Real Madrid loanee’s hold the keys to unlocking mega transfers like Mbappe

“Real Madrid will wait for me,” that’s what Mbappe told then Monaco Vice-President Vadim Vasilyev after rejecting the club in 2018 in favor of a move to his hometown club. Since the day Mbappe signed for PSG, Real Madrid have been planning for his eventual arrival. For many, Mbappe to Real Madrid is a foregone conclusion, it’s not a matter of “if”, it’s a matter of “when”. Even if Real Madrid are forced to wait until the summer of 2021, there is little doubt that the overall value of the Frenchman’s transfer will smash every prior record Real Madrid had held in the transfer market.

Let’s presume the transfer does materialize in the summer of 2020, one could rightly expect a transfer fee around, or even in excess, of €300 million. PSG have apparently put forth a head spinning renewal offer of €56 million euros a year in wages. Real Madrid may not be able to match an offer quite so lucrative, but for conservative estimates, one could guess Real Madrid may offer a €40 million annual wage – on par with Lionel Messi and above Cristiano Ronaldo’s €30 million. With the rules and regulations of Financial Fair Play, Madrid would likely be forced to sell a lot of their existing talent to pull off the deal – essentially jeopardizing the balance of the squad and devoid the team of world class talent for Mbappe’s “prime years”.

So is Mbappe really worth it? First off, the answer to that question is yes, but fortunately for Madridista’s they can have their Mbappe cake and eat it too. Mostly in part to the aforementioned planning by the Real Madrid board. But before we rave and rejoice at the brilliance of a well-run club like Real Madrid, let’s evaluate the true value of Mbappe’s transfer.

For hypothetical purposes, say Real Madrid do indeed pay €300 million to PSG for Mbappe’s services in the summer of 2020. We could rightly presume that the Frenchman would then go on to sign a five year contract worth a wage around 40 million euros per year. If Real Madrid only bought Mbappe that summer, and did not sell a single player nor purchased any other player, their net spend on Mbappe - in the summer of 2020 - would be €100 million euros. You’re probably wondering how that math works out. The figure nets out to around ~€100M because nearly every club “amortizes” the value of their transfer (the fee + wages) over the length of the contract. This is an accounting tool, used by almost all clubs in the world, called “player amortization”. It is how clubs truly define the cost of a player.

So instead of that €300 million being a glaring red block on the accounting books, the club will spread the transfer fee over the length of the player’s contract. So in this example, €300 million would be divided by the 5 year contract (€300M/5 = €60M). Wages are also the major factor included in the calculation. In all reality, agent fees, image rights, and bonuses are included as well, but to keep the calculations relatively easy, we will focus on the two major expenses: amortization of the transfer fee and wages. So when Real Madrid hypothetically add the amortized year 1 transfer value of Mbappe at €60M + the annual wage of €40M, they arrive at a net transfer value of €100M for the summer of 2020. That figure will flow through on the books over the next four years.

The strategy behind Real Madrid’s recent transfers since the day PSG signed Mbappe is to buy the future Neymar and Mbappe’s of the world before their price reaches a staggering €300 million. To acquire and then retain the best players in the world, no club can afford to splash out 200-300 million euros every summer and maintain a balanced competitive squad that adheres to FFP. So by recognizing future market conditions, Real Madrid have splashed out the following on young players:

Ødegaard - €4M

Asensio - €4M

Vallejo - €6M

Achraf - €0

Theo - €30M

Ceballos - €18M

Fede - €5M

Vinicius JR - €45M

Rodrygo - €54M

Odriozola - €30M

Reguilón - €0

Oscar - €0

Lunin - €11M

Brahim - €17M

Militao - €50M

Jovic - €65M

Kubo - €2M

Soro - €2.5

Reinier Jesus – €35M

Hugo Vallejo - €300K

Most of Real Madrid’s young players signed six year contracts, providing an additional year over the average new contract length at the club and thus providing additional amortization value to the transfer. The total spent on 20 players under the age of 23, was just about €380M. When you amortize that figure over 6 years, it comes out €63 million per year for six years. Even if only a third of those 20 players end up making it at Real Madrid, that is 6 or 7 players likely to be worth in excess of €80M in their prime with fully amortized and paid off transfer fees. Because of Madrid’s astute planning, they can afford to extend themselves on a deal for mega-star, like Mpabbe, without sacrificing major talent.

Many of the young players listed above have now been scoured across Europe, playing for different teams on loan. Players like Achraf Hakimi, Martin Odegaard, and Sergio Reguilon – who are not a part of the current Real Madrid squad, instead they are developing elsewhere. In essence, Real Madrid could revolutionize their squad and inject new younger blood with little to no investment. Theoretically, in a summer where Mbappe, or another star is brought in, Madrid could bring in a recruiting class of four or five additional loanees back home and transform the squad structure with only a transfer spend of €100M, and that is of course excluding player sales and previous season’s amortized transfers.

In an era where FC Barcelona is depriving a relegation threatened team of their starting striker due to an “emergency signing” clause, it is refreshing to see how far ahead of the game Florentino Perez and the Real Madrid board remain. The above “hypothetical” were high level evaluations of the viability of a 300 million euro transfer, disregarding income from amortized player sales as well as losses from previous season’s amortized transfer fees and wages. Irregardless of the minute accounting details associated with a mega-transfer, it is clear that Real Madrid have assembled a crop of talent, most of whom are playing away from the club, that are knocking down the door to the first team. These players will form the new core and help fund the next great Real Madrid generation.