What would have been different at Real Madrid in a pre-pandemic world?

Real Madrid, by all reports, intends to renew three contracts within the first team squad. Luka Modric, Lucas Vazquez, and captain Sergio Ramos will all be approached with an offer to remain at the club. Securing those renewals is another matter entirely, but the club’s vision is to continue to rely on three tenured members of Zidane’s team. Combined, there is close to 30 years of playing experience with Real Madrid. The form and attitude of each player have merited the renewal offers, but in a pre-pandemic world, would these renewals be as straight forward?

Putting their legacies aside, particularly Sergio Ramos’ and Luka Modric’s legendary status within the club as two of the greatest to ever don the white shirt, each player is on the wrong side of thirty. Those three wages off the books would amount to ~€25 million a year. That large sum of cash would provide flexibility for other targets, particularly for amortized transfer fees and wages of young prospects. But, since the coronavirus pandemic has ravaged the balance sheets of all clubs, Madrid know that it will be at least a couple of years before they will have the required liquidity to pay hefty transfer fees. Thus, finding affordable replacements for the likes of Ramos and Modric simply is not attainable.

In a world where fans were still in stadiums, with ticket sales booming, match-day income at a high, merchandise sales from the club store hitting all its metrics, and the Real Madrid museum tour consistently brining droves of people in on a daily basis — the revenue would be there to potentially look at the squad building process in a deeper strategic view. A character like former Chicago Bulls General Manager, Jerry Krause, inside the Real Madrid board room, could have raised bigger debates surrounding the renewal of three veterans.

Krause, the infamous general manager of the Chicago Bulls from 1985-2003, would take a more ruthless approach to renewals. Despite Krause’s flaws in other areas, his redeeming quality from a GM perspective was that he did not view the squad through the eyes of a fan. Scottie Pippen, despite playing for the Bulls for over a decade, becoming only second in command to the great Michael Jordan, was not given the contract he had requested. Krause refused to give in to his ageing stars wage demands. He also wanted to replace the wildly successful coach, Phil Jackson, despite his unprecedented six championship titles with the Bulls. Krause wanted to enact these changes to begin the transition to a new dynasty with younger talent. With hindsight, it can be debated whether Krause’s methods or ideas should have been implemented, but few can deny that a character like Krause is a valued individual within a boardroom to at least provide a devil’s advocate to what may seem standard protocol for all others. In a world without the pandemic, if any one of Florentino Perez, Jose Angel Sanchez, Zidane, or if most of the board pushed in favor of a squad reconstruction, then maybe just one — or even none — of those renewal offers would be on the table.

Without the pandemic, two targets in particular, Donny Van de Beek and Eduardo Camavinga, may already have been Real Madrid players. Both were seemingly signed, personal terms agreed, and a transfer fee finalized with their respective clubs. Then the global coronavirus pandemic hit and each of these targets’ futures went up in the air. Take the example of Eduardo Camavinga in a pre-pandemic world: a transfer fee of €50 million euros could be amortized over a six-year contract with a smaller salary (relative to Real Madrid) of €2-€3 million (which would still constitute a massive pay raise for the 18-year-old). Conservatively, excluding agent fees and any bonuses, the amortized cost of the transfer on an annual basis would be €11.3 million (calculated as: €50 million transfer fee / 6 year contract = €8.3M + €3M annual salary = €11.3M annual amortized fee). Compare that to a Galactico type signing like Eden Hazard, which costs Real Madrid close to ~€30 million annually, Camavinga is cheap.

If a young prospect like Camavinga is “cheap”, what prevents Real Madrid from securing his signing in a post-pandemic economy? The problem lies with the transfer fee. Rennes will want the fee upfront, or at the very least a large majority of the €50 million fee upfront. The big two Spanish clubs, institutions that are privately owned by members and are run like a corporation, do not have the necessary “cash flow” — excess cash or liquidity — to pay that fee. Those same Spanish clubs are unable to secure favorable loan rates with the banks due to the pandemic and the loss of 30% of their income. In comparison, PSG and Manchester City are state-owned clubs, Chelsea is owned by a Russian billionaire, and Manchester United is owned by American billionaires and publicly traded. These owners can pull from their own cash reserves to pay that transfer fee upfront. If other clubs are willing to pay transfer fees upfront, like that of Eduardo Camavinga’s for Rennes, then Madrid are put in a difficult position for negotiations.

Let’s take another example: Kylian Mbappe. In a pre-pandemic world, the most sought-after young talent in all of world football seemed destined to sign for Real Madrid in 2021. But in today’s reality, the signing simply is not feasible unless PSG are willing to accept delayed cash payment. With a transfer fee expected to be in excess of €120 million, wages near €30 million, and other fees involved, the total package for Kylian Mbappe on a amortize year over year basis would be in excess of €50 million. If Mbappe truly yearns to play for Real Madrid, he will hold off on a renewal and leave PSG on a Bosman transfer in 2022. By that time, normality is expected to return, and the club’s new stadium will be complete to help significantly bolster revenue. Any thought of a transfer of that magnitude in the summer of 2021 by a privately owned club would be very complicated to pull off.

The club have yet to publicly release their annual budget numbers for next season but given that the current campaign is unlikely to see a packed Bernabeu, nor daily filled museum tours, or club store, then it’s unlikely much capital will be available for upfront transfer fees. Without major departures, the club will need to get creative to secure targets using loan with obligation to buy offers, player swaps, or deploying of the cash disbursement of a transfer fee over several years.

In a parallel universe, void of any COVID outbreak, Real Madrid’s transition from the “old guard” may have been accelerated. But in today’s reality, the pandemic has closed doors for some, like Donny Van de Beek, but it will provide opportunities for others. Just ask Luka Modric. Even recent UEFA Youth League winners like Sergio Arribas, Antonio Blanco, or Victor Chust could see their opportunities with Real Madrid improve thanks to the pandemic. Given the limitations imposed on the club, the next 18 months will be a delicate balance in meeting Real Madrid demands while continuing to construct a squad that lays the foundations for continued success in the current decade.