With the information in the case, please prepare a draft for the 2004/2005 season

budget. Be aware that the figures in the case do not include the effect of the expected

galactico acquisition for the 2004/05 season. When preparing the budget consider

the following decisions:

a)

With respect to the policy of new player acquisition Real Madrid is

considering two options:

i.

Acquiring two megastars at an estimated cost of EUR 40 million each

transfer fees and an annual salary of EUR 10 million or

ii.

Acquiring four rising stars, young players with enormous potential at an

estimated cost of EUR 15 million each in transfer fees and an

annual salary of EUR 3 million.

In this decision please take into account the following

considerations:

(1)

The new players will most likely affect the sale of team jerseys.

New players' names will be popular in the sale of new jerseys.

1

However, some of these sales will come at the expense of

cannibalizing sales of existing players jerseys. The marketing

department has prepared the following estimation of royalty

income from team jerseys as a function of the players acquired

and the money invested in equipment advertising:

Team Jersey Royalties (EUR Millions)

Advertising

Royalties

Base

2 Megastars

4 Rising

Stars

0 %

40.0

46.0

41.4

2 %

41.3

48.6

42.6

4 %

42.3

50.6

43.5

6 %

43.1

52.3

44.3

8 %

43.6

53.3

44.7

(2)

The acquisition strategy will affect the sport potential of the

team. Most sport analysts believe the rising stars strategy will

have a more positive impact on the chances of advancing

further in the Champions League and winning the Spanish La

Liga. The immediate economic implications of sport

performance are the following:

(a)

Advancing one more round in the Champions League

increases Real Madrid's revenue by EUR 5 million

partly for additional ticket revenue and partly for

increased participation in the UEFA marketing pool.

Winning the Champions League only produces a EUR

3.5 million increase over qualifying for the semifinal (as

1

Names and numbers are added to the jerseys at the point of sale through a termo-printing process.

the final is played in a neutral stadium only increases

participation in the pool).

(b)

Advancing one more round in the Champions League

increases salary expenses by EUR 1 million and winning

the competition will trigger bonus payments to players

for EUR 14 million.

b)

On October 29, 2004 the Spanish newspaper El Mundo announced that an

online betting firm, Betandwin.com, had offered Barcelona C.F. EUR 15

Million a year for having its logo in the team jersey. Respected sport journalist

Josep Maria Casanovas wrote the same day in the Barcelona C.F. friendly

newspaper Sport that this was an opportunity that cannot be missed. Would

you recommend to Jose Angel Sanchez that he should explore the possibility

of signing a sponsorship contract with Betandwin.com?

c)

Real Madrid does not officially decide on the accelerated amortization until the

end of the fiscal year. However, you can hypothesize what would you

recommend for the 2004/2005 season. Would your recommendations depend

on the amount Real Madrid decided to invest in bringing new players to the

roster?

d)

Real Madrid would like to invest as much as possible in the construction of the

Ciudad del Real Madrid . The amounts being considered between EUR 50

and EUR 100 million.