How can Real really afford him?

This morning, Manchester United accepted a monumental bid 0f £80m from Real Madrid for their star Portuguese player, Cristiano Ronaldo. The fee will be a new football transfer world record. The question though is, how can Real Madrid afford to outlay such an amount on a player - especially considering they bought another star, Kaka, on Monday for £56m?

It's a combination of a number of factors: namely, growing match-day revenues, increasingly shrewd and global marketing, healthy commercial income, and a ground-breaking domestic TV deal, which have all catapulted the club to the peak of the Deloitte's Football Money League this year. In fact, they have topped it for the past four straight years. For the 2007/08 season, the club saw its revenue hit £290m. Whilst Real Madrid's 4% revenue growth in 2007/08 was more modest than in preceding years, it meant that across a six year period the club had doubled its annual revenues since 2002.

Matchday revenue has also increased significantly in the past couple of years thanks to the reconfiguring of areas of the club's stadium to increase corporate hospitality capacity and hence revenues.

After the purchase of David Beckham from Manchester United in 2003, Real Madrid cleverly projected their brand into East Asia, on the back of the England star's appeal. Real are targeting the world's best players - who are also the world's most marketable players. In emerging markets fans may swap allegiance, from - for example - Manchester United to Real Madrid, simply because they prefer to support star players rather than clubs. But it is not about Real looking to sell more merchandising in places like China, in fact they would not make a great deal from doing that. They are looking to make money from these signings by maximising their future overseas TV rights.

Since 1997 Spanish clubs have sold their own TV rights individually. Real Madrid signed its latest deal in 2006 - for a reported record 1.1bn euros - with Spanish film and TV company Mediapro for seven seasons of broadcast rights. That works out at a huge 150m euros a year.

But overseas merchandising, domestic and TV rights, and matchday earnings are not Real's only income streams. It also has a number of high profile sponsorship partners - Bwin.com, Adidas, Coca-Cola, Audi, and Spanish beer brand Mahou. An image rights deal with Adidas alone in early 2007 garnered them 762m euros. Another benefit, one that helps attract top name players, is the fact that tax legislation allows their foreign players to pay tax at about 23% for the first five years that they are in the country.

In its latest report, Deloitte said it would be difficult to see anyone topping Real Madrid at the top of the money league next year, but added "it will be interesting to see how the club copes with the loss of the Brand Beckham effect." It appears Real are now answering that question by plugging that gap with the purchases of Kaka and Ronaldo.

Source: BBC