A version of this article was first published in July 2023.
Real Madrid finally clinching the signing of Kylian Mbappe is one of the biggest transfer deals in football history — and the culmination of a long campaign by club president Florentino Perez that has heavily influenced all their major financial decisions through recent years.
While Mbappe will join Madrid on a free transfer this summer after leaving Paris Saint-Germain at the end of his contract, the deal still involves a huge outlay by the La Liga club. Reports suggest the 25-year-old will be paid a signing bonus of €150million (£127.7m; $163m), along with a €15m yearly salary.
This comes as Madrid are completing the €1.4billion remodelling of their Santiago Bernabeu stadium.
How can they afford it?
How are Madrid’s finances?
La Liga’s president Javier Tebas does not have a good relationship with Madrid, but still acknowledged in 2021 that “it is the (club) that is in the best financial health”, and the one that “has best managed the pandemic” in Spain.
Tebas then went further last year when saying Mbappe and Manchester City striker Erling Haaland “could only be at Real Madrid (among the Spanish clubs), because the economic situation of Barcelona would not allow them to have access to this type of player”.
Barcelona’s well-known financial issues have seen them running at big deficits in recent years, which president Joan Laporta has tried to deal with by activating controversial financial ‘levers’ that raised €867million through selling shares in the club’s future revenues.
Meanwhile, Madrid’s published annual accounts have shown a positive operating result every year since the 2002-03 season, including a surplus of €11.8million for 2022-23 (with total revenues of €843m up 17 per cent from the previous year).
Madrid’s La Liga-imposed salary budget was most recently updated at €727.5million, a rise from €683.5m last year. This is by far the biggest in Spain’s top division — next are Atletico Madrid with (just) €303.4m. Barcelona’s budget is €204m.
How have they been spending recently?
Madrid’s recent transfer policy has been remarkably canny, particularly compared to the millions splashed on more established ‘galacticos’ during Perez’s first term as club president from 2000-06.
With the exception of summer 2019, when €350million was spent — half of which went on Eden Hazard and Luka Jovic, both of whom failed to impress as Madrid players — they have been relatively frugal in the market of late. Even when players such as Gareth Bale or James Rodriguez were signed earlier in Perez’s second term, they balanced the books by forcing out others, such as Mesut Ozil and Angel Di Maria.
Madrid have also regularly sold younger squad members or fringe players to keep money coming in each year, such as Mateo Kovacic, Marcos Llorente, Theo Hernandez, Achraf Hakimi, Sergio Reguilon, Martin Odegaard and Borja Mayoral. Older players, such as Casemiro and Raphael Varane, have been moved on at the right moment, too.
Most of their signings over recent seasons have been either market opportunities, such as the transfers of Thibaut Courtois, David Alaba and Antonio Rudiger, or investments in young rising stars: Jude Bellingham, Vinicius Junior, Rodrygo and Eduardo Camavinga.
But after three summers in which they made a profit on player transfers and a 2022-23 season in which Barcelona beat Madrid to the domestic title and they watched Manchester City, who humbled them 5-1 in the semi-finals, win the Champions League, they decided to go big last summer. It paid off, as they have won La Liga, the Champions League and the Supercopa de Espana (Spain’s four-team mini-tournament that is its equivalent of England’s Community Shield).
Madrid spent €128million, with most of that going on their €103m marquee arrival Bellingham. Arda Guler joined for an initial €20m, along with the returns of former Madrid academy players Fran Garcia (€5m) and Joselu (loan fee of €500,000). After selling squad players Alvaro Odriozola and Antonio Blanco for a combined €7m, their net spend came to €122.5m.
Bellingham’s signing last summer perfectly exemplified Madrid’s emphasis on future-proofing with world-class young talent (Helios de la Rubia/Real Madrid via Getty Images)
No other La Liga team came close to that outlay. Atletico were the next biggest spenders with €33.7m, while Barcelona’s only transfer fee paid last summer was €3.4m for backup holding midfielder Oriol Romeu.
Is there room on the wage bill for Mbappe?
The size of Madrid’s wage bill has actually dropped annually since 2018, with the departures of big earners including Cristiano Ronaldo, Bale, Sergio Ramos, Marcelo and Isco. The club’s annual accounts show their total spend on salaries in 2022-23 was €452.7million.
Even after Bellingham’s arrival, the total salary spend was lower again for 2023-24, after Karim Benzema and Hazard both left last summer.
The club’s biggest earners currently — Toni Kroos and Alaba — pick up significantly less than Ronaldo or Bale once did. Kroos will soon come off the wage bill after playing his last game for Madrid in Saturday’s Champions League final. The 34-year-old will retire after representing Germany at this summer’s European Championship. Luka Modric, 38, has agreed a new one-year deal on a lower salary and 34-year-old club captain Nacho’s contract is up for renewal on June 30.
There is plenty of space for Mbappe within that La Liga-allowed spend of €727.5million for the season, and the club’s most recent published figures, from June 30, 2023, showed a cash balance of €128m, along with “undrawn credit facilities amounting to €265m”.
So even after signing Bellingham and outspending the rest of Spain last summer, Madrid had lots of wiggle room in the transfer market — and their ratio of personnel expenditure to operating income was 49 per cent in the 2023-24 season budget, well below the industry benchmark of 70 per cent.
What about the stadium rebuild?
Remodelling the Bernabeu has been an objective for Perez for almost two decades.
In 2004, he promised to spend €30million on a roof to keep all fans dry during games played in wet weather and over time other elements have been added to the plan — including a futuristic ‘silver skin’ wrapped around the outside and a retractable pitch to allow the staging of non-sporting events such as concerts.
The cost has grown too, with Madrid requiring €1.17billion of external funding for the project (loans of €575m in 2019, €225m in 2021 and €370m announced last November). The club are pleased with the relatively low interest rates they have secured on these — from 1.53 per cent to three per cent. The project is now set to cost them at least €1.4bn.
Madrid’s Bernabeu, pictured in December (Gonzalo Arroyo Moreno/Getty Images)
Perez told club members at their November 2023 AGM that the total repayments would cost Real Madrid around €60million a year for 30 years. But he added that the new, ultra-modern venue would generate more than double that amount from matchday, sponsorship and non-football events (Taylor Swift played two sold-out shows at the stadium last week, generating an expected €5million for the club).
From the club’s perspective, this meant the hugely expensive stadium project would actually increase the amount of money available for new signings.
Surely it must be more complicated than that?
Indeed it is. There are still questions over agreements Madrid have recently made with U.S. private equity firm Providence Equity Partners and stadium management specialists Legends. Madrid strongly reject the idea these are comparable to Barca’s ‘levers’, but there are similarities. In both cases, the clubs received a large sum of money up front in exchange for a chunk of future annual income.
Under the 2017 deal with Providence, Madrid received €200million in exchange for a share of upcoming sponsorship revenues. In 2021, that was renegotiated for a further €50m and it now runs until 2027. The May 2022 agreement with U.S. investor Sixth Street and Legends provided €360million, which Madrid were free to spend on anything.
The club are already repaying Providence with a share of sponsorship revenue each year — in 2022-23, this was €26.59million. Sixth Street and Legends will receive 30 per cent of the club’s stadium-based revenue (excluding season tickets) from the new Bernabeu over 20 years.
The Madrid hierarchy argue these deals all provide good value, but it is difficult to know that for sure. Some at the club contend no individual player — not even Mbappe — is as important to generating revenue as the team collectively winning the biggest trophies.
Why could these deals be a problem under UEFA rules?
UEFA, European football’s governing body, has a different take on how these types of deals should be interpreted in each season’s accounts. Last July, Barcelona were fined €500,000 by UEFA, which said “profits on disposal of intangible assets (other than player transfers)” were “not a relevant income under the regulations”.
Madrid did not face any sanctions, but UEFA’s approach to accounting is still a potential problem for them. Without the money from Sixth Street and Legends, both their 2021-22 and 2022-23 accounts would have shown losses and not the reported operating profits.
In January, UEFA told The Athletic it had not yet assessed club accounts, so it was too early to say whether any club would have problems. It has been transitioning to new ‘sustainability’ financial regulations over the past season.
Madrid president Perez, pictured in December (David Benito/Getty Images)
The wiggle room in Madrid’s accounts from waiting for Mbappe has helped the club meet UEFA requirements. But his huge signing bonus and annual wage costs could eat up that extra space.
It is worth bearing in mind Madrid’s damaged relationship with UEFA, since their leading part in the attempted breakaway to form the European Super League three years ago. Club and governing body remain at odds after December’s European Court of Justice ruling, which both claimed afterwards as victories for their side.
So is it all going to work out?
No problems would be expected in registering Mbappe with La Liga for 2024-25 — they have plenty of room within their salary limit. Tebas would also be pleased to see a global superstar coming to the Spanish top flight, raising its worldwide profile.
There will of course be an impact on the club’s salary scale: Mbappe is now the club’s biggest earner, and this might complicate future contract negotiations for stars including Vinicius Jr and Bellingham.
But with a new galactico to play in the new Bernabeu, Madrid will be confident their long-term plan is paying off.
(Top photo: Xavier Laine/Getty Images)
