Florentino Pérez’s re-election on Sunday as president of football club Real Madrid revives what sounds like one of the world’s least enticing investment opportunities. Pérez aims to sell 5 per cent of the world’s richest club, through a new subsidiary, subject to a referendum of its 100,000 or so owner-members, or socios.
His defeated
challenger Enrique Riquelme had attacked that plan as a “privatisation”, as
though Real Madrid is a public good as vital as, say, fresh water. But Pérez
explained to the FT last week that the investment would be more like a
sponsorship: “In other words, there are people who associate themselves with
Real Madrid without expecting anything.”
The 79-year-old, who
first took the presidency in 2000 when the club was under financial strain, is
a shrewd interpreter of what supporters want. Steven Mandis, an adviser to
football governing body Fifa and author of two books on Real Madrid, told the
Financial Times he has “never seen a management team so relentlessly focused”
on fan satisfaction.
But at a time when Real Madrid is suffering a rare trophy
drought, Pérez is playing a dangerous game at the place where emotion and cold
investment calculation overlap. This can be lucrative. At Real Madrid, the
injection of outside investment could underpin Pérez’s claim that the club is
worth $10bn, a figure he says could double under his renewed presidency.
That would demonstrate to loyal socios that by backing
expensive expansion plans, including the redevelopment of the club’s Bernabéu
stadium, they have enhanced their club’s value.
Fandom is a boon for organisations that can tap it
successfully. One study in the International Journal of Sport Finance looked at
German football club MSV Duisburg’s issue of unlisted “fan bonds”. The
researchers found supporters accepted lower coupons on their bonds than the
risk would normally justify. They were also slightly more likely to invest if
they thought the business outlook was poor. “The greater the number of
passionate fans among all fans, the higher the probability” of raising capital
from them, they concluded.
When passion turns to anger or resentment, however, things
can go badly wrong Finally, sports clubs’ financial success will never assuage
fans’ irritation if the team fails consistently on the field.
A few models mark a
clear division between fandom and financial returns. American football boasts
the Green Bay Packers, a publicly held non-profit organisation with supporters
that call themselves Cheeseheads. It offers “stock” that cannot be traded, pays
no dividend, and provides no possibility of capital appreciation. Mandis bought
one share, a “gift” to the Packers, even though he is a fan of arch-rivals the
Chicago Bears: “I personally just love the idea of fan-owned clubs, as opposed
to billionaire-owned clubs.”
Credit to Pérez for declaring upfront that billionaire
would-be “owners” will receive only “the satisfaction of having a relationship”
with Real Madrid. But if I were a socio, I would be afraid that seasoned
investors might see their symbolic stake as just the first step in a
longer-term plan. After all, most billionaires got to where they are today by
being able to bury their emotions in favour of making a return.
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