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. Real president Florentino Perez kicked off his latest raid for the world's best soccer players with the signing this week of Brazilian Kaka for around 67 million euros ($94.5 million). He is targeting other leading players including 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 and the impact on Real's domestic and European competitors will be far-reaching,analysts said. Transfer prices and wages for the very best players will surge and the inflationary effect will ripple down through the market,according to Angel Barajas,a professor of finance and accounting at the University of Vigo and an expert on the economics of soccer. Perez,architect of the "galacticos" project during his first stint as Real president that snared David Beckham and Zinedine Zidane,says buying the biggest stars more than pays for itself by bringing in extra income. "You pay a lot for the players because they give it back with interest," Perez's director general Jorge Valdano said in a television interview on Wednesday. But Barajas 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. EXTREMELY RISKY "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. "It seems that pressure to win trophies is pushing (Real) to pursue such an extremely risky policy." A study published in April by Barcelona University professor Jose Maria Gay showed the combined debt of the 20 clubs in Spain's top soccer league swelled by more than 650 million euros to at least 3.5 billion in the year through June 2008. Gay warned that the Spanish soccer faced a real threat of financial collapse and urged the authorities to act to force clubs to stop living beyond their means. Gay said it was "inappropriate" for Real to be splashing out such huge sums when unemployment was rising,firms were finding it hard to negotiate favourable loans and the sense of economic deterioration was strong. The faith Perez was showing in the ability of star players to generate income was misplaced,Gay said. The club's debts could rise to around 900 million euros and Perez could be forced to seek revenue from one-off sources such as selling off real estate,as he resorted to in his previous term as president in 2000-2006,he added."Real's operating costs could outstrip its income and it risks slipping into a spiral of financial problems. "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." DYNAMIC MARKET Asked about Real's spending plans,Juan Carlos Santamaria Gonzalez,a spokesman for Spain's professional soccer league (LFP),noted that companies in all sectors of industry use debt as a means of managing their finances. "In this sense,it's important to assess the amount of debt alongside its capacity to generate returns and the strength of the activities it supports," he said. "It is to be assumed that the money Real Madrid and other clubs invest in players enables other clubs to make investments or cover other needs," he added. "It is always positive when any market shows itself to be dynamic." Gay said Real risked exposing themselves to a "kind of footballing bubble". "And we all know what happens to bubbles," he added.
