The True Factors Behind Real Madrid’s Squad Construction for the 2021-2022 Season

The more things change, the more they stay the same. It has been six years since Ancelotti last sat in the Real Madrid dug out. Despite half a decade out of the warm Madrid sun, the Italian could put out nearly an identical starting XI to the one he used most predominantly in 2015. Only two outfield players are missing – Cristiano Ronaldo and James Rodriguez. The man who just walked out on the club, Zinedine Zidane, was a disciple of Ancelotti’s. The way they view football, their tactical approach to the game, and their management style are not too dissimilar. For all intents and purposes, Carlo Ancelotti is a “continuity candidate”. And maybe that is where the issue arises for many following the club; the thought of continuity brings a lack of enthusiasm. Ancelotti will be an extension of a project for which the expiration date has long surpassed.

The club are aware of a desire from certain corners of the Madrid faithful for a “revolution”, but it’s a gradual “evolution” that is far more likely. Many of the most valuable clubs in the world, Real Madrid and Barcelona chief among them, have seen their financial reality impacted by the Coronavirus pandemic. Handicapped by lucrative player contracts and little cash flow – the club may want to do one thing but forced into another. Today, Real Madrid’s squad remains, at minimum, 5-6 top quality signings away from being able to compete at the highest level on three fronts. When Carlo Ancelotti and Jose Angel Sanchez sit down to shape the team for the upcoming season, how do they implement a gradual evolution?

Most sporting directors, or in this case an executive in the mold of Jose Angel Sanchez, are always planning at least two years in advance, a data analytics source has told Managing Madrid. A spreadsheet, similar but extensively more detailed than the one below, is used to identify who will be departing, who gets promoted, where to increase salaries, and other squad building requirements.

*Note: Salary numbers above are not official. Numbers were pulled together based on reports from Sportekz and Salary Sport. Spreadsheet provided as example, should not be used as fact.

The impending meeting between Carlo and JAS will see a similar type spreadsheet on the table, coupled with the budget figures for the year, as well multiple reports from the data analytics team. Like any business, a projection and a plan will then be put together to construct the new squad. There are usually three key figures to review when evaluating a player. Their value and importance on a sporting front, their contract wages + unamortized transfer fee, and their contract length. If Madrid sets a budget expectation of bringing in ~€100 million euros in transfer fees and cutting the wage bill by 20% due to the pandemic, then the two men may start with the wage bill and organize by hierarchy (highest earner to lowest).

Within Real Madrid’s top 10 earners, at least four names stand out for their lack of production and performance. Eden Hazard, Gareth Bale, Luka Jovic, and Marcelo combine to earn a whopping ~€63 million per year. Immediately those names would likely be identified as expendable. Sergio Ramos, at 35-years-old and with a ready-made replacement already brought in, also looks expendable. Even further down the list, Isco and Alvaro Odriozola, each command high salaries for disappointing on-field performances. Managing to offload those seven players would result in a ~€100 million savings in wages, cutting the bill by 40% — still leaving room in the budget for reinvestment in cheaper and likely younger alternatives.

Identifying these players as “expendable” is one thing but selling them in a depressed market is another. No sane club will even come close to the salaries provided to Eden Hazard and Gareth Bale. Prospective buyers would not provide a transfer fee on top of those figures. Eden Hazard was purchased for €120 million in 2019, meaning a transfer fee of at least €72 million is required to break-even on his transfer. No club, not even his beloved Chelsea, would put together a total package (salary, bonus, transfer fee) worth close to ~€100 million for an injury prone 30-year-old. Luka Jovic, a player who has had difficulty adapting to the club despite his innate talent, still requires an incoming transfer fee in the region of €40 million to break even on the remaining amortized cost of his transfer. Even then, the Serbian would likely have to accept a salary cut at whichever club he joins. Not every player is willing to take that cut, as has been proven with Mariano Diaz in the past.

When faced with difficult market circumstances or simply player reluctance, a club is forced to look at more valuable assets – those that are attractive pieces to other clubs and can fetch a sizeable transfer fee. Raphael Varane, Marco Asensio, even Borja Mayoral fall under that umbrella. Because they either were formed in the academy or have been a part of the club for several years, there is no unamortized transfer fee saddled along with their contract. This means the club does not need a minimum transfer fee to break even or make a profit. There is no €40 million outstanding on the books, like there is for Luka Jovic. Thus, those players transfer fees bring pure profit to the club and wipe away their corresponding wages which can then be invested in another player.

An example of a hypothetical scenario for this upcoming summer could be the potential departure of Raphael Varane. It can be presumed that the French center back is justifiably unhappy that a new center back (Alaba) has been brought in on significantly higher wages. His current partner at the heart of the defense, Sergio Ramos, is making double what he earns. Compared to Premier League top dogs – who Varane can count as his equal – the Frenchman is not paid anywhere near what the market commands. Thus, if Real Madrid decide they cannot afford to raise his salary, then capturing a transfer fee for a player in his prime with just one year remaining on the deal, begins to make sense.

Let’s say Real Madrid accept an offer of €40 million for their center back, they then have a profit of €48 million (wage + transfer fee) added to the books for the current season. If they then go on to purchase someone like Jules Kounde from Sevilla for €65 million, on the accounting front, they will likely end up with a €32 million profit for the year.

How in the world is this possible given they spent €65 million on the transfer fee alone and only brought in €48 million with Varane’s departure? It all comes down to the accounting process used in football. Over the long term it may net out the same for Madrid to have just renewed Varane’s contract rather than invest in Kounde, but on a strictly one-year basis – Madrid could boast a net profit of €32 million. This is possible because Kounde would likely sign a six-year deal worth a salary around €5 million per year. By dividing his transfer fee (€65 million) by the length of the contract (6) and then adding his wages per year (€5 million), you get a total of €15.8 million (bonuses excluded). By taking Varane’s pure profit for the year, €48 million, and subtracting one amortized year of Kounde’s contract (€15.8), you come out with a profit of €32 million. Accounting magic, eh? The subsequent years of Kounde’s contract will not provide any profit but had the club just renewed Varane with a salary around €15 million, they would have foregone any profit all together.

Like any player, Raphael Varane’s situation is complex. Potential movements within the team could dictate the renewal offer Real Madrid present to their co-captain. If Sergio Ramos ultimately departs the club after 16 years, there may be some additional funds to raise the Frenchman’s salary. Jose Angel Sanchez and Carlo Ancelloti must build a squad being cognizant of the UEFA squad quotas. The European body requires at least 8 “club-trained” or “associated-trained” players within the squad:

“There are two categories:

1. Club-trained players – players who were on a club’s books for three years between the ages of 15 and 21;

2. Association-trained players – players who were on another club’s books in the same association for three years between the ages of 15 and 21. No club can have more than four association-trained players among their eight nominees on List A.” - UEFA.com

Varane, having joined the club at the age of 18, qualifies as a club-trained player, increasing his value to the Real Madrid squad. If Varane were to depart, then Madrid would be forced to either promote a youth team member to the first team, bring back a loanee like Fran Garcia or Borja Mayoral, or re-purchase a former associated-trained player like Jorge De Frutos. Varane’s departure could in theory require two players to then be purchased or promoted: a new center back and a locally trained player.

There is yet another hurdle in the squad building process with La Liga having specific requirements regarding “non-EU” roster spots. A club can have a total of 5 non-EU players on their roster, but only 3 can qualify for the match-day roster. Real Madrid’s current list of non-EU players include: Vinicius JR, Rodrygo Goes, Eder Militao, Takefusa Kubo, and Reinier Jesus. This summer, Vincius JR qualifies to receive his Spanish passport and would then open another spot within the roster. Takefusa Kubo and Reinier Jesus could end up competing for the spot, or, another non-EU player could be brought into the club to reinforce the roster. If Kubo and Reinier fail to convince Ancelotti, then another year on loan is likely for both.

If Real Madrid are to achieve any sort of squad shake-up this year, a lot will depend on who they can sell and how that players value hits the accounting books for the 2021-2022 season. In the current market conditions, no player can truly be deemed “un-transferable”. Madrid do not depend on themselves, something the club have never truly been accustomed to in years prior. The offers that arrive and the market moves that play out before them will dictate what Real Madrid can and cannot do to shape their new squad. Madrid, in this current moment in time, are not the dominant force in the market like a PSG or a City, meaning they have to evaluate other moves before executing their own. It can be argued that this summer, more so than any other recent transfer window before it, Real Madrid’s silly season will not be over until the window officially closes.