florentino Perez and its board in the waythe team was managed?
Florentino came up with some excellent ideas that tripled the revenues of the club, for example he introduced the concept of internationalization, where he was aware that many companies around the world were ready to pay handsome amount for association with Real Madrid. Thus, the club’s new management took steps to increase the revenue sources by contracting sponsorship, and giving image rights, and endorsements as well, by the team asa whole or by the player individually. However, in both situations, the club earned revenues because the contract with the player, and revenues was distributed overpredeterminedand agreed ratios.
In pursuance of revenues generation, Real Madrid also focused on the distribution, merchandising, and licensing, where the club was also licensed to create Real Madrid products, and it issued 80 licenses for more than 450 products. On the other hand, the club also went two steps ahead of licensing, when it opened several retail stores, which only featured Real Madrid merchandise. In addition, the club also added online store, catalog and phone sales.
Previously, the new management was interfering with day to day operations of the club, and there were no defined managerial responsibilities before Florentino arrived. However, after his arrival,he restructured the club’s divisions, and focused on the modernization of the club’s management. Therefore, initially he structured the club in four units presidency unit, marketing unit, corporate division, and sports division having all units defined mission, and responsibilities............................................