Real Madrid Case Study
1) Describe Real Madrid’s business model and analyse how the market of football has evolved in time. Acting as a company - Using branding, values, and mid- to long-term planning to generate income – income – Portraying Real Madrid as a brand whose content are the players and the games (the product it sells). This business model is implemented on 3 levels and measured through 4 brand br and value drivers:
Organisational •Creation of the following departments: •Sport Area •Corporate Area •Marketing Area •Presidency Area
Strategic
Emotional
Measurement
•Three goals as a "content provider": •Financial flexibility •Top players •Leverage brand and content across various channels
•Creation of a clear mission and vision •Transform the emotional relations between the brand and the fans into relations that contribute economic returns
•Quantification of brand success in terms of: •Size of audience •Frequency of engagement with the brand •Sociodemographic characteristics •Bridges to link audience and brand
Achieve financial flexibility to acquire talent and expand brand reach
•Rezoning of training pitches •Recapturation of exploitation rights •Set-up of a strand-alone legal entity to own and manage commercial rights •Licensing / sponsoring
Assemble a team of top players
•"The Galacticós" - one new recruit per year •Include: Figo, Zidane, Renaldo, Beckham, Owen, Raul, Casillas, Carlos
Leverage the brand and content across all kinds of channels
•Attract and retain star players •Real Madrid TV - 16 hours of daily coverage •Website •Stores, fan card, magazine - making fans feel special •The key is the one-on-one relationship with the fans!
The football market: -
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Football as the world’s most popular sport – most watched TV sport in all countries (bar Japan / US) The reputation of a football club depends on good games and players, and the number of games / championships won In the 1990 there was a paradigm shift – from the traditional business model which emphasises gate receipts and local corporate sponsorships to a strategic business model of maximising merchandising and TV revenues – and in some cases even including stock values Clubs started to become „products“ and „brands“ with a higher purpose than just winning games. The point of having good players was not just to win games, but also to endorse the club image – players have moved from being athletes to being products! The best candidates were clubs with strong brand identities and a wide international o fan base How do they make money?
Match day gate receipts (traditional approach)
Merchandising (sale of branded goods)
TV rights (single largest source of revenue)
Sponsorship (of the club / individuals)
Public share offerings
Spain: 1.7% of national GDP, 2.5% of GDP in relation to the service sector
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Early 1950s – Bernabeu – strategy: build a powerful team, buy best players at any price 1970s-1990s – club declined because no clear strategic direction 1990s – new president, selling players and assets to cover fi nancial debt 2000 – Perez became club president – change of leadership style! Change of operations and marketing approach o No clear vision and mission – important to make decisions with the head not the o heart. Structuring as a company o Executive team: general director, marketing, sport management, president office. See themselves as „content providers“ o Four brand value drivers (to make RM the best brand worldwide) – develop a series o of actions that transformt he emotional relations between the branda nd the fans into relations that contribute economic returns. Quantify brand success in terms of: Size of audience Frequency of engagement withthe brand Sociodemographic characteristics Bridges to link brand and audience o Goals: Give financial flexibility to acquire talent and expand brand reach
Rezoning of training pitches -> sold 20% to private developers -> 500 Mio EUR profit Recapturing of exploitation rights -> VIP boxes -> 16 Mio EUR pro fit per year Set-up of stand-alone legal entity to own and manage RM’s rights – contracting, negotiating, billing, etc – selling shares to big TV channels -> 78.1 Mio EUR (Caja Madrid) 39.05 Mio EUR (Sogecable) Licensing / sponsoring: Adidas, Siemens, Audi, Pepsi, Telefonica
So? -> Marketing revenue expected from 39 Mio EUR to 83 Mio EUR in just 3 years. Assemble a team of top players
First galactico: Figo – 2000. Cost 60 Mio from FC Barcelona – goal to transfer at least one world-class player per year
2001: Zidane
2002: Renaldo
2003: Beckham
2004: Owen
Raul
Casillas
Carlos
How to get new players?! PROBLEM Leverage RM brand and content across all kinds of channels. Avenues:
Attracting and retaining star players
RM Television – 16 hours of daily coverage
Website – 1.5 Mio visitors each month in 2004
Key: one-on-one-relationship – emotional values important – honesty, discipline, fighting spirit, leadership, c amaraderie, nobility (= Madridismo) Global brand reach: Merchandise (especially Asia), soccer academies, fan clubs, shops, restaurants, cafes US: loyalty, content development, etc
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Stores, fan card, magazine - discounts for card holders, „special“!
2) How many market segments does RM have? Describe them.
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By geographic markets US o Asia o Europe o By loyalty
3) What is the logic of hiring „galacticos“? Is it a sustainable business model? Assembling a team of top players is one big part of Real Madrid’s business strategy. The players were not only seen as athletes, but also as products of the Real Madrid brand – the creation of a strong, internationally well known team therefore contributes to Real Madrid’s brand value and therefore positively impacts the financial bottom line. 3 main reasons for recruiting galacticós:
Reinforcement of the club's international image and its brand
Possibility to achieve sporting success
Consolidation of the economic and the sports structure and the club's long-term viability
Is this model sustainable? No. Why not? Problems: -
The galacticós are now almost all too old to play -> they are not easily replaceable Comparison to products: an outdated product will not sell <-> an outdated football player will not make revenue A football player’s „job“ in the end is to score goals / support others in scoring – human factors affect the ups and downs of a sports team In the end, fans want their football club to do well -> despite Real Madrid’s star line up, they did not win a single trophy from 2003-2006
Logic: -
The player recruiting policy of Real Madrid reinforces the international image oft he club and ist brand The recruiting method permits the club to achieve sporting success The recruiting method consolidates the economic and sports structure and the club’s longterm viability
Sustainability: -
Galacticos are getting older They play a vital role in the development oft he whole strategy and ist sustainabiity They will need replacing Probably not sustainable!! The stakes are very high Sustainability is a big word – human factors affect the ups and downs of a sports team
