If yesterday we commented in a post how the financial management of Real Madrid had been after the return of Florentino Pérez to the presidency in the period we call Florentino 2.0.
Today, with the detail of the economic report of the last 2013/14 season, we will try to answer what the real level of Real Madrid debt is and how it has evolved since the 2008/09 season.
In the first place
I am very surprised by the headlines of the articles of some newspapers, which follow the line of the partner that took part in the recent Assembly, and in which it is stated that the debt of Real Madrid amounts to € 602 million. I personally would be ashamed to say that € 602 million is the current debt of Real Madrid. They have simply taken the total amount of the liability and have remained so hot.
Let’s try again to do some pedagogy. In a company there are two types of debt. You have what can be called current debt and that corresponds to the normal level of activity of a company. For example, a supermarket charges cash, but pays suppliers 120 days.
It will systematically have a debt with suppliers
But as long as it does not cease its activity it is a debt that is maintained year after year and therefore will not consume you cash. It is what is called the working capital and in some companies, due to the characteristics of its business it is negative. A good example is the one I just gave you from supermarkets. The same thing happens with the football business.
In the table that we leave, you can see what we call current debt (c). In it you have for example the part of the fees paid in advance by the partners. It is a debt that the club has, but as long as it does not cease its activity at the beginning of the season, it will end up providing the service and the debt will disappear and reappear on the same day of the following year since each year it reproduces. It is a normal business debt.
The same goes for outstanding wages. If I remember correctly, Madrid does not apportion the payment of payroll and premiums during the 12 months of the year, but makes two payments, one in July and the other in January. In the month of June, when the fiscal year is closed, half of the payroll is pending, a situation that is reproduced every year and therefore it is not a pending debt that will consume an additional box. If it would be a debt, if it would be, for example, debt if the club owed the payroll for a couple of years.
The liabilities of the working capital are not considered debt
If they have a normal behavior in line with the development of the business. You just have to ensure that what is called a backpack does not accumulate within this working capital. It is that payrolls of several years are accumulated without paying or the payment to suppliers is delayed. The latter does not seem to be the case with Real Madrid, since all the items maintain a similar weight on revenues both in 2009 and 2013.
The only item that increases its weight is that of outstanding wages that goes from 12.4% of income in 2009 to 20.6% in 2013. However, this increase has a logic. If something is inflationary in a football club it is the salary of the players and in 2013 the bonus to pay for winning the Champions League is also accumulated.
Just as you have debts that correspond to the normal course of the year, you also have collection rights that correspond to the normal course of the year. Neither the former are considered debts, nor the latter are considered cash, except in the event that the club closes its doors and goes into liquidation.
In the case of the working capital , Real Madrid goes from having a negative operating fund of € 118M in 2009 to a negative one of € 204 million in 2013 . This increase is also normal in a company whose turnover in the same period has increased from € 404 to € 505 million.