MADRID - Real Madrid's strategy of splurging on the world's most expensive players may boost revenue enough to keep the Spanish club at the top of the rich list, but president Florentino Perez needs trophies if he is to sustain his self-styled "spectacular sporting project." Perez has created a cash-hungry monster whose demands will be hard to satisfy and success on the pitch is a crucial element that carries significant risks, according to sports business experts at institutions including Harvard Business School. The media impact of buying players of the calibre of Cristiano Ronaldo and Kaka is shortlived and if Real fail to dethrone arch rivals Barcelona as Spanish and European champions Perez may again taste the failure that prompted him to walk away after his first term in 2000-2006. "Spending a huge amount of money on stars puts a lot of pressure on the business side to generate revenue and create new ways of generating revenue," said Stephen Greyser, a senior marketing professor specialising in sports management at Harvard Business School in Boston. "I am not suggesting that a system of highly paid stars cannot be a successful approach but what I am saying is that it is not a guarantee of success on the field," he told Reuters. Construction magnate Perez, 62, returned unopposed to the presidency last month and unleashed a spending spree matched only by his purchase of "galacticos" David Beckham, Figo and Zinedine Zidane during his previous term. He has spent more than 200 million euros on four players, including a record 93 million on Portuguese winger Ronaldo, and added to the club's debts of more than 550 million euros at the end of the 2007-08 season. WINNING PERFORMANCE Perez argues that investment in marquee players will pay for itself over time. He is banking on a major boost to revenues from renegotiated contracts for sponsorship and audiovisual rights, sales of licensed merchandise and gate receipts. "Buying stars is not the only route to strengthening the brand, in fact it's not even the most important route," said Greyser. "The most important route is winning performance on the pitch." Real retained top spot in the Deloitte Money League for a fourth straight year in 2009 with revenues of 366 million euros ahead of Manchester United with 325 million and Barcelona with 309 million. But with Ronaldo and Kaka alone earning a reported 13 million and 9 million euros each per season, the club will be locked into a colossal wage bill that threatens to push them further into the red. Jose Maria Gay Saludas, a professor of accounting at the University of Barcelona, has estimated that Real's total labour costs for next season, including wages and amortisation, will rise to around 300 million euros. That would be the equivalent of about two thirds of revenues, assuming the club manages to increase its earnings to 450 million euros. Antonio Martin, director of the Masters programme in Sports Management at the IE Business School in Madrid, said the chances for success of Perez's strategy to lift revenues even higher were quite high. "But what is crucial here is that you also have success on the pitch," he told Reuters. "The media impact of buying players lasts only for a few months. If this is not followed by sporting success the impact is diluted." The current global recession was an added risk factor. "But a moment of crisis is also a time of opportunity," he said. "Soccer clubs have such strong brands that while they are affected by the crisis they perhaps come through it quicker than other brands." DAMAGE LIMITATION Richard Bunn, a director at the World Academy of Sport at Manchester Business School, said it may be good strategy to bring in highly talented and hugely expensive players but noted that it hasn't always worked. "It's very difficult to stay right at the very top. That's why we all love sport because of the uncertainty," he said. Taking the club further into debt was also a concern. "It's quite irresponsible because Perez is not going to be around forever and whoever takes over afterwards is going to have to try to limit the damage or perhaps try and find a way of generating talent internally," he said. "Somebody, somewhere will have to pay the bill and it won't be him that's for sure."
23 July 2009
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