Following the post in which we compared the economic power of Real Madrid and FC Barcelona, we have received some comments and tweets where we are told that Real Madrid’s debt is much higher than that indicated by the management team headed by Florentino Pérez.
Part of the confusion may be given by the article of the sports newspaper AS where Carlos Mendoza of the Association for the Values of Madridismo affirms that the debt of Real Madrid is € 541 million euros or also by the use of the term net financial debt that It is used in Real Madrid accounts to define its level of indebtedness and which places it at 91 million. A more than appreciable difference between one source or another.
Go ahead, that I am a member of FC Barcelona and that I have no relationship with the current president of Real Madrid or with his possible opposition. So let’s start by clarifying financial concepts first.
What is it and what is not debt?
Debt is all that is owed, however for the purpose of establishing the financial health of a company we have to distinguish non-current debt from current debt or debt from operations.
In the broad sense of the word the debt of a company is all its liabilities, in the case of Real Madrid € 541 million, but we have to distinguish between non-current debt, derived from investments and economic problems and current debt derived from operations normal business and that is recurring is to say that it is repeated over time.
If Madrid entered into liquidation
Its total debt would be 541 million euros. But in the event that a buyer wanted to acquire the club and this had continuity, not all of that debt would be considered debt since a part of it, which is current or is linked to the normal operation of the club, that is, the working capital , is reproduced year after year, that is to say it is a debt that should not be covered by the cash generated by the club or a company.
Also take into account only what Real Madrid owes for its current operations and not taking into account what they owe it would be a rather incorrect photo to determine the financial photo of a club or a company.
If we must consider as debt, the indebtedness that does not have to be renewed every year, and that arises from extraordinary investments or past economic holes. This is a debt that must be paid or returned with the cash generated by the club or a company.
In other words, if it is not renewed, it will be a lower cash flow for the potential investor or shareholder. In the case of Real Madrid, it is the future cash flows that must cover this extraordinary debt. The same does not happen with ordinary debt, which only requires financing with cash flows in the event of a growth in activity.
It is a bit surprising that what we have clear for any normal company is confusing when we refer to a football club.
Real Madrid’s real debt
If you have followed us here, in the conceptual explanation, we hope that with the numbers in your hand it will be easier. In the table attached we separate what is the non-current debt of Real Madrid from current debt.
In the current part you have short-term accruals, which correspond to the membership fees and payments paid in advance by the members, to the outstanding payments of the Real Madrid players, which, unlike a normal company, do not charge all the months but they do it only twice a year. You also have the creditors of normal activity and also the debtors. In total, the current net debt (what I owe less what I owe) amounts to 182 million euros . But remember, unless there are accumulated delays in the payment of payroll or creditors, which is not the case of Real Madrid, this figure, as long as the club continues with its operations and does not go into liquidation, debt cannot be considered as such since It is recurring in time.
In the left column you have the non-current part. basically bank debt, debts for works in the stadium (we consider it an investment), debts for the purchase of players and also what other clubs owe to Real Madrid for the sale of players. Here I make a small point, the debts for the purchase of players is a substitute for bank debt, it is changed to the bank by the seller who finances the sale, but it is a rather senior debt since its default entails significant UEFA penalties. It is almost more important for the survival of a club to pay this debt than the bank.