Any mention of Real Madrid and most would think of lavish transfer fees, “galáctico” celebrity signings, huge riches and — of course — a sparkling trophy cabinet stuffed with silverware.
Madrid take on Napoli in the Champions League tonight ranked among the favourites to win the competition, a feat that would secure them both a record 12th European Cup — five more than anyone else and as many as English clubs have combined — and the distinction of being the first club to win the trophy in consecutive seasons in the Champions League era.
Sure, the oft-repeated refrain goes, Real Madrid have plenty of good players and bucket loads of money so of course they win things. But imagine if they didn’t sack their manager after every other season or get caught in the kind of imbroglios that have seen them ordered to repay £17m in state aid after being judged to have received illegal government help or banned from signing players until next summer.
Yet according to Columbia Business School MBA professor Steven Mandis, the author of a new book that explores the culture, business practices and personalities behind the Bernabeu behemoth, these are small blips in a long-term strategy and deeply held philosophy that underpins the club’s current commanding position at the top of Spain’s La Liga and status as defending European champions.
In writing 'The Real Madrid Way' Mandis, a former Goldman Sachs banker, spent two years investing the Marid business and interviewing the club’s most senior executives to come up with an explanation for their success that goes beyond the headline-grabbing transfer fees.
Mandis interviewed over 20 Real Madrid players, coaches and directors during the course of his research and consulted the likes of Sir Alex Ferguson, Moneyball guru Billy Beane and Roma president James Palotta with his findings.
He argues that the Real Madrid model is not simply blitzing rivals in the transfer market to sign a Cristiano Ronaldo-level “galáctico” every summer, but of what he calls an “economic sport model” that begins and ends with the Madridistas — the ordinary fans who literally own the club as community members or socios.
“People don’t realise how the whole thing is intertwined,” Mandis told City A.M.
“They’ve built a sustainable economic sport model and that’s really important because unlike Chelsea or Manchester City, there’s nobody to bail it out if it loses money.
“It’s more than a coincidence that society-owned teams Real Madrid, Bayern Munich and Barcelona do as well as they do from a financial perspective. Club presidents have to run their teams based on what their fans and communities want in order to be reelected.
“All of that impacts the players you play, the style you player on the field — everything. It’s all intertwined.”
The Madrid Mission
When current Real Madrid president Florentino Perez first stepped into the role in 2000 one of his first actions was to draft the club's first ever mission statement to reflect the values of the socios who had elected him.
Perez, who was president until 2006 when he was replaced by Ramon Calderon before returning in 2009, is commonly characterised by a colourful history of record breaking signings and managerial sackings.
Yet Mandis, whose previous book 'What Happened to Goldman Sachs' argued the investment bank's diversion from its founding values led it to scandal, argues that while such events may leave the impression of acrimony and turmoil, Real Madrid have in fact rarely deviated from the company culture — one that includes both "the aspiration to have the best Spanish and foreign players within its ranks" and "complying with the very highest standards of good corporate governance" — outlined in the mission statement.
That has helped the club continue to increase its revenues while developing a more sustainable and profitable business.
|Real Madrid finances||June 2000||June 2015|
|Wages to revenues||66%||50%|
|Profit (loss before tax)||(€23m)||€56m|
"Look at [former Microsoft chief executive] Steve Ballmer," says Mandis. "This multi-billionaire from the corporate world, buys the Los Angeles Clippers and one of the first things he does is he writes up the Clipper Credo [the franchise's mission statement]. And Florentino, a very successful businessman in construction, said the first thing we’ve got to do is introduce a culture.
"Because they both realise that in a successful organisation everybody knows what the mission is and what the rules of engagement are and it makes life a lot easier.
"Florentino's genius was to recognise that with a consumer-driven product you had to be as close to those values as possible for those fans to have the passion and loyalty to buy the jerseys, to show the sponsors that they were loyal. That's really what drove the purchase of the star players.
"It was the identification of 'let's go to those people, find out what they're most interested in, what they value and start there'."
Galácticos for the masses
Real Madrid's habit of signing galácticos is therefore only a cog in the wheel of the “economic-sport model”.
First come the stars to capture the imagination of a local and global fan base. The relationship to the fans is then strengthened by the club’s rich history and established rituals, leading to sponsors flocking to associate themselves with the brand and broadcasters paying huge sums to show their games. Revenues grow, the bank balance bulges and more stars can be acquired to bring the process full circle.
Despite breaking the world transfer record on five separate occasions, Madrid have actually managed to significantly reduced their wages to turnover ratio in the last 15 years.
Don't win at all costs
Winning trophies does not lead inevitably lead to financial sustainability nor is it all that is required to generate long-term loyalty. This much is clear, Mandis argues, in the fact that Perez was even elected the first place, unseating former president Lorenzo Sanz who had overseen two Champions Leagues titles in the previous three seasons.
“If you'd have told me Lorenzo Sanz would win two out of three Champions Leagues and not be re-elected, that to me would be shocking because you’d think that winning is all that matters in sports,” says Mandis.
“Then you flip it and say they won two out of three but they’re about to go bankrupt. That’s also shocking because you’d think winning drives revenues but I looked into the data and showed that’s not true.
“You’d think people might come to the stadium more. But in two out of those three years the only game they sell out is the Clasico. It makes you realise that there’s more important things at a sports organisation than winning.”
Mandis points to the Chicago Bulls in the NBA and Green Bay Packers in the NFL who both boast of the highest jersey sales in their respective leagues despite being overshadowed by rivals on the field in recent years.
Like Madrid, both have mission statements that place their community's values at the centre.