2023-07-12 18:34:49
An investigation of The Telegraph reveals that the Real Madrid He has refused to detail what he has spent 122 million euros on last year, which raises doubts about his compliance with the rules of financial control.
According to the British newspaper, around 135 million euros in payments went to a subcategory of “other operating expenses” in the latest results, published in October, of which 122 million euros have not been explained.
The white club has refused to answer, according to the investigation, if these expenses correspond to a reimbursement for an agreement for the sale of future marketing income to the Providence private equity group.
Sums obtained from the sale of an unspecified percentage of future sponsorship income, which the club says was renewed in 2019-20, were recorded in Real’s accounts as income rather than debt. The club has never explained in detail how that commitment is returned to Providence or how much is paid each year.
There is no indication that the Providence deal is illegal, although there are questions about whether it complies with UEFA’s financial controls. It would be, in any case, a kind of undisclosed lever.
extensive advantages
“There are significant advantages to such a deal structure, even if the money is simply poured in from advance cash payments to cover budget shortfalls and then leaves the club in repayments to the same third party,” the newspaper said.
“It means that the initial cash is not considered a loan under financial fair play considerations and contributes to establishing a higher overall revenue figure, critical in calculating salary caps,” warns The Telegraph.
However, there are serious questions about whether clubs should be allowed to record the sale of future revenue as marketing revenue rather than debt, according to the newspaper, especially in an era when other state-owned clubs such as Manchester City, are under intense scrutiny as to whether or not their business income is valid.
The Spanish tax authorities consider this type of payment to any entity for part of future income as a financing operation, which means that it is treated, for tax purposes, as debt. Madrid originally described the Providence deal as a “participation account” and then, in its most recent results, as an “unincorporated joint venture deal.”
Obligation to borrow
Before the financing of the club was agreed with Providence, Real Madrid was forced to borrow in the short term to meet the salary costs of the 2014-2015, 2015-2016 and 2016-2017 seasons. They borrowed between €72 million and €82 million in each of the three years, but since the Providence deal those short-term loans have no longer been needed.
In the most recent Deloitte Money League, the industry-standard index that ranks clubs by their revenue, Real came second in Europe behind only Manchester City. Madrid reported a total income of 713.8 million euros for that fiscal year in question.
Madrid’s short-term finances were significantly bolstered last summer by $360 million from the sale of 30% of the revenue over 20 years from its redeveloped Bernabeu stadium. That was an agreement with the American investment fund Sixth Street that the club withdrew in two tranches. The first payment of €316 million for the 2021-2022 season meant the club avoided a loss of around €300 million. Another 44 million euros will be recorded as earnings for the 2022-2023 season.
800% increase
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The Telegrah stresses that although Real Madrid claims to be in a solid financial position, in recent years it has only struggled in profits. It has done so in part through the sale of players, its financing agreement with Providence and, more recently, the sale of 360 million euros of future rights, that is, financial levers. The €800m financing deal for the recently renewed Bernabéu is an additional cost, with payments spread over 25 years until 2049.
The issue of the rapid growth of Real Madrid’s “other operating expenses” subcategory remains unexplained by the club, despite an increase in payments in that subcategory of 800% over five years. This came against the backdrop of club revenue growth of just 6% over the same period, as well as spanning two years of covid-19 when revenue fell sharply.
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