Examining Charitable Face of Real Madrid

Question: Discuss about the Examining Charitable Face of Real Madrid. Answer: From the provided case study, it has been observed that the rate of inflation needs to be taken into account for the revenues and expenses, which move in tandem with the CPI and personnel expenses. This has been agreed with the agreement of general wages (Andrs et al.). The inflation rate in Spain is 3%, while that in USA is 1.5%. In extreme situations, the government might tend to increase the supply of money for repaying its debt. However, this situation is unlikely to occur in Spain, as the nation has a strong economy. Since the revenue margin of Real Madrid has increased from 137,909 in 2000-01 to 236,001 in 2003-04, it is likely that Real Madrid has the ability to bear the rising rate of inflation in maintaining its club operations. Therefore, the strong fiscal and monetary policies of Spain would help Real Madrid to curb the negative effects of inflation. Rate of interest: Another uncertainty relating to financial budget is the interest rate, which is 2.5% per year in terms of EURIBOR. A rise in the interest rate would minimise the revenue margin of Real Madrid and vice-versa. Any appreciation in cross-border interest rate might decrease revenue and increase expenses for Real Madrid. Similarly, a fall in the cross-border interest rate would increase the revenue margin, as acquisition of foreign players could be made at a cheaper cost. In addition, the transfer fees to acquire players would be low, if the Euro value appreciates with respect to USD and vice-versa. However, the above-mentioned uncertainties could be minimised through hedging strategies and provisions. With the help of hedging, the adverse price movements of a security could be minimised (Baena). In addition, the club needs to create an amount of provision that could be used to sign star players, when the Euro currency falls in the global market. Rate of exchange: From the provided case study, it has been observed that the value of Euro is obtained as $1.18, 1.55 CHF and 0.68. This depicts that Real Madrid could acquire or sign players from the provinces of USA and other UEFA countries. However, Real Madrid might need to pay additional amount, if it decides to purchase players from the province of UK due to the weak Euro value with respect to pound. Therefore, separate provisions of funds by collecting amounts from the sponsors could help in minimising the negative impact of the exchange rate on Real Madrid. Real Madrid is a non-profit organisation and therefore, the revenue generation of the club varies based on the ticket sales and sponsorships. It has been identified from the case study that the club uses a balanced scorecard approach as the financial perspective. In order to ensure the interests of the shareholders, the club has optimised its costs by limiting the number of players. The profitability has been optimised through player investments, which has helped in maximisation of revenues (Barajas and Plcido). Since Real Madrid has been involved in cost optimisation, the monthly salary of the players might be reduced. In case, the salaries of the star players are reduced, it might result in loss of motivation level. The same applies for the sports staffs and the other associated members of the club as well. As a result, it might degrade the operational efficiency of the club and lower productivity level. In addition, the reduction in number of staffs could decrease the team competitiveness, as the existing members might fear of losing their jobs. Thus, from the competitive point of view, the cost optimisation strategy might have negative impact on the staff productivity of Real Madrid. In the words of Craven, accelerated depreciation system is used to minimise the costs through increased deductions taken during the beginning year of operation. However, its lower future deduction could pose serious complexities to Real Madrid. This is because it only boosts up the realisation of deductions; however, it does not provide greater tax deductions. Since Real Madrid has not put the transfer of the star players in the income statement line, it would have lesser alternatives to minimise its tax bracket and therefore, the net income could be minimised. Under the system of accelerated depreciation, an asset loses its book value at a quicker rate in contrast to the conventional straight-line method of depreciation. As a result, the value of long-term assets is reduced, which further minimises the overall asset value of the organisation. References: Andrs Ucendo, Jos Ignacio, and Ramn Lanza Garca. "Prices and real wages in seventeenth?century Madrid."The Economic History Review67.3 (2014): 607-626. Baena, Vernica. "Examining the charitable face of Real Madrid."Routledge Handbook of Sports Marketing(2015): 369. Barajas, ngel, and Plcido Rodrguez. "Spanish football in need of financial therapy: Cut expenses and inject capital."International Journal of Sport Finance9.1 (2014): 73. Craven, Richard. "Football and State aid: too important to fail?."The International Sports Law Journal14.3-4 (2014): 205-217.