Trading players have become a profitable piece of business for soccer clubs globally especially in proven leagues in South American continents. It’s had become an essential practice to ensure cash flows remain healthy from the export of home bred talents which is abundant in soccer crazy countries like Argentina, Brazil and Uruguay. In the case of Boca Juniors, the club president is faced with an enviable position where there is an option to sell players at the peak of their game for a nice profit. Both players, Gago and Palacio are key players in the team with a string of accolades in their short stint there. Their performances have generated a lot of excitement and have caught the eyes of Europe’s largest clubs such as Barcelona, Real Madrid etc
In a business where the playing lives of soccer players are limited, it makes sense to trade them at their prime to the highest bidder. My recommendation to Macri is to offload the older Palacios to FC Barcelona while keeping the younger Gago and building on his experience (with more playing time, titles) and market value. While losing a key player may be disruptive, Macri can derive many benefits from the cash generated – to the tune of USD4m. (17.5% ownership) Among the tangible benefits;
1. The proceeds from the sale will help close the gap on the loss and perhaps push Boca to profitability in fiscal 2007. Also, among the immediate benefit is the decrease in wage bill – Boca had to increase Palacio’s salary significantly if he had stayed. This is an important consideration as Macri will be leaving Boca to run for mayor of the city of Buenos Aires, he will like to leave a lasting legacy and his decision may prove to be essential to the impression that he leaves the club in a good state with the necessary support structure he developed and a team that is capable to challenge for honours.
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2. Expand La Cantera – Boca Jrs has a good youth policy and are known to foster many of the world’s top players i.e. Tevez, Caniggia and Riquelme. The additional funds can be used to expand the existing facilities at the La Cantera Youth academy; expansion to cover branch academies in satellite cities or organize more coaching clinics across Argentina. 3. Staff additional scouts – casting the scouting net wider across all 18 cities in Argentina (incl Buenos Aires).
This is critical to feed the academy with talent and nurturing them to become exceptional players. The excess can be used to fund scouting headcount.
4. Enhance La Bombonera – additional funds to be used to build a hospitality wing or upgrade facilities to include more VIP boxes and preferred seating. Expanding the stadium seating may be considered but the costs may exceed the contribution from the player sale. (it has already been enlarged previously in 1996 to 57,000 seats).
Although not critical, the renovation could help generate more funds through ticketing or tours. 5. Investment fund track record – the sale will improve yield and performance of the fund. With the sale of Palacio, the private investors stand to earn up to 65% on the profits. This could amount to USD14.3m (65% of USD22m), the highest sale amount to be recorded by the fund. This could in turn be reinvested to purchase new players (outright purchase to replace the striker) to help compliment their efforts in churning new players through the youth academy.
Moreover, there are also intangible benefits to this arrangement; such a sale could be aligned with their heritage of promoting players to the first team through their youth system. It is a chance for new and younger players to breakthrough.
As for Gago, he can stay and build on his value; he is young and could spend another 2-3 years to build his credential (soccer players prime between 21-25 years old).
His value will continue to grow if Boca is successful on the field during this period. Besides, Real Madrid has shown admiration and made their intentions known – a transfer down the road seems inevitable (player himself indicating interest) but Boca could use this to their advantage by pitting Real Madrid up against other clubs in a bid to price him up from their initial offer of USD26m. Gago’s contract is also without encumbrance and his ownership structure is not as complicated as Palacio. All proceeds from future sale could be booked as 100% profit for Boca.
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All these benefit could be captured without much impact to revenues. I anticipate that ticket sales, television rights, membership fees or marketing revenues will continue to grow evidenced by the strong following it has in Argentina. Boca fans are known to be dedicated and loyal to club due to the steep heritage – being one of the most successful clubs in history of soccer – 22 Argentine League championships, 16 international titles including 5 Copa Libertadores and 3 Intercontinental Cups. The Intergenerational following and folksy origin (Xeneize) appeals to the working class and has an affinity of close to 40% of soccer fans in Argentina.
