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The Economics of Ronaldo

 4 min read / 

Long gone are the times when a football club’s president went out to buy the best players possible using their own money. Whether it was out of loyalty to a hometown club, or for prestige, the 90s in Italy were full of such presidents. Inter, the Italian club based in Milan, ran up silly expenses due to the obsession of its president Massimo Moratti to get the club back to winning ways. At that time nobody thought about revenues.

Calcio Today

Today things have changed: with the introduction of financial fair play, football clubs must pay much closer attention to their income, since it is necessary to at least reach the so-called break-even point, ie the condition for which costs do not exceed revenues. For this reason and for the fact that the revenues of Italian teams are much lower than the top European clubs, in recent years the Serie A, with the sole exception of the purchase of Gonzalo Higuain by Juventus, has not seen very expensive transfers.

But that may change now, as rumours abound that Christiano Ronaldo may be on his way to Turin and the Old Lady of Italian football. Reports put the possible transfer fee for Juventus as high as €150m, with the player’s salary costing the club €30m a year for four years. These are numbers never before seen in Italian football. Their effect on Juventus’ balance sheet is also staggering. If Ronaldo does join at a cost of €120m, the midpoint of the estimates being put about, and if he brings home €30m a year, that will have an impact of €90m on the bianconeri‘s balance sheet. This comes from a €3om a year amortisation over four years, as well as an estimated gross salary of €60m. That comes to about 17% of the revenues of the 2016-2017 season.

Ronaldo Could Make Sense

There are still some compelling arguments for the deal though. Economically, Ronaldo would bring a considerable increase in revenues. First, those deriving from merchandising, such as shirt sales, as already happened with the purchase of James Rodriguez by Real Madrid and Paul Pogba by Manchester United. Furthermore, it would strengthen the Juventus brand, which has declined outside Italy in the past decades and consequently leads to a rise in revenues from sponsorships. It could also lead to a greater presence for Juventus on social media. Ronaldo is one of the most followed sports stars in the world. He has 133m Instagram followers, 74m on Twitter and 123m on Facebook. Juventus currently only has a fraction of those numbers, with 10m Instagram followers, 6m Twitter ones, and only 32m on Facebook. The CR7 brand is powerful indeed.

Of course, there is also the footballing ability that Ronaldo brings. While the argument between his supporters and those of Lionel Messi continues about who is the best, Ronaldo can claim five Ballon D’Ors and five Champion’s League winner’s medals. The addition of Ronaldo could finally translate Juventus’ Italian dominance to the European stage, where they have failed to win the two most recent final appearances they have made in that marquee competition. The extra money they could have earned by winning those two games is relatively small.

Better to Lose?

In fact, for those two seasons, 14/15 when they were beaten by Barcelona and 16/17 when they lost out to the other Spanish giant, Real Madrid, Juventuse received a lot more money for their Champion’s League run than either of those two clubs. Barcelona got €61m compared to Juventus’s €89m, and in 16/17 Madrid got €81m, compared to €110m. This is due to the fact that UEFA distributes money based on market share of each team. Juventus, being the sole Italian team to make it deep into the competition received a much higher proportion of their market share than Real Madrid, Atletico Madrid or Barcelona who had to split the money between them. The two Spanish clubs got an extra €4.5m for winning the competition, but that was not enough to overcome the market disparities.

Still, there is a considerable risk. Ronaldo is 33, and despite his dedication will he still be worth €90m a year when he is 37? And Juventus have not had the best decision-making abilities when it comes to similar purchases in the past. It is difficult to say whether Juventus will be able to financially support the purchase of Cristiano Ronaldo, the only thing certain, however, is that the market believes it is possible and in fact has reacted very well to these rumors. The stock has increased by around 13% since 2 July.

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