Inside Real Madrid's Economic Strategies for the Kylian Mbappe Deal

Real Madrid's Financial Health and Transfer Strategy Explained

by Faruk Imamovic
Inside Real Madrid's Economic Strategies for the Kylian Mbappe Deal
© Getty Images/Franco Arland

In one of football's most anticipated transfer deals, Real Madrid has finally secured the signing of Kylian Mbappe, a move that marks the culmination of a prolonged campaign by club president Florentino Perez. This deal, hailed as one of the largest in football history, reflects the strategic financial maneuvers of Madrid in recent years.

While Mbappe joins Madrid on a free transfer after his contract with Paris Saint-Germain (PSG) ends, the agreement involves a significant financial commitment from the La Liga giants. Reports indicate the 25-year-old French forward will receive a signing bonus of €150 million (£127.7m; $163m) and a yearly salary of €15 million.

This signing coincides with the club's completion of a €1.4 billion renovation of their iconic Santiago Bernabeu stadium, raising questions about how Madrid can afford such expenditures.

Madrid's Financial Health

Real Madrid's financial stability stands out in the Spanish football landscape. La Liga president Javier Tebas, despite his fraught relationship with the club, acknowledged in 2021 that Real Madrid is in the best financial health among Spanish clubs and has managed the pandemic's economic impact effectively. He reiterated this stance last year, noting that only Real Madrid could afford top talents like Mbappe and Manchester City striker Erling Haaland, given Barcelona's ongoing financial struggles.

Barcelona, in contrast, has faced significant deficits, which President Joan Laporta has attempted to mitigate through controversial financial mechanisms, raising €867 million by selling shares in future revenues. Meanwhile, Real Madrid has consistently posted positive operating results since the 2002-03 season, including an €11.8 million surplus for 2022-23, with revenues totaling €843 million, a 17% increase from the previous year.

Madrid's La Liga-imposed salary budget is the highest in Spain at €727.5 million, a significant increase from the previous year's €683.5 million. In comparison, Atletico Madrid and Barcelona have much lower budgets, standing at €303.4 million and €204 million, respectively.

Real Madrid UEFA Champions League Trophy Parade
Real Madrid UEFA Champions League Trophy Parade© Getty Images/Angel Martinez

Canny Transfer Strategies

Real Madrid's recent transfer policy showcases a shift towards prudence and strategic investments, contrasting with the extravagant spending on 'galacticos' during Perez's first term as president from 2000-06. Apart from the summer of 2019, when the club spent €350 million (half of which was on Eden Hazard and Luka Jovic), Madrid has adopted a more frugal approach.

To balance their books, Madrid has sold numerous players, including Mateo Kovacic, Marcos Llorente, Theo Hernandez, and Achraf Hakimi. The club has also offloaded older players like Casemiro and Raphael Varane at opportune moments. Recent signings have focused on market opportunities and young talents, with players like Thibaut Courtois, David Alaba, Antonio Rudiger, Jude Bellingham, Vinicius Junior, Rodrygo, and Eduardo Camavinga joining the squad.

After three summers of making a profit on player transfers and a challenging 2022-23 season, Madrid decided to invest significantly last summer. This move paid off, as they secured La Liga, the Champions League, and the Supercopa de Espana titles. Their €128 million expenditure included marquee signing Bellingham for €103 million, Arda Guler for €20 million, and the returns of academy players Fran Garcia and Joselu.

Salaries and Financial Flexibility

Despite high-profile signings, Real Madrid's wage bill has decreased annually since 2018, with significant departures including Cristiano Ronaldo, Gareth Bale, Sergio Ramos, Marcelo, and Isco. The club's total salary expenditure for 2022-23 was €452.7 million. Even after Bellingham's arrival, the wage bill for 2023-24 remained lower due to the exits of Karim Benzema and Hazard.

Madrid's top earners, such as Toni Kroos and David Alaba, earn considerably less than past stars like Ronaldo and Bale. With Kroos set to retire after representing Germany in the European Championship and Luka Modric accepting a lower salary for a one-year extension, there is ample room for Mbappe's inclusion within the La Liga-allowed salary spend of €727.5 million.

Madrid's financial reports from June 30, 2023, show a cash balance of €128 million and undrawn credit facilities amounting to €265 million, indicating substantial flexibility in the transfer market. The club's personnel expenditure to operating income ratio was 49% for the 2023-24 season, well below the industry benchmark of 70%.

The Bernabeu Renovation and Financial Maneuvers

A Long-Term Vision Realized

Florentino Perez's vision for an ultra-modern Santiago Bernabeu stadium has been nearly two decades in the making. Initially proposed in 2004, the project has evolved to include a futuristic exterior and a retractable pitch for hosting non-sporting events such as concerts. The cost of the renovation has escalated, requiring €1.17 billion in external funding through loans secured in 2019, 2021, and 2023 at favorable interest rates.

Perez assured club members that the stadium's enhancements would generate significant revenue, more than doubling the annual repayments of €60 million. This projection is supported by recent events, such as Taylor Swift's sold-out concerts at the Bernabeu, expected to generate €5 million for the club. Consequently, the stadium project is seen as a catalyst for increasing funds available for new signings.

Estadio Santiago Bernabeu
Estadio Santiago Bernabeu© Getty Images/Angel Martinez

Complex Financial Agreements

Madrid's recent financial deals with U.S. private equity firms have sparked comparisons to Barcelona's controversial financial strategies. In 2017, Madrid received €200 million from Providence Equity Partners in exchange for a share of future sponsorship revenues. This agreement was renegotiated in 2021 for an additional €50 million and now extends until 2027. Another significant deal in May 2022 with Sixth Street and Legends brought in €360 million, allowing Madrid flexibility in spending.

These agreements entail annual repayments, with €26.59 million paid to Providence from sponsorship revenue in 2022-23. Sixth Street and Legends will receive 30% of the club's stadium-based revenue, excluding season tickets, over 20 years. While Madrid's hierarchy defends these deals as providing good value, the long-term implications remain uncertain. Some argue that collective team success in winning major trophies is more crucial for generating revenue than any individual player's contributions, even someone as high-profile as Mbappe.

UEFA Regulations and Potential Issues

UEFA's financial regulations present another layer of complexity. The governing body has different interpretations of financial deals like Madrid's, which could impact their accounting practices. Last year, UEFA fined Barcelona €500,000 for accounting irregularities related to similar deals. While Madrid has not faced sanctions, their reliance on such deals could pose future challenges.

Without the funds from Sixth Street and Legends, Madrid's accounts for 2021-22 and 2022-23 would have shown losses instead of operating profits. As UEFA transitions to new financial sustainability regulations, how these deals are assessed will be critical. Mbappe's substantial signing bonus and salary could strain Madrid's financial wiggle room, complicating compliance with UEFA's requirements.

Real Madrid Kylian Mbappe