Real Madrid ends the ‘20/’21 season with a profit + debt to EBITDA ratio of 0.3x — here’s what that means

Real Madrid have released the financial figures for the 2020/2021 season, posting a net profit of €874,000 euros. This is the second season running, despite the well documented constraints of the Coronavirus pandemic, that Real Madrid has been able to post a profit. Few, if any, other major European clubs will be able to post a profit in back to back years of the pandemic. How the club have managed the finances during one of the most uncertain times in the club’s history is truly remarkable.

Say what you will about Florentino Perez as a man, but as a business person there are few better in the world. What he and the club have achieved is simply astounding. Despite losses from the pandemic of over €300M (match day revenue, sponsors, etc) — the club have seen the net debt go from €240M to €46M. That’s a debt to EBITDA ratio of 0.3x. That debt to EBITDA ratio is phenomenal. It’s a number that tells investors or anyone evaluating a business, how well a company can cover its debts. Anything above a 4 or a 5x debt to EBITDA ratio is really bad news.

When Florentino took over the club in 2000, the club had a net debt ratio of 5.4x. In essence, Florentino Perez managed to dig Madrid out of a situation that would be similar to what Barcelona is facing today. The Blaugranas currently have no real end in sight for their financial misery.

For the nay-sayers that discount the value of a good balance sheet, take a look at Real Madrid’s eternal rivals. Barcelona are now forced into selling some of their most valuable assets for half their worth. Clubs all around Europe will be queuing up outside Barcelona’s offices on August 31st, 2021 for their choice of discounted super-star. The two, sport and economics, will forever be intertwined! A club needs a solid foundation from which it can build. And if Madrid fans ever want to be able to compete with privately owned or state-run clubs (like a PSG or Manchester City) then they must value the current work of the club.

Short term, the lack of signings the past two years has been frustrating. But most would endure the short term pain, for the longer term gain. No club will bring in as much revenue as Real Madrid after the new stadium is built and normality returns. This moment of Real Madrid not competing in the transfer market will not last long and that is in large part due to the work of Florentino Perez and his executive management team. The groundwork has been laid and soon the club and it’s fans will reap the benefits.