"Real Madrid's transfer market spending spree will inflate prices and wages and sets a poor example in a sport struggling with debt mountains and dwindling revenue in the deepest global recession for six decades," writes Iain Rodgers of Reuters.
This week Real president Florentino Perez kicked of a wanton raid for the world's best players by signing Brazilian star Kaka for around $94.5 million. He has also targeted superstars Cristiano Ronaldo and Franck Ribery. The construction magnate plans to finance his self-styled "spectacular sporting project" by adding to the club's debts of more than half a billion euros. Perez' supporters declare that such spending will pay for itself by bringing in extra income. But Angel Barajas, a professor of finance and accounting at the University of Vigo, warns that such reckless spending will inflate the prices for other world superstars. Barajas also noted that a severe recession was not the right time to be spending huge amounts and committing to paying colossal wages over a number of years, particularly as it was becoming increasingly hard to boost earnings. "You have to bear in mind that soccer is close to maturity as a business and that implies that it is getting harder all the time to generate revenue," Barajas said.
Barcelona University professor Jose Maria Gay, who published a recent survey of the massive amounts of debt incurred by Spanish League teams, warned that Spanish soccer faced a real threat of financial collapse and urged the authorities to act to force clubs to stop living beyond their means. "Real's operating costs could outstrip its income and it risks slipping into a spiral of financial problems," Gay said. "The club has big earning power and is number one in the rich list but, be careful, because with the new signings they will not see any significant rise in income in their most important revenue streams."