Real Madrid are sitting on a mountain of cash

Matt’s Monday Musings: A series with no rhyme or reason — just consistent thoughts on all things Real Madrid released every Monday. Some weeks may be long form, others just short anecdotal thoughts. Either way, I’ll be posting reflective content on the current, past, and future on-goings of the club:

In a summer where Barcelona looked to implement the backward methodology of spending more to get out of debt, Chelsea sacked their manager mere days after breaking the transfer record on players specifically requested by the man they sacked, and Manchester United massively overpaid for every target they had — it is nice to see a club be well run. The world may mock Florentino Perez for his failed Super League attempt, but there is no doubting his mastery of operating and growing a business. Forget the Football world, Florentino Perez sits atop as one of the best in sports economic management in the entirety of the global sports industry. For the third year running — despite the many obstacles imposed by the COVID-19 pandemic and the Russia-Ukraine war, all the while building a new state of the art stadium — Real Madrid posted a profit.

In nearly all financial metrics, Real Madrid improved upon last season. The eye-opening figures are highlighted in the red square above, and here’s what stands out: Real Madrid are sitting on a mountain of cash reserves with virtually no debt. In fact, excluding the stadium renovations, Madrid are owed more money than they are due to pay. They have 0.0 ratio of debt to EBITDA which measures the probability of a firm successfully paying off its debt. This ratio is used by creditors, banks, or big investors when evaluating the credit terms to provide an entity. The lower the ratio, the better the interest rate and deal terms acquired when looking to borrow. In layman’s terms, Real Madrid have access to insanely cheap capital due to the tight ship they run.

Net debt to EBITDA ratios that are higher than 3 or 4 serve as “red flags” and indicate that the company may be financially distressed in the future and unable to pay its loans. As an example, FC Barcelona are well above 5.0x ratio. Fitch Ratings, a leading provider of credit ratings, commentary and research for global capital markets, has reported that they do not see a material drop off from the 5.0x ratio until 2026. You have likely heard rumors that many clubs were hesitant to work with Barcelona this summer in fear that they would not get their money, that net debt to EBITDA ratio is a big reason behind the fear.

Real Madrid’s large influx of cash reserves, €425 million, means they have plenty of dry powder on hand for any acquisition that meets their eye. The club have been slightly cryptic (rightly so) on where the surge in cash has come from this year, but the deal with Sixth Street as well as “expense containment measures” have bolstered their reserves.

The cash reserves put Real Madrid in a strong position for any future transfer window. The club have astutely adopted a position of waiting for the right talent, rather than buying for buying sake. As Arancha Rodriguez described in a recent Managing Madrid podcast with Kiyan last week, the club will only sign Real Madrid level players. What does this mean? Quite simply, the club will only go to market when their is an asset available with the appropriate market value, the right wage structure, and a talent capable of improving the squad — much like the evaluations made in the Rudiger and Tchouameni signings this summer.

Real Madrid fans can rest easy knowing that the club rarely ever make financially rash decisions under the leadership of Florentino Perez. In a world where nearly every Super Club appears to spend frivolously, and for some like FC Barcelona, dangerously, Real Madrid’s sound management is a welcome departure. Each year the club’s numbers get better and better, but the true the excitement lays in the years ahead with the completion of the stadium renovation and the expectation that the club will be one of the first to reach €1 billion in organic revenue.