Real Madrid finds itself and its Bwin.com jerseys on the sidelines after its aggregate loss to Lyon in the Round of 16 in the UEFA Champions League, the biggest annual sports tournament in the world...on the outside looking in after spending more than $300 million in player acquisitions -- including $145 million US on Cristiano Ronaldo from Manchester United and $100 million US on Kaka from AC Milan -- with a view to winning some continental and international hardware...eliminated early in the year it will host the UEFA Champions League final May 22nd at Santiago Bernabeu in Madrid.
It's a stunning turn of events for Real Madrid, which according to the accounting firm Deloitte led the world in sport franchise revenues by grossing $540.9 million US in 2007-'08, ahead of #2 FC Barcelona and #3 Manchester United.
The UEFA Champions League upset is bad news on the field for Real Madrid, but arguably worse off the field for the sport business juggernaut.
Real Madrid has already seen fewer replica jerseys sales than expected this year, behind United, Chelsea, Liverpool and others. Its attendance at Santiago Bernabeu is down eight per cent over last year, down to an average of 67,461 with Ronaldo and Kaka from 73,157 last year without them.
Now, according to Coventry University Business School professor Simon Chadwick, the Round of 16 loss will cost Real Madrid at least $80 million US in prize money, sponsorships, merchandising, television bonuses and other revenue streams related to advancing to the UEFA Champions League final.
Although it will not see the $100 million plus windfalls earned by runner-up Manchester United and champion FC Barcelona at last year’s final in Rome, Real Madrid will not be entirely shut out. It owns Santiago Bernabeu stadium and will be paid a formula for rent and revenue-sharing by UEFA.
The irony is that what's shockingly bad for Real Madrid -- a UEFA result that will seriously impact the club's business model and damage its ability to recoup much of its investment in players in the short or even mid-term -- is potentially good for the economy of the City of Madrid.
Two visiting clubs means more hotel rooms, more restaurant meals and more inflow for Madrid and for Spain, which finds itself in its worst recession since World War II. With two visiting clubs now guaranteed, the economic impact of hosting the UEFA final will be significantly higher, especially if the visiting fans are English or German, known for their penchant for traveling and spending.
We're talking about potential economic spin-offs worth more than $50 million US to the economy of Madrid.
Real Madrid fans will take little solace in that. In fact, some would argue the loss will leave a civic hangover and adversely affect employee productivity, consumer confidence and, ultimately, any gains realized from more soccer tourists in May.
Madrid the city should still win. But Real Madrid the soccer club -- adopting a high risk strategy hoping for the high reward of a UEFA Champions League title -- has a financial disaster on its hands.
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