Last June 18, an earthquake shook the world of football. Real Madrid, considered the best team in history, signed up David Beckham, the icon of sports marketing who, until then, had fought for Manchester United, the British team. But, beyond its impact on the world of football – called ‘soccer’ in the U.S. – this move is part of a deliberate management strategy aimed at transforming football into the Olympus of imagery and advertising. The moral is clear: It is no longer enough to score goals; you also have to sell jerseys.
On the same day that the signing was made known, Beckham landed in Japan accompanied by his famous wife, ex-Spice Girl Victoria Adams, and an entourage of bodyguards. At his feet was a legion of fans who, armed with their cameras and notebooks, thronged about in order to see the most famous couple in the United Kingdom – even though they were several meters away. This reception is a demonstration of the level of interest that moved Real Madrid when it signed up Beckham.
“Beckham is a sociological phenomenon, with more than 60,000 web pages of information about his movements. His popularity is greater than that of the British Royal Family,” declares Miguel Angel Sastre, professor of corporate organization at the Universidad Complutense de Madrid. “Getting him onto the squad of Real Madrid is not just a case of betting on a sports plan. His arrival on a team so laden with stars is going to relaunch his image throughout the entire world. And his image generates more income than his performance in football stadiums.”
Beckham is captain of the British national team and, on two occasions, was judged the second best player in the world by FIFA (the international football association). But beyond his strengths as an athlete, Beckham is an authentic money-making machine, thanks to his [advertising] image. In fact, the arguments wielded by SFX Sports, Beckham’s agents, to get the Spanish team to succumb to his charms include a long list of his commercial successes. As Sastre explains, “During the last two years, revenues from his advertising campaigns have totaled 21 million euros.”
Among the brands that have used Beckham’s image are Adidas, Castrol, Vodafone, Marks & Spencer and Pepsi. According to a study by Sportsnet.com last May, Beckham is the most popular athlete in the world, beyond such stars as Michael Jordan, Tiger Woods and Ronaldo, his new teammate. Moreover, Beckham is the key that opens the door to the treasures of the Asian market, where he also holds the highest ranking.
The English player’s popularity translates into juicy advertising contracts that, moreover, immediately fill the coffers of his sponsors. According to Marca, the leading sports daily of Spain, British department store chain Marks & Spencer expanded its market share from 3% to 6% during the first six months of its contract with Beckham, which translated into a million pounds per week. During the three years when the blond star was the image of Police, sales tripled in Great Britain alone. Vodafone also saw how profitable it was to sign up Beckham; sales of the [cellular phone] company grew by 41% during the first six months of the year when he was its icon – the same growth numbers that candy company Meiji posted when it, too, showcased the English star.
“David Beckham is the best example of the new management model in football,” notes José María Gay, professor at the UniversityofBarcelona. “It is no longer enough to score goals; now you have to sell jerseys … In 1995, 50% of the income of football teams was generated from associates. Now, that represents barely 30% percent of revenues. The other 70% comes from advertising, merchandising, rights for televising and re-broadcasting the games … As a result, it is the players who are pulling the cart.”
Madrid’s Turn
When Florentino Pérez became president of Real Madrid three years ago, it was the first example of the new style that was going to pervade the ranks of the team from Madrid. His promise to sign up the Portuguese player Luis Figo – the best player in the world in 2001, according to FIFA, and winner of the Golden Ball in 2000 – won him a victory in the voting. Moreover, it seemed a tough blow for archrival FC Barcelona when Figo abandoned the Catalonian ranks for $61.7 million.
This move was only the first step in converting Madrid into a true showcase for the kings of football. The Frenchman Zinedine Zidane, winner of the Golden Ball in 1988 and the best player in the world in 1998 and 2000, according to FIFA, was the second move, which involved an expenditure of $75.1 million. Ronaldo, the Brazilian player, also joined Real Madrid during the past season. Despite any doubts created by Ronaldo’s damaged knee, Florentino Pérez bet on his recuperation and, above all, on his commercial drawing power; Pérez signed up Ronaldo for $45 million.
Contrary to what you would expect, the signing of Beckham wound up being cheaper, at $41.3 million, than the signings of his teammates. Moreover, Beckham gave up part of his advertising revenues to Real Madrid, instead of pocketing it all exclusively, as he had at Manchester. “Florentino Pérez makes it clear that Madrid must be a profitable team. In order to achieve that, he has focused all his efforts on marketing,” explains Santiago Alvarez de Mon, professor at IESE.
But this change of direction has not been scandal-free. There were rumblings behind the scenes when Jorge Valdano, sports director of Real Madrid, announced the signing of Beckham only a week before playing the decisive match that gave Madrid a victory in the Spanish football league. “It was an real error in communication,” notes Ignacio Urrutia, professor at the Instituto de Empresa. “They should have waited until the championship was over in order to avoid getting people upset. But there was so much anticipation, they had to announce the news, and Manchester is quoted on the stock exchange so they couldn’t wait until the news leaked out.”
The Madrid players, led by capital Fernando Hierro, made their discomfort clear through the communications media. Tensions worsened when the team refused to take a second turn around the playing field to celebrate their league championship with their fans. They even wound up threatening not to take part in the traditional official ceremonies with Madrid authorities. “You can’t tolerate that kind of attitude,” notes Alvarez de Mon. In his opinion, this behavior justifies the decision of the club not to renew [the contract with] Fernando Hierro or with its coach, Vicente del Bosque.
Madrid’s managing board made the news known on the day right after the team won the league championship on June 23. The official version is that the team needed new air. “In my view, the departure of del Bosque is the right decision, because he is not a coach capable of leading such stars,” says Alvarez de Mon. “If you look at things coldly, Madrid has not had a good season. It won the league [championship] on the last days, and only thanks to the fact that Real Sociedad (seeded second) made a blunder two weeks before. The previous season, it won the European Cup thanks to the fact that its goalkeeper, Iker Casillas, made some spectacular saves and Zidane was brilliant. But it wasn’t a job done by the entire team.”
Although Alvarez de Mon justifies the change that Real Madrid is undergoing by citing sports-related reasons, Florentino Pérez has been attacked on several fronts for letting himself be carried away by image-making. That was especially true in the case of Vicente del Bosque – a humble man who doesn’t take much to public appearances and doesn’t appear to fit into the profile of the new Real Madrid. “You could see this decision coming a year ago,” notes Gay. “On June 30, 2002, the club decided to amortize in one blow all the investments that it had in staff – which reached 330 million euros – when the normal thing was to do that over the life of the contract. This decision shows that Madrid was already planning to let go of those elements on the team who created conflicts behind the scenes.”
Gay has no doubts that behind these moves there was a clear marketing strategy which involved getting the bulk of Real Madrid’s revenues from advertising contracts. In fact, Siemens, is a sponsor of Real Madrid, is already rubbing its hands in anticipation of the impact that Beckham will have on its accounting results. During the past fiscal year, the first when Siemens sponsored the team, the German company’s share of the market in Spain grew from 17% to 24%, according to Sastre. The four years that Beckham has signed up for could be a great opportunity for [Siemens] to grow in the Asian and British market where the English player is an authentic idol of the masses. Siemens expects to realize the same benefits from the image of the player in those two markets that it realized in Brazil, where it reached a market share of 60%, thanks to the appeal of Ronaldo and Roberto Carlos, another one of the Spanish team’s most outstanding players.
Objective: Asia
Now, all the efforts of the team are directed toward the Orient, as José María Gay has emphasized. “In fact, Real Madrid has already planned a trip through Asia, which will begin in China and will also take it to Japan and Hong Kong.” Next August 2, the team will play the first match in its Asian adventure in Beijing. Three days later, it will travel to Tokyo from where it will depart to Hong Kong in order to play against a Chinese team. The last leg of this voyage will take place in Kuala Lumpur,Malaysia, on August 10.
With this tour, Madrid follows in the footsteps of Beckham’s former team, Manchester United. The British team, the greatest in the world, has taken in six million euros for each of the several promotional tours that it has made in the Far East. To this figure should be added revenues from selling its team uniforms, for which Real Madrid estimates sales of 144 million euros. Moreover, the team will take in three million euros for each match.
“From a sports point of view, the signing of David Beckham was not necessary. His contract relates more to marketing strategy and to the new management style that is being imposed on football clubs,” Gay explains. This view is shared by Alvarez de Mon who notes that “the teams have to search for profitability. Although some people criticize the new direction that Real Madrid is taking, it’s clear that, in order to maintain a similar line-up of stars, you need a lot of revenues. Advertising has been shown to be the best way of getting that.”
In fact, Madrid has to tackle the payrolls of many millionaires. Figo, as well as Zidane, Ronaldo, Raul – and now Beckham – have all signed for six million euros for a season of their respective contracts as well as for extras that vary with the results they achieve. In the case of Beckham, this figure could rise as high as ten million euros.
Sastre explains that “a management trend among teams is to make payments that vary according to how well players succeed in their sport, or by measuring their involvement in terms of the number of games they play. This allows management to transfer the economic risk to the players, and make the main component of its costs more flexible. For example, Barcelona announced at the beginning of the year a new salary policy for all its players that tries to establish a general payment of 30% that varies according to the number of games they play and the number of personal goals they achieved during each season.”
Nevertheless, some fans of the Madrid team are not taking kindly to the recent turn of events. The departure of Vicente del Bosque and Fernando Hierro – one of the team’s most charismatic players – has been interpreted as a lack of devotion to the team colors. “You still can’t predict how this decision will affect fans,” notes Alvarez de Mon. Nevertheless, he believes that everything is going to depend on what the team achieves on the playing field. “Fans have a very short memory. If Madrid has a good season next year, all of that will be forgotten. But if they don’t win any titles, the decision will return to haunt the team.”
Initially, there are reasons to think that the game can turn out badly for the Madrid team – first, because its squad is endowed with [so many] top stars and, second, because of the economic impact that the contract will have on this squad of stars who have ceded part of their advertising income to the club. “Let’s not forget that Madrid earns about 27 million euros a year from advertising concepts. Thus, in Beckham’s contract, Madrid is guaranteed 50% of the revenues from image royalties, [an arrangement it had] with Figo and Ronaldo. Those sources of income are very important; it’s not just about selling team jerseys,” notes Miguel Angel Sastre.
“The fact that Beckham would agree to sign this clause is an example of the player’s interest in being in Real Madrid,” notes Alvarez de Mon. In his opinion, the English player was moved more by prestige than by money. “To play for Real Madrid is very important for any football player, since it is considered the best team in history. Its image, moreover, is going to wind up being reinforced by this change.”
In the final analysis, the new model of football management seems to be a positive one for everyone – first, for the teams, which fatten their coffers with the advertising contracts of the players and their commercial drawing power, but also with the football players, who enrich their images by taking part in the most prestigious clubs. “It is clear that, as much marketing strategy as they have, in the end they must score goals. The clubs will never lose that sense of perspective because, when everything is said and done, fans are going to ask for results,” adds Alvarez de Mon.
In Manchester United’s Footsteps
Although it is Real Madrid that is capturing all the attention now, its strategy is not a new one. The first team to squeeze juice out of its image was Manchester United. Born 125 years ago, Manchester is one of the most important clubs in the world and, according to Business Week, it is the most popular one. With sales of $203 million and a profit of $50.3 million, barely one-third of its revenues (39%) come from ticket sales. The rest are derived from television contracts (36%), commercial agreements (18%) and merchandise royalties (7%). Moreover, the team can count on filling its stadium – the largest in England, with 67,700 seats – during every game.
Conscious that football is a perfect mix of spectacle and business, Manchester follows a strict financial policy that does not allow player contracts to exceed 50% of its revenues. Moreover, its presence on the stock exchange – it is one of the few football teams quoted in the stock market – requires Manchester to regularly show convincing financial results. This year, the club expects to take in $260 million, an increase of 28%, and to issue shares in the [stock] market in the United States.
With this objective in mind, the club is planning to take a tour of the country and play in Seattle, Los Angeles, Philadelphia and New York. But what is the English team trying to do with its American adventure in a country where football is only of interest to a minority of fans? On the one hand, Manchester wants to win the affections of the 28 million Americans who play football, and take advantage of the recent attraction that the sport has enjoyed thanks to the fact that the United States was the organizing country for the World Cup in 1994. In addition, the American team got to the semifinal round during the last world championships in 2002 in Korea.
Manchester also wants to convince investors on Wall Street of the profitability of investing in a company such as theirs, where customers and sales grow year after year. Sastre notes that “Manchester and Real Madrid are the teams that have the highest brand value – an intangible asset that keeps giving a better economic return. Many other teams can follow its model. Nevertheless, at the beginning of June, when [the] Milan [team] withdrew from the struggle [to recruit] Beckham, [Milan’s] president declared that he had better ways to spend his money – which was made with a great deal of sacrifice. He was not evaluating the recruitment [of Beckham] as the investment that it truly is but rather as an expense – which is paradoxical given who it came from. In this sort of investment, cash flow is derived from several sources of income, and all of them should be taken into account. In fact, when Joan Laporta, the new president of Barcelona – and another one of Beckham’s suitors – was negotiating a contract, he estimated that Beckham would generate between 61 and 99 million euros in four years.”
José María Gay believes that the British club’s model has been shown to be the most profitable in the world of football, and an example for the rest of its competitors to follow. “Now, Real Madrid is also playing to exploit its image through means of the attraction power of its great stars,” he notes.
Santiago Alvarez de Mon believes that this model is inevitably going to be imposed “because clubs are conscious of the fact that they cannot continue running up debt the way they have been, and they need to find new sources of income outside their partners.” He is a staunch follower of Real Madrid and he recognizes that “an economist’s view of a sport that is as passionate as football can seem a bit sad, since such aspects as loyalty to the team or the importance of reserve players lose their value. But it is clear that, if teams are going to be profitable, they cannot continue to manage themselves the way they have been until now, not if they want to be a great club studded with stars that have million-dollar contracts.”
Sastre adds that “entrepreneurial vision and professionalism will be imposed on the management of [football] clubs, and those that don’t do so will have serious problems.” Manchester has demonstrated that anything is possible given a correct strategy that combines marketing with scoring goals. Now, Madrid appears disposed to follow in its footsteps and thrash the competition. The first step has been taken, and he is called Beckham.
