While the sporting crisis at Real Madrid with the poor results and performances that led to the sacking of Julen Lopetegui, has impacted in most areas of the club, commercially the brand is as strong as ever.
The 2017/18 budget, was given the go ahead by the club’s General Assembly with a budget of 751m euros, 11% more than the previous year.
The commercial area grew by 16% to 297m euros and the indications are that the income will grow to 305.24m euros this season. The sponsorship and licencing which are the main sources of income stand at 239.68m euros, an increase of 18.2%.
When Florentino Perez spoke in front of the fans about the historic period that the club is passing through both sporting and economic, before trying to push through 575m euros of spending on remodelling the Santiago Bernabeu, he had another agreement up his sleeve.
This was the renewal of the sponsorship deal with Adidas which is about to be signed and would mean 1,100m euros coming in over the next ten years.It would be a ground breaking deal in sports marketing in Europe, the contract of the century and make the shirt the most expensive in world sport.
With a guaranteed income each year of 110m euros and another variable part depending on merchandising that could see the figure rise to 150m euros, the club would double the 52m euros that they currently get from the German company.
To put this in perspecive, and compare it with Nike in the NBA, who kit out all the 21 teams for 1,000m dollars over eight years. In other words 125m dollars, or 110m euros a season for 21 teams which is the same that Adidas will pay for just Real Madrid.
Another of the 16 sponsors that the club has, Fly Emirates, closed a deal in September, 2017, for 70m euros a year and compares to the 55m euros that Rakuten pay Barcelona and Chevrolet gives to Manchester United.
The relationship between Adidas and Real Madrid goes back continuously to 1998 although they also wore the same sponsor’s shirts in 1981. In fact that was the first year that the team wore a shirt with a sponsor’s name and until 1986 Madrid wore Adidas before changing to Hummel (until 1994) and Kelme (1994 to 1998).
The club’s marketing department have been working for several years with Adidas to seal the deal and there have been big differences of opinion at times. Madrid felt that their current standing in the game was no longer reflected with the previous deal with contracts normally lasting for around ten years. The club’s strong position especially with the Champions League victories have gone in their favour.
A demonstration of the time that negotiations have been ongoing, is that in May of last year Der Spiegel in collaboration with Football Leaks revealed an agreement between Adidas and Real Madrid from January, 2016.
In that document the conditions were of a deal of 70m euros and a minimum of 30m euros more for merchandising, corresponding to 22.5% of the net sales of Real Madrid goods.
This detail is important as it refers to a question often spoken in the street: of the 100 euros for a shirt then the club retains 22.5%.
In this 140 page contract that includes everything and even relegation (in which case they would bring in 65m euros), they mark out the variables depending on titles. Winning the league meant a bonus of 2.5m euros from 2015 to 2019 and will go up to 3.5m euros from 2020 to 2024. Lifting the Champions League would see an extra 5m euros until 2019 and goes up to 7m euros from 2020.
Other brands like Nike and Under Armour have also approached Real Madrid looking to break Adidas’ foothole with the club but the German company were always going to to do what they could to keep them.
In recent times there have been changes like Arsenal moving from Puma to Adidas and there are rumours that Manchester City could change from Nike to Puma.
When this deal comes into effect then Real Madrid will takeover from Manchester United as the club which earns the most from sportswear companies as they take in 85m with Nike.
In May, 2016, Barcelona renewed with Nike for 105m euros over ten years and the possibility to rise to 155m but in reality it is 83m. Clubs often inflate the figures and Barcelona had a deal that would see them receive 30m euros extra as a bonus for the deal and take back the management of product licencing and exploitation that had been in the hands of Nike.