Why buy a Picasso when you can have a Bale?
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Football is struggling to comprehend the news. Real Madrid’s president Florentino Pérez has just splashed a reported €100m – a world record transfer fee – on Tottenham Hotspur’s forward Gareth Bale. “It’s absolutely crazy,” comments the US coach Jürgen Klinsmann. Indeed, the sum probably does not make business sense. Nor do other huge purchases this summer by Monaco or Paris Saint-Germain. The market makes sense only once you grasp that football is not a business.
The best place to understand this is Mr Pérez’s bedroom. A decade ago, the construction billionaire had himself photographed posing with Real’s four big stars of the time: Zinedine Zidane, David Beckham, Ronaldo and Luís Figo. His art adviser enlarged the picture. “The photograph was now the size of half a double bed,” writes John Carlin in White Angels, his book on Pérez’s Madrid. “I knew it was the size of half a double bed because Pérez took me up to his bedroom to show it off to me.” This was not the behaviour of a cool-headed businessman.
Most fans, players, directors and sponsors would say a club exists to seek victory on the field, not profits off it. The sports economists Stefan Szymanski and Pedro García del Barrio studied Spanish and English clubs to see whether this was true. If a club wanted profits, it would have to spend less than it earned. That would mean limiting its players’ wages. But then it would not get the best players. It is a trade-off: to get victory, you sacrifice profits. To maximise profits, forget victory. Their finding was unambiguous: clubs did not seek profits, but wins.
Even winning is not the sole point. “The game is about glory,” the former Spurs player Danny Blanchflower once said. Mr Pérez is not trying to buy maximum results with minimum outlay. Spending €100m on Bale is in part a marketing gift to Madrid’s fans. It gives them the thrill of expectation, which is possibly as much fun as actually winning things. Bale may be no better a player than Mesut Ozil, whom Madrid are now selling, but he is excitingly new. The €100m only enhances his glamour.
Bale does not look the canniest of buys: he is unproved at the highest level and injury could diminish his magical speed. Yet he is thrilling. He moves like a superhero. Billy Beane, the general manager of the Oakland A’s baseball team who gave sport the concept of “Moneyball”, marvels: “If he was born in the States he would have never touched a soccer ball. He’d be playing wide receiver for the New York Jets, he’d be playing centrefield for a major-league baseball team or he’d be a shooting guy for an NBA team.”
Buying Bale is not like buying a machine that will provide an annual return. It is more like buying a Picasso: a beautiful thing that gives its owner status. No wonder that Pérez and Manchester City’s owner Sheikh Mansour of Abu Dhabi also collect art, as does the girlfriend of Chelsea’s owner Roman Abramovich.
And despite rising prices, they remain pretty affordable. Since the 1990s clubs have monetised their brands by flogging TV subscriptions and shirts, first in Europe and later worldwide. Madrid’s annual revenues have risen sixfold since 1997 to hit €513m, says Deloitte, a consultancy. No other sports club on earth makes more. Football is not big business: in 2011 Matias Mottola, a Finnish analyst, calculated that Real would be the 132nd-largest company in Finland. But football is a growing global business: Indians, Chinese and Americans will watch Bale at Madrid.
Other football club owners barely worry about money at all. Forbes estimates the fortune of Monaco’s Russian owner Dmitry Rybolovlev, a fertiliser tycoon, at $9.1bn. Forbes thinks Mr Abramovich has $10.2bn. These people can drop £60m on a footballer much as an ordinary punter spends £60 on a match ticket.
Pessimists are forever warning that if big clubs keep spending “crazy” sums, they will go bust. But no English professional club has disappeared forever under its debts since 1931. Europe’s economic crisis has claimed only a few minnows. Madrid’s debt is somewhere over €100m or €500m, depending on which numbers you use. Even if it went bankrupt, its brand is in effect immortal: the next morning, somebody would found a club called “Real Madrid”, dress it in white shirts, and fans would queue up. Much the same thing happened when Italy’s Fiorentina went bankrupt in 2002. Contrary to popular belief, big clubs are fantastically sustainable: they survive even when they go bust. You cannot get more sustainable than that.
Mr Pérez also runs the Spanish construction company ACS. In 2012, despite Spain’s recession, its revenues were about 75 times Real Madrid’s. He knows what a business is. Real Madrid is not a business. It’s something much bigger than that.
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