This growth highlights the effectiveness of the Real Madrid community’s values-centric approach in generating extraordinary loyalty and passion—with community members buying merchandise and global sponsors paying to get access to and association with the community members. As an example of how much the passion, loyalty, and community has increased exponentially, in 1997 Real Madrid had a contract with Adidas for ten years, which paid out in total €100 million ($111 million), of which €95 million ($105 million) was paid out in the last three years. The average number of jerseys sold per year was around 150,000, most of which were sold in Spain. The current Adidas contract with Real Madrid, which lasts until 2020, was estimated to produce income of around €70 million ($92 million) per year, with 3.7 million garments sold per year (1.3 million in Spain and 2.4 million in the rest of the world), of which the number of jerseys sold between 2007–12 was estimated at 1.4 million per year, according to Sports Intelligence Report. By contrast, Real Madrid reported that in 2015 the number of Real Madrid Adidas garments sold increased to over 5.1 million, of which 2.6 million were jerseys.

      The community values driving decisions at Real Madrid, as seen through growth in broadcasting revenue, are global. As the community expands, broadcasters are eager to deliver the games to this loyal, passionate, and very large community. International and friendly game revenues have grown as the community grows around the world and loyally supports the team when Real Madrid physically appears in their area. The awareness of brand and community values increases with the international exposure.

      In 2000, membership dues and ticketing represented 32 percent and broadcasting represented 33 percent, and were the two largest components of revenues with combined 65 percent. In the 2000–01 season, income due to ticket sales to the general public was €14 million ($13 million), which represented 10 percent of the total income (€138 million, $126 million). Total income generated by the stadium (general public tickets, club members’ season tickets, VIP seats and boxes, conferences, museum, and tours) was €42 million ($38 million, 30 percent of total income). By the 2013–14 season, income due to ticket sales to the general public represented only 5 percent of total income. As can be seen in the figure on the next page, in 2015, members and ticketing represented 26 percent of revenues. The largest revenue generator was marketing, which includes sponsorships, at 37 percent, which grew from 26 percent in 2000 as membership dues and ticketing combined with broadcasting now totaled 54 percent. In addition, international and friendly games now make up 9 percent of revenues.

       Figure 2.3: Operating Revenue Percentage Breakdown 1999–2000 and 2014–15

      The trend shows two very important and fast-growing segments: broadcasting and marketing rights. The growth of these areas illustrates that professional European soccer is a global entertainment business, in which Real Madrid has been a leader. Real Madrid executives—realizing that the club’s games and best players captivated live, global audiences—sold broadcasts from which they generated marketing activities, sponsorships, and licenses.

      Another key metric captures Real Madrid’s success: wages-to-turnover ratio—the salaries and wages paid for all employees divided by total business revenues. The lower the ratio (the lower the percentage of revenues going to pay salaries), the more financial flexibility a team has to make other investments. The maximum threshold recommended by the UEFA’s European Club Association is 70 percent.³⁸ After a transition period from 2000–01 to 2002–03, Real Madrid’s wages-to-turnover ratio has been below 50 percent, one of, if not the, lowest in European professional soccer.³⁹

       Figure 2.4: Real Madrid Wages-to-Turnover Ratio

      Because of Real Madrid’s community values-centric approach in its sustainable economic-sport model, the club generates so much revenue that despite paying among the highest players’ salaries in European soccer, those salaries are actually among the lowest when expressed as a percentage of revenues.

      Lastly, the financial results demonstrate a sustainable economic model. “Sustainable” means that the model funds itself and doesn’t constantly need equity injections or excessive borrowings to continue. In fiscal year 2015, which ended in June 2015, Real Madrid’s revenues were €578 million ($641 million). Their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), a simple proxy for cash flow, was €203 million ($221 million). Real Madrid has €96 million ($106 million) in net debt (total debt minus total cash). Net debt to EBITDA ratio is usually a very reliable indicator of the financial strength of a company. The net debt of €96 million divided by €203 million EBITDA equals 0.47. This is more favorable than the average balance sheets of the large companies in the S&P 500 (excluding financial institutions), which have an average ratio of 1.36.⁴⁰ Loan covenants for a typical corporate loan from a bank (“protections for the bank”) usually stipulate that the debt-to-EBITDA ratio can’t go above 4 or 5.

Table 2.2: Fiscal Year-End 2015 Real Madrid Financial Information

Moneyball vs. Organizational Culture

      Moneyball. Sabermetrics. Big Data. These new ideas have revolutionized and modernized strategic thinking and decision-making—not just in sports management but more generally in organizational management. Managers have now been trained that success depends on “new school” thinking that involves sophisticated statistical analysis. Organizations and sports teams now have entire departments staffed with data scientists and analysts. The MIT Sloan Sports Analytics Conference, held in March every year in Boston, is the largest student-run conference in the world, attracting students from over 170 different schools and representatives from over 80 sports teams. Data analysts and data analytics providers have come up with increasingly sophisticated ways of monitoring and capturing ever-growing volumes of data in the search for better performance. It has become conventional wisdom that computer-generated analysis helps those charged with evaluating and selecting talent or making other important decisions to avoid succumbing to the tricky, subtle biases or instincts that clutter human perception in order to lead the organization to extraordinary success.

      The 2011 film Moneyball (and the Michael Lewis book it was based on) did such a good job of highlighting the concept of data analytics that the word “moneyball” has become a catchall term for data analytics. In reality, moneyball strategies are only a subset of analytics, but regardless, the concept is so well established in public consciousness that no one would dare question the importance of data analytics in winning. Well, almost no one.

      In February 2015, eleven-time NBA All-Star Charles Barkley took issue with the conventional wisdom in an episode of TNT’s Inside the NBA. Barkley ranted about analytics, “Just because you got good stats doesn’t mean you got a good team . . . analytics is crap . . . all these guys who run these organizations who talk about analytics, they have one thing in common: they’re a bunch of guys who ain’t never played the game [and] they never got the girls in high school.” Known for speaking his mind, Barkley also authoritatively declared his opinion that winning in the NBA is about talent and coaching staffs: “What analytics did the Chicago Bulls have? [Referring to the six-time NBA champions Chicago Bulls

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