Management Report & Financial Statements 2016-2017 Management Report & Financial Statements 2016-2017 CONTENTS Management Report & Financial Statements 2016-2017 Management Report for the year 04 ended June 30, 2017 Financial Statements for the year 22 ended June 30, 2017 Audit Report on the 130 Financial Statements Budget 138 2017/2018 Management Report For the year ended June 30, 2017. The Management Report for Real Madrid Club de Fútbol, including an analysis of its earnings performance in 2016-2017, is presented below. OPERATING BREAKDOWN OF OPERATING INCOME INCOME (before disposal of non-current assets) (before disposal of non-current assets) Operating income totaled to €675 million in Club membership fees and season tickets The Club enjoys a balanced revenue mix, with This diversified stream of recurring revenues 2016/17, up €54.5 million or 8.8% from the accounted for 7.4% of total revenue, down from the three largest lines (stadium, television and lends financial stability to the Club, cushioning year before, extending the growth trend that 8.1% the year before, with the share gradually marketing) each making up around a third of the impact of potential fluctuations in revenue has kept the Club among the world’s leading decreasing over the past several years (from the total. caused by varying performance on the revenue-earning sports entity in the past 12 9.8% in 2009). sporting front or by changes in the economic years. The Club has gradually reduced the weight of environment. In the 2000–2017 period, revenue grew at an television revenue (La Liga and Champions Operating income includes revenue from the average annual rate of 11%. League matches) and increased the weight of various business lines (stadium, international and other revenue sources. friendly matches, broadcasting, and marketing), Going forward, promoting the Club’s brand but excludes revenue from player transfers, which through investment in top players and is recognized in the income statement under international expansion are still the principle “Gains/(losses) on disposal of non-current assets”. ways in which the Club can remain competitive and maintain its status as a global benchmark in Stadium revenue (+8%) and, more importantly, football. marketing revenue (+21%) were the largest 6 contributors to growth in operating income in BREAKDOWN OF OPERATING 7 2016/17. INCOME (before disposal of non-current assets) EPORT R 2016-2017 2016/2017 OPERATING INCOME ANAGEMENT M REAL MADRID (before disposal of non-current assets) S ENT M 38% 24% € Million 1999/2000 750 700 675 T & FINANCIAL STATE 650 32% R 620 26% € 600 578 675 M 550 ENT REPO 550 521 M 514 € 500 480 118 M MANAGE 442 450 407 13% 400 351 366 9% 350 11% average annual growth292 300 276 250 236 193 33% 25% 200 152 138 150 118 100 50 0 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Members and Stadium Members and Stadium Int. & Friendly Matches Int. & Friendly Matches Broadcasting Broadcasting Marketing Marketing OPERATING PROFIT BEFORE PERSONNEL EXPENSES/OPERATING DEPRECIATION AND AMORTIZATION INCOME: EFFICIENCY RATIO (EBITDA) The efficiency ratio, calculated by dividing the League, La Liga, the FIFA Club World Cup and Operating profit before depreciation and Nevertheless, EBITDA after the disposal of Club’s total personnel expenses by operating the UEFA Super Cup). Stripping out this impact, amortization, or EBITDA before disposal of assets (player registrations), or simply EBITDA, income (before disposal of non-current assets), the ratio would have been around 53%. non-current assets, is the Club’s earnings from must be considered when assessing the cash is the most widely used indicator internationally operating activities after subtracting personnel flows from operating activities generated by to measure a football club’s operational Player salaries also increased in line with the and other operating expenses from the revenue the Club. Football clubs are subject to a limit efficiency. The lower the ratio, the more efficient overall market development and the staff obtained by the business lines. on player registrations. Therefore, before clubs the Club. revaluation caused by the sports successes can add new players, they must release other achieved in the last few years (three Champions EBITDA before disposal of assets totaled €86 players. As a result, player transfers among The Club’s efficiency ratio in 2016/17 was League titles in the last four years). million in 2016/17, down from €163 million the year football clubs is hardly an exception, but rather 60%. This level was due mainly to the payment before. This results an EBITDA before disposal of part of the Club’s standard practice so that it of performance bonuses arising from the Even despite its exceptional sports achievements, assets/operating income ratio of 13%. can renew staff, generating proceeds than can outstanding sports achievements, the Club’s Real Madrid’s efficiency ratio is well below the be used to self-finance part of the cost of new best ever, by the first division football team 70% maximum level recommended by the Profitability in the year reflects the impact additions. In 2016/17, gains on player transfers during the year, with four trophies (Champions European Club Association (ECA). of performance bonuses paid for sports amounted to €52 million (with average gains achievements, the increase in player salaries, in the last four years of €40 million), resulting and the trend in the Club’s operations. Sports in EBITDA of €138 million, compared to €163 successes underpin revenue growth in the million the year before. Excluding the impact of 8 medium but result in an imbalance in the short the trophies won, EBITDA in 2016/17 was €180 9 term, caused by the one-off effect of the bonuses, million. EPORT especially in a year like 2016/17 when the Club R 2016-2017 won four trophies. Excluding this impact, EBITDA The EBITDA performance in recent years is the before disposal of non-current assets would result of a financial management that pursues ANAGEMENT M REAL MADRID be around €130 million, with an EBITDA before profitability by combining efforts to boost S disposal of assets/operating income ratio of 20%. ENT revenue and rein in costs. M PERSONNEL EXPENSES/OPERATING INCOME T & FINANCIAL STATE R % OPERATING PROFIT BEFORE DEPRECIATION ENT REPO 100% M AND AMORTIZATION (EBITDA) 90% € Million 90% 86% MANAGE 220 80% 203 200 72% 180 70% 165 163 MAXIMUM LEVEL RECOMMENDED BY THE EUROPEAN CLUB ASSOCIATION 160 151 154 150 60% 146 60% 140 138 52% 52% 49% 50% 49% 120 50% 47% 48% 47% 104 105 105 46% 46% 45% 46% 100 43% 85 84 80 40% 73 60 30% 40 20 20% 5 0 -20 10% -19 -40 0% -60 -45 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 TAX BALANCE: CONTRIBUTION INCOME STATEMENT BY REAL MADRID TO TAX REVENUE KEY HIGHLIGHTS AND SOCIAL SECURITY Operating income in 2016/17 amounted to Finance costs in the year ended June 30, 2017 Real Madrid contributed €244.9 million directly At June 30, 2017, Real Madrid was current €675 million, up €54 million or 8.8% from the amounted to €3 million, €2 million less than to state and local taxes, and social security in on the payment of all its tax obligations, as year before. Stadium revenue (8%) and, more the year before. Finance income reached €2 2016/17. The breakdown by item is as follows: always. importantly, marketing revenue (21%) were the million, compared to €9 million in 2015/16, largest contributors to growth in revenue. which benefited from the refund of tax interest · €167.5 million of state and local taxes, and and one-off exchange gains. Accordingly, the social security contributions, equivalent to EBITDA before disposal of non-current assets net financial result was €5 million lower. 25% of the Club’s revenue; i.e. for every totaled €86 million, with gains on player transfers €100 earned, Real Madrid earmarked €25 of €52 million (2016: €0), resulting in EBITDA Profit before tax was €26 million, while net profit for payment of tax and social security of €138 million, compared to €163 million in was €21 million after deducting the income tax contributions. 2015/16. Excluding the impact of the trophies expense of €5 million. The income tax expense won, EBITDA in 2016/17 would have been €180 was calculated by applying a tax rate of 19% · €77.5 million in VAT paid to the tax authorities million. to accounting profit before tax, which is below (difference between output VAT charged to the nominal tax rate of 25% after applying customers and input VAT paid to suppliers), From the €138 million EBITDA, depreciation adjustments to taxable income and applicable arising from Real Madrid’s economic activity. and amortization expense, and interest expenses deductions in accordance with corporate 10 must be subtracted. income tax legislation in Spain. 11 Depreciation and amortization expense in The large profit obtained by the Club in 2016/17 EPORT 2016/17 was €110 million, marking a decrease was marked by the most outstanding sports R 2016-2017 of €14 million from the year before due to the achievements in Club history. extension of the remaining useful lives of player ANAGEMENT M REAL MADRID contracts and the final amount of amortization S charged last year for the repurchase of rights ENT M carried out in 2014/15.