Assignment Questions:
1. With the information in the case, please prepare a draft for the 2004/2005 season budget. Be aware that the figures in the case do not include the effect of the expected "galactico" acquisition for the 2004/2005 season. When preparing the budget, consider the following decisions:
a. For the policy of new player acquisition, Real Madrid is considering two options
MBAD 6213 Course Syllabus, Spring 202111
Acquiring two megastars at an estimated cost of €40 million each in transfer fees and an annual salary of €10 million, or
Acquiring four rising stars, young players with enormous potential at anestimated cost of €15 million each in transfer fees and an annual salary of €3 million.
In this decision, please take into account the following considerations:
1. The new player will most likely affect the sale of team jerseys. New players' names will be popular in the sale of new jerseys. However,
some of these sales will come at the expense of cannibalizing sales of existing players' jerseys. The marketing department has prepared the following estimation of net royalty income (after advertising expenses) from team jerseys as a function of the players acquired and the money invested in equipment advertising:
Team Jersey Royalties (€ Millions)Advertising/ 2 4 Rising
Royalties
Base Megastars Stars
40.0 46.0 41.4 40.5 47.6 41.7
40.5 49.2 41.6
40.1 49.0 41.1
2. The acquisition strategy will affect the sport potential of the team. Most sports analysts believe the rising starts strategy will have a more positive impact on the chances of advancing further the Champions League and winning the Spanish La Liga. The immediate economic implications of sports performance are the following:
Advancing one more round in the Champions League increases Real Madrid's revenue by €5 million partly foradditional ticket revenue and partly for increased participation in the UEFA marketing pool. Winning the Champions Leagueonly produces a €3.5 million increase over qualifying for thesemifinal (as the final is played in the neutral stadium only increases participation in the pool).
Advancing one more round in the Champions Leagueincreases salary expenses by €1 millionand winning the competition will trigger bonus payments to players for€14million
0%
2%
4%
6%
8%
40.6 48.6 41.8
b. On October 29, 2004, the Spanish newspaper El Mundo announced that an onlinebetting firm, Betandwin.com had offered Barcelona C.F. €15 million a year for having itslogo in the team jersey. Respected sports journalist Josep Maria Casanovas wrote the same day in the Barcelona C.F. friendly newspaper Sport that this was an opportunity that could not be missed. Would you recommend to Jose Angel Anchez that he should explore the possibility of signing a sponsorship contract with Betandwin.com?
c. Real Madrid does not officially decide on the accelerated amortization until the end of the fiscal year. Make a recommendation for the 2004/2005 season. Would your recommendation depend on the amount Real Madrid decided to invest in bringing new players to the roster?
d. Real Madrid would like to invest as much as possible in the construction of the "Ciudad del Real Madrid."The amounts being considered are between €50 and €100million.