Tag: real madrid

More football structuring

I’ve commented earlier on innovative structuring of football player contracts, with call options and put options and all other exotic options being involved. Now I see another interesting transfer structure, this time in the contract of Juventus (and Spain) striker Alvaro Morata.

In 2014, Real Madrid sold Morata to Juventus for a transfer fee of €20 million, but the sale had a “buy back clause”. Embedded in the sale was an option for Real Madrid to buy back Morata at any time for €30 million, and now it seems like they’re exercising it!

While this might be based on Morata’s performances (both for Juventus and Spain) in the last couple of years, the interesting thing about the buyback is that Real Madrid are unlikely to keep hold of Morata. Instead, talk is that they plan to sell him on, with PSG and Manchester United being interested in the forward.

Effectively the deal is something like “as long as Morata’s perceived market value is  < €30M, Juventus can keep him, but once his perceived market value goes up, all the upside goes to Real Madrid”. The downside (in case Morata regressed as a player and his market value went below €20M), of course, remained with Juventus. To put it simply, Madrid is exercising its call option on the player.

While loan agreements have earlier had clauses such as “right but obligation to make deal permanent” or “obligation but not right to make deal permanent”, this is the first time I’m seeing an actual transfer deal with this kind of a clause, which is being exercised. So why did Juventus and Real Madrid hammer out such a complicated-looking structure?

For Juventus, the simple answer is that the option they wrote reduced the cost of buying the player. While they have given up on significant upside in writing this call option, this is what perhaps made the purchase possible for them, and in some ways, it’s worked out by giving them two more Scudetti.

The answer is less clear from Real Madrid’s perspective. Clearly, the fact that they got a call option meant that they believed there was a significant chance of Morata improving significantly. At the point of time of sale (2014), however, he was surplus to their requirements and they believed sending him elsewhere would help in this significant improvement.

It is possible that the market in 2014 wasn’t willing to bear the price implied by Real Madrid’s expectation of Morata’s improvement, but was only willing to pay based on his then abilities and form. In other words, while Morata’s current abilities were fairly valued, his future abilities were grossly undervalued.

And Madrid did the smart thing by unbundling the current and future values, by structuring a deal that included a call option!

Again, this is only my speculation of how it would have turned out, but it’s indeed fascinating. Given how global financial markets are performing nowadays, it seems like structuring of football deals is now far more interesting than structuring financial derivatives! But then the market is illiquid!

Watching the Clasico in a bar

No, this post doesn’t have to do with the current El Clasico between Real Madrid and FC Barcelona. When I’d watched the previous Clasico on March 22nd I’d formed a blog post in my head but I never got down to writing it (combination of travel and NED and enjoying my holiday) so I thought this is a good time to put it down.

On that occasion I was in Barcelona and briefly toyed with the idea of going to watch the game at the Camp Nou. That idea was quickly shelved given that tickets were going for about €500 each. Then there was hope that the game would be telecast on local TV (like the Barcelona-Ajax game I had watched at the Camp Nou was), but that wasn’t to be. The only option was to watch it at a pub.

While there were several bouts of NED due to which I had decided I won’t see that game, when Maxime, my wife’s flatmate, went out, I couldn’t help but join him. The first task was to find a suitable pub, especially given that it was a Sunday.

There is an interesting hierarchy of local businesses in Barcelona. Most Spanish-run supermarkets, for example, are closed on that day, though the Pakistani-run places (which are interestingly plentiful in the city) are open 24×7. A large number of Spanish-run bars are closed on Sundays, too, while the Chinese bars (again plentiful) are open all day.

Given that it was the Clasico and it was not broadcast on terrestrial television, there was no surprise that bars were full. Seating-only bars were thus out of question. And some of the standing-allowed places were choc-a-bloc. Finally it was this Chinese bar near the Entença station that Maxime and I went to.

The place was full, like most other bars in Barcelona that night, but there was some standing room with a view of one of the televisions. A sign at the entrance greeted us saying that each person was expected to order at least one beer for €2 (normal price for a beer in such a bar is €1,80). Estrella thus Dammed, it was time for the game.

I don’t remember much of that game, but the atmosphere in the bar was far from the kind I’d seen elsewhere. The crowd was partisan, of course, with anyone who wanted to support Real Madrid doing so silently (remember that this is a politically charged fixture, especially given renewed calls for Catalan secession). Loud cheers accompanied the Barcelona goals. The Madrid goal was met with silence, as you might expect (and people stepping out for a smoke). People stepping in and out created another problem – it was a rather cold spring evening, and every time the door opened it let in rather cold wind and disturbed the thermal balance of the bar!

There were a couple of other noteworthy sidelines on the evening. The first was how hard the bar staff worked. Expecting it to be a big night, they had pressed in extra staff, with possibly the entire family of the people who ran the bar involved. Children who looked as young as ten or twelve hurriedly ferried dishes from the kitchen to the tables (there were a few tables, which I’m assuming were pre-booked). Service was overall top notch, with our €2 beers arriving within two minutes despite the massive crowd at the bar. Considering that some bars were shut (given it was a Sunday), it was incredible how hard this one worked to make most of a good Barcelona night.

 

And then there were these guys at the slot machines. Like most other cheap bars in Europe, this one too had a couple of slot machines and they were all occupied, by people who couldn’t care less about what was going on around them, and whose only worry in life was to bet against the house. It could have been yet another night at the bar for them, except that the beer cost them twenty cents extra.

PS: I got distracted by the Manchester City – Liverpool game and hence took much longer to finish this post. I started writing it as soon as El Clasico started.