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REAL MADRID CLUB DE FUTBOL

Case Study

by Kurt Eschbacher

ABSTRACT

The case study is about one of the best known and best playing soccer team in the world, Real Madrid. It tries to backlight the myth of soccer and the tremendous merchandising system behind soccer. Especially the era of Florentino Prez, who brought a new dimension in managing and merchandising soccer clubs to Spain, will be analyzed in detail.
SOCCER THE GAME

What makes a team like Real Madrid so interesting for sponsors and fans worldwide? What makes soccer so interesting for us? Soccer is the worlds most popular sport. Nearly every child kicked a soccer ball once in his live. More than 240 million people play at least once a week. Such a big sport needs a big parent organization in its background. This job is done by the FDRATION INTERNATIONALE DE FOOTBALL ASSOCIATION (FIFA). The FIFA which was founded 1904 in Paris established a unified set of rules. This rules are easy to understand and are of course one of the reasons why soccer is so popular all over the world. Also the time a soccer game lasts is defined by the FIFA, its two halves of 45 minutes split by a 15 minute brake. In elimination games an overtime of two times 15 minutes and also a penalty shoot-out at the end of overtime is possible. This is a big advantage for sponsors and TV broadcasts compared to other sports like American football or boxing where the time for a game or fight is nearly unpredictable. You can have 12 rounds of barn-storming fight or a knockout after 10 seconds. At soccer games they can calculate and time their spots and broadcasting exactly. There is also the FIFA World championship which is the second largest worldwide sport event beside the Olympic Games. In 2002 the FIFA World championship had a cumulative audience of 28 billion viewers over 25 match days. This huge audience is another reason why soccer is so interesting for sponsors. The European soccer is organized by the UEFA and its 52 national associations. The UEFA Champions League is the mayor seasonal competition for the best European clubs and the stage for teams like Real Madrid and Manchester United.
SOCCER THE BUSINESS

In the past gate receipts were the most important income for a soccer club, also for professionals. But in the 1990s a change of business model went through the professional soccer teams in Europe. In Europe the hosting club of a soccer game receives all the gate receipts. Another source of income is local sponsorship. But the new merchandize model targets a worldwide audience.

Manchester United for example was able to allocate 45 million supporters worldwide. Compared to the 6 million supporters in their own country this was a totally new market with huge chances. To supply all different target groups of fans they set up sub brands like Fred the Red for children selling T-shirt, balls etc, MUFC for teenagers selling products with attributes of rebelliousness friendship. Red Devil targets adults and give taste of leadership and winning to their customers in a higher price segment. Another very important platform for soccer fan is the homepage of their favorite clubs. For example a user registered to manutd.com will spend about 1500 for games and promotion products in a lifetime.
ECONOMIC BACKGROUND OF REAL MADRID

In Spain soccer is the most popular sport. There are 620 000 active players playing in over 10000 soccer clubs. Professional soccer is organized in tree national leagues. Real Madrid and FC Barcelona are the biggest clubs. They won nearly two-thirds of the national championships. Soccer is more than just a game in Spain its a passion and if you support a team you support it for lifetime. Because of these facts soccer is such a big business in Spain. Real Madrid was founded in 1902 by a group of Spanish soccer fans as Madrid Foot Ball Club. In the 1920s the King of Spain granted the title of Royal to the club Real Madrid was born. Santiago Bernabeu a former very famous player became president of Real in 1943 and herald a new era. By selling fan-bonds he financed a huge stadium for 75000 people, the Bernabeu Stadium. Bernabeu spent a huge amount of money to bring the best player in the world to Madrid. The result was a series European Cup titles. Real became the best known soccer team in the world. After the dead of Bernabeu in 1978 there was a decline for nearly two decades. The new club manager Sanz started a kind of a closing sale to raise capital. He sold players, several core assets like media rights and stadium exploration rights. He also signed longtime contracts for VIP areas and sponsorship to really bad conditions. Another aspect was the Bosman case in 1995 which leaded to a big change at the European transfer market. Real Madrid still spent nearly 85% of revenue for player salary and transferfees. This cost had to be covered by the different income sources. The 2000 revenue of Real Madrid was about 138 million and resulted from 42 million match day income, 45 broadcast and pay-TV fees, 39 million marketing income and about 19 million from international competition. On the opposite side there had been costs of 161 million. The result was a loss of 23 million.
THE ERA PEREZ

In 2000 Florentino Prez took over the management from Lorenzo Sanz. The club was competitive in soccer but in financial straits. Perez was the first who really recognized the

potential of Reals popularity all over the globe. But the marketing and operational strategy did not match the reputation in sports. Mr Albornoz the managing director of finances and legal affairs mentioned a missing mission for the club as one of the problems in managing REAL. The goal was to manage the soccer club like a professional organization and make decisions based on facts and not on emotions. Perez restructured Real Madrid based on his experiences in running a huge Construction Company. The mission statement was defined as being the best soccer club in the world. The four brand drivers are: Size of audience Frequency which the audience engaging with the brand as a measure of commitment Sociodemographic characteristics of the audience Bridges that could be built to link the brand and the audience.

Illustration 1

The challenge of Perez and his team is to give REAL the finical flexibility to acquire talented player and expand the range of the brand. They have to assemble a team top player and increase the value of the brand. To afford such a financial flexibility, Perezs set up a tree step program. The first step was the disposal of REAL sold training pitches to private investors and to the government. This measure added 500 million over 3 years to the clubs budget. Second was the buyback of exploration rights. His parent signed a ten year contract for 100 VIP boxes for a very low yearly fee. Perez bought them back for 16 million and doubled them to 200 boxes. The yearly income from renting these VIP boxes is 16million/year. The setup of a stand-alone legal entity called Sociedad Mixta to manage all REAL rights except the audiovisual ones was another step to allocate money. The Sociedad Mixta was managed by the clubs marketing division. A percentage of the income was directly paid to Real Madrid. Shares of Sociedad Mixta were sold to important companies in Spanish media business and increased the income.

TEAM GALAGTICOS

Now Perez was able to neglect his promise. Before the election Perez promised to bring Luis Figo from Barcelona to Real. This was the beginning of team Galagticos. The target was to buy at least one world-class player per year. One of the biggest deals in history was the transfer of David Beckham from Manchester United to Real. This was the biggest TV event in Spain beside the funeral of Princess Diana. More than 1000 journalists took place at the press conference. Real sold 8000 Beckham shirts for 70/ piece the first day. Real started a promotion tour through Asia and profited from the popularity of Beckham there. The tour netted more than 8million and was also part of the new marketing strategy. Real Madrid also set up its own TV station and redesigned the clubs homepage RealMadrid.com. With 1.4 million visits each month in 2004 it was the biggest fan platform in the internet and a step closer to the target getting a one on one relation with fans. Also the target to reduce staff costs to 70% of revenue was reached.

Illustration 2

The marketing department also set up contracts with sponsors like telefonica and Addidas. The focus was to find big, but not too big, partners to avoid the domination of a single partner.

Illustration 3 Perez

Perez turned Real Madrid into a well structured modern company without losing the focus of being the best team in the world. He increased Marketing income from 39 million in 2000 to 142 million in 2004 and earnings before tax from a loss of 23 million to a gain of 71 million. He retired 2006 and Ramon Calderon became new president. Real again went into trouble and sold well known player. Also their success in sport decreased. But real Real Fans will always support their club.